SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant: Yes.
Filed by a Party other than the Registrant: No.
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
LILLY INDUSTRIES, INC.
(Name Of Registrant As Specified In Its Charter)
LILLY INDUSTRIES, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
(1) Title of each class of securities to which transaction
applies: N/A
(2) Aggregate number of securities to which transaction
applies: N/A
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing. N/A
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
February 27, 1998
Dear Shareholder:
On behalf of the Board of Directors and management, I cordially invite
you to attend the Annual Meeting of Shareholders of Lilly Industries, Inc. to be
held on Thursday, April 23, 1998 at 10:00 A.M., local time. The meeting will be
at the Indiana Convention Center & RCA Dome, Rooms 101 and 102, 100 South
Capitol Avenue, Indianapolis, Indiana.
This letter is accompanied by a notice of meeting and proxy statement
which describe the business to be acted upon. In addition to the business items,
there will be a report on the progress of the Company and an opportunity for
questions. The annual report for the year ended November 30, 1997 also
accompanies this letter.
It is important that your shares be represented at the meeting. Please
vote, sign, date, and promptly return the enclosed proxy in the envelope
provided.
Sincerely,
/s/ Douglas W. Huemme
Douglas W. Huemme
Chairman, President and
Chief Executive Officer
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 23, 1998
The Annual Meeting of Shareholders of Lilly Industries, Inc., an Indiana
corporation (the "Company"), will be held at the Indiana Convention Center & RCA
Dome, 100 South Capitol Avenue, Indianapolis, Indiana in Rooms 101 and 102 on
Thursday, April 23, 1998 at 10:00 A.M., local time, for the following purposes:
1. To elect ten directors.
2. To transact such other business as may properly come before the meeting.
The Board of Directors has established the close of business on February 17,
1998 as the record date for determining shareholders entitled to notice of and
to vote at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John C. Elbin
John C. Elbin. Secretary
February 27, 1998
YOUR VOTE IS IMPORTANT Even if you plan to attend the meeting, we urge
you to mark, sign and date the enclosed
proxy and return it promptly in the enclosed envelope.
<PAGE>
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of Lilly Industries,
Inc., an Indiana corporation (the "Company"), 733 South West Street,
Indianapolis, Indiana 46225, for use at the Annual Meeting of Shareholders to be
held on April 23, 1998 and at any adjournment thereof. This Proxy Statement and
the enclosed proxy were mailed on or about February 27, 1998.
All shares represented by the enclosed proxy will be voted at the meeting in
accordance with the instructions given by the shareholder. If no instruction is
given, the shares will be voted for the election of director nominees as listed
in this Proxy Statement. If any other business comes before the meeting, the
shares will be voted in favor of the action recommended by the Board of
Directors and in the absence of any recommendation, in accordance with the best
judgment of the proxy holders. A shareholder executing and delivering the
enclosed proxy may revoke it, by a written notice delivered to the Secretary of
the Company or in person at the meeting, at any time before it is exercised.
The Company will bear the cost of soliciting the proxies. In addition to being
solicited by mail, proxies may be solicited by personal interview, telephone and
telegram by directors, officers and employees of the Company. The Company
expects to reimburse brokers or other persons for their reasonable out-of-pocket
expenses in forwarding proxy material to the beneficial owners.
PROPOSAL NUMBER ONE
ELECTION OF DIRECTORS
Ten directors will be elected at the meeting. The holders of Class A Stock will
elect four directors and the holders of Class B Stock will elect six directors.
Each director will serve until the next annual meeting or until his successor is
elected and qualified. All of the nominees listed below are current directors
whose present terms of office will expire upon completion of the election at the
meeting. Unless authorization is withheld, the enclosed proxy will be voted in
favor of electing as directors the nominees listed below. If any nominee should
be unable to serve, the proxy will be voted for a substitute nominee selected by
the Board of Directors.
<PAGE>
Directors will be elected by a plurality of the votes cast for nominees by the
holders of Class A Stock and Class B Stock at the Annual Meeting of Shareholders
at which a quorum is present. "Plurality" means that the director nominees who
receive the largest number of votes cast are elected as directors up to the
maximum number of directors to be chosen at the meeting. Abstentions and broker
non-votes will have the same effect as votes against a proposal.
James M. Cornelius, John D. Peterson, Thomas E. Reilly, Jr. and Van P. Smith are
nominees for election as directors by holders of the Class A Stock; and William
C. Dorris, Paul K. Gaston, Douglas W. Huemme, Harry Morrison, Ph.D., Norma J.
Oman and Robert A. Taylor are nominees for election as directors by holders of
the Class B Stock.
<PAGE>
The name, principal occupation and certain other information concerning
each nominee for election as a director are set forth below.
Name and Principal Occupation Certain Other Information
JAMES M. CORNELIUS Mr. Cornelius, 54, has been a director
Chairman of the Board of of the Company since 1996. He has been
Directors, Chairman of the Board of Directors of
Guidant Corporation Guidant Corporation since 1994. He was
Vice President of Finance and Chief
Financial Officer of Eli Lilly and
Company from prior to 1993 to 1995. He
is also a director of Guidant
Corporation, American United Life
Insurance Company and the National Bank
of Indianapolis.
WILLIAM C. DORRIS
Vice President, Mr. Dorris, 54, has been a director of
Corporate Development, the Company since 1989. He has been Vice
Lilly Industries, Inc. President, Corporate Development of the
Company since 1994. He was General
Manager of the Company's High Point
Division from prior to 1993 to 1994, of
the Company's Templeton Division from
prior to 1993 to 1994 and of the
Company's Dallas Division from 1993 to
1994.
PAUL K. GASTON
Retired Chairman of Mr. Gaston, 64, has been a director of
Guardsman Products, Inc. the Company since 1996. He has been a
and Partner of Warner, consultant to the Company since 1996. He
Norcross and Judd LLP was Chairman of Guardsman Products, Inc.
from 1994 to 1996. He was a partner of
Warner, Norcross and Judd LLP,
attorneys, from prior to 1993 to 1993.
DOUGLAS W. HUEMME
Chairman, President and Mr. Huemme, 56, has been a director of
Chief Executive Officer, the Company since 1990. Mr. Huemme has
Lilly Industries, Inc. been Chairman, President and Chief
Executive Officer of the Company since
prior to 1993. He is also a director of
First Indiana Corporation and The
Somerset Group, Inc.
HARRY MORRISON, Ph.D.
Dean of the School Dr. Morrison, 60, has been a director of
of Science, the Company since 1995. He has been Dean
Purdue University of the School of Science of Purdue
University since prior to 1993. He was a
chemical consultant for: Great Lakes
Chemical Corporation (1991 to 1993) and
American Cyanamid (1993).
<PAGE>
Name and Principal Occupation Certain Other Information
NORMA J. OMAN
President and Chief Mrs. Oman, 50, has been a director of
Executive Officer, the Company since 1997. She has been
Meridian Mutual Insurance President and Chief Executive Officer of
Company and Meridian Meridian Mutual Insurance Company and
Insurance Group, Inc. Meridian Insurance Group, Inc. since
prior to 1993. She is also a director of
Meridian Mutual Insurance Company,
Meridian Insurance Group, Inc. and Bank
One, Indianapolis.
JOHN D. PETERSON
Chairman, Mr. Peterson, 64, has been a director of
City Securities Corporation the Company since 1964. He has been
Chairman of City Securities Corporation,
securities dealer, since prior to 1993.
He is also a director of Duke Realty
Investments, Inc.
THOMAS E. REILLY, JR.
Chairman and Chief Mr. Reilly, 58, has been a director of
Executive Officer, the Company since 1981. He has been
Reilly Industries, Inc. Chairman and Chief Executive Officer of
Reilly Industries, Inc., diversified
chemical manufacturing firm, since prior
to 1993. He is also a director of First
Chicago NBD Corporation and Herff Jones,
Inc.
VAN P. SMITH
Chairman, Mr. Smith, 69, has been a director of
Ontario Corporation the Company since 1985. He has been
Chairman of Ontario Corporation, Muncie,
Indiana, a manufacturing and service
company providing a variety of products
and services to the semiconductor,
testing laboratory and computer software
industries, since prior to 1993. He is
also a director of CINergy Corporation,
PSI Energy, Inc., Meridian Mutual
Insurance Company and Meridian Insurance
Group, Inc.
ROBERT A. TAYLOR
Executive Vice President Mr. Taylor, 44, has been a director of
and Chief Operating Officer, the Company since 1997. He has been
Lilly Industries, Inc. Executive Vice President and Chief
Operating Officer of the Company since
1997. He was Vice President and General
Manager, Wood Coatings of the Company
from 1994 to 1997. He was Vice
President, Specialty and Container
Coatings of AKZO Coatings, Inc. from
prior to 1993 to 1994.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ELECTION OF EACH OF
THE NOMINEES FOR DIRECTOR. YOUR VOTE IS IMPORTANT.
<PAGE>
Committees of the Board of Directors and Compensation of Directors
Among other committees, the Board of Directors of the Company has a Compensation
Committee, a Policy and Nominating Committee, an Audit Committee and a
Technology Committee.
The Compensation Committee, which held two meetings during the Company's fiscal
year ended November 30, 1997, formulates and presents to the Board of Directors
for its consideration recommendations as to the Chairman's compensation,
determines the aggregate amount to be paid as employee bonuses by the Company
and its subsidiaries, and determines the aggregate and individual base salaries
and bonuses to be paid to officers of the Company. Van P. Smith (Chairman),
James M. Cornelius, Paul K. Gaston, and Norma J. Oman are the current members of
the Compensation Committee.
The Policy and Nominating Committee, which held no meetings during the Company's
fiscal year ended November 30, 1997, determines various policies, and identifies
and presents candidates as potential members of the Company's Board of
Directors. Thomas E. Reilly, Jr. (Chairman), Harry Morrison, Ph.D., John D.
Peterson, and Van P. Smith are the current members of the Policy and Nominating
Committee.
The Audit Committee, which held three meetings during the Company's fiscal year
ended November 30, 1997, is responsible for recommending to the Board the
independent auditors, for reviewing the scope and the results of the audits made
by the independent auditors, for overseeing the adequacy of internal controls,
and for reviewing and approving fees paid to the independent auditors. James M.
Cornelius (Chairman), Norma J. Oman, John D. Peterson, and Thomas E. Reilly, Jr.
are the current members of the Audit Committee.
The Technology Committee, which held two meetings during the Company's fiscal
year ended November 30, 1997, reviews and evaluates existing and potential
technologies of the Company. Harry Morrison, Ph.D. (Chairman), William C.
Dorris, Paul K. Gaston, and Thomas E. Reilly, Jr. are the current members of the
Technology Committee.
The Board of Directors held five meetings during the Company's fiscal year ended
November 30, 1997. During the fiscal year, each director attended at least 75%
of the total number of meetings of the Board of Directors and of all committees
on which the director served except that Mrs. Oman attended 60% of the total
number of such meetings which were held since she was elected to the Board in
April, 1997.
Directors who are also employees of the Company receive no director fees.
Non-employee directors received for the fiscal year ended November 30, 1997 an
annual retainer of $12,000 (except for the chairmen of the Audit Committee,
Policy and Nominating Committee, Technology Committee, and Compensation
Committee who each received an additional annual retainer of $1,000) and $1,000
for each meeting of the Board or Board committee attended.
The Lilly Industries, Inc. 1991 Director Stock Option Plan (the "Directors
Plan") provides for the granting of non-qualified options for up to a maximum of
23,625 shares of Class A Stock per calendar year and provides automatically for
the grant of options for 2,363 shares of Class A Stock to each non-employee
director on the date of each annual meeting of the shareholders, beginning with
the 1992 Annual Meeting. The Directors Plan is intended to be substantially
self-administering.
The Company has reserved 236,250 shares of Class A Stock for issuance upon
exercise of options to be granted under the Directors Plan. As of February 17,
1998 there were options for an aggregate of 61,043 shares of Class A Stock
outstanding.
Options for 14,178 shares, at an exercise price of $8.68 per share, were granted
in 1992. Options for 14,178 shares, at an exercise price of $10.83 per share,
were granted in 1993. Options for 14,178 shares, at an exercise price of $17.17
per share, were granted in 1994. Options for 16,541 shares, at an exercise price
of $14.06 per share, were granted in 1995. Options for 16,541 shares, at an
exercise price of $14.69 per share, and options for 1,968 shares, at an exercise
price of $15.13 per share, were granted in 1996. Options for 16,541 shares, at
an exercise price of $16.94 per share, were granted in 1997. Options granted
under the Directors Plan will generally become exercisable on the first
anniversary of the date upon which they were granted. Each option terminates
five years after its grant date.
Options for 7,089 shares under the Directors Plan were exercised in fiscal year
1997 at prices per share ranging from $8.68 to $17.17.
<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table lists, as of February 17, 1998 (unless otherwise noted), the
beneficial ownership of shares of Class A Stock and Class B Stock for each
current director, each nominee for director, each executive officer named in the
Summary Compensation Table, all current directors and executive officers as a
group, and each shareholder known by the Company to be the owner of more than
five percent of the outstanding shares of Class A Stock or Class B Stock. Unless
otherwise indicated each shareholder has sole investment and voting power with
respect to the shares indicated.
<PAGE>
<TABLE>
<CAPTION>
Class A Stock Class B Stock
----------------------------- ------------------------------
Shares Shares
Beneficially Percent Beneficially Percent
Name of Beneficial Owner Owned of Class Owned Of Class
- ------------------------------------ --------------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
James M. Cornelius 14,363 (1) * 0 *
William C. Dorris 24,682 (2) * 26,377 6.2%
Paul K. Gaston 11,968 (3) * 0 *
Douglas W. Huemme 209,812 (4) * 42,000 9.9%
Harry Morrison, Ph.D 4,726 (5) * 0 *
Norma J. Oman 0 * 0 *
John D. Peterson 165,634 (6) * 0 *
Thomas E. Reilly, Jr 41,680 (7) * 0 *
Van P. Smith 15,831 (8) * 0 *
Robert A. Taylor 11,782 (9) * 10,391 2.5%
John C. Elbin 1,397 * 4,103 1.0%
Larry H. Dalton 19,983 (10) * 32,989 7.8%
All current directors 503,075 (11) 2.2% 138,759 (12) 32.8%
and executive officers
as a group (14 persons)
Royce & Associates, Inc. 1,416,142 (13) 6.2% 0 *
1414 Avenue of the Americas
New York, NY 10019
Wanger Asset Management,L.P 1,493,600 (13) 6.6% 0 *
227 W. Monroe St., Suite 3000
Chicago, IL 60606
Ned L. Fox 27,894 (14) * 32,283 7.6%
Bill D. Hawkins 18,630 (15) * 22,775 5.4%
Gary D. Missildine 18,828 (16) * 36,498 8.6%
- ---------------------------------
</TABLE>
* Represents less than one percent of class of outstanding shares.
(1) Includes 2,363 shares of Class A Stock which Mr. Cornelius has the right to
acquire pursuant to currently exercisable stock options.
(2) Does not include 842 shares of Class A Stock which Mr. Dorris' wife holds
as custodian for their minor child. Mr. Dorris disclaims beneficial
ownership of those 842 shares. Includes 15,833 shares of Class A Stock
which Mr. Dorris has the right to acquire pursuant to currently exercisable
stock options.
(3) Includes 1,968 shares of Class A Stock which Mr. Gaston has the right to
acquire pursuant to currently exercisable stock options.
(4) Includes 136,250 shares of Class A Stock which Mr. Huemme has the right to
acquire pursuant to currently exercisable stock options.
(5) Includes 4,726 shares of Class A Stock which Dr. Morrison has the right to
acquire pursuant to currently exercisable stock options.
(6) Includes 54,018 shares held in an investment account at City Securities
Corporation. Mr. Peterson owns more than 10% of the equity of City
Securities Corporation. Does not include 34,548 shares of Class A Stock
owned of record and beneficially by Mr. Peterson's wife. Mr. Peterson
disclaims beneficial ownership of those 34,548 shares. Includes 14,449
shares of Class A Stock owned beneficially by Mr. Peterson as trustee of a
GST Investment Share Trust for benefit of Mr. Peterson and 34,298 shares of
Class A Stock owned beneficially by Mr. Peterson as trustee of two GST
Investment Share Trusts for benefit of Mr. Peterson's two sisters. Includes
7,089 shares of Class A Stock which Mr. Peterson has the right to acquire
pursuant to currently exercisable stock options.
(7) Does not include 5,157 shares of Class A Stock which Mr. Reilly's wife
holds as custodian for one of their children. Mr. Reilly disclaims
beneficial ownership of those 5,157 shares. Includes 7,089 shares of Class
A Stock which Mr. Reilly has the right to acquire pursuant to currently
exercisable stock options.
(8) Includes 7,089 shares of Class A Stock which Mr. Smith has the right to
acquire pursuant to currently exercisable stock options.
(9) Includes 7,333 shares of Class A Stock which Mr. Taylor has the right to
acquire pursuant to currently exercisable stock options.
(10) Includes 12,500 shares of Class A Stock which Mr. Dalton has the right to
acquire pursuant to currently exercisable stock options.
(11) Includes 207,740 shares of Class A Stock which all current directors and
executive officers as a group have the right to acquire pursuant to
currently exercisable stock options.
(12) No shares of Class B Stock are beneficially owned by non-employee
directors.
(13) Based on SEC Schedule 13G as of December 31, 1997.
(14) Includes 10,833 shares of Class A Stock which Mr. Fox has the right to
acquire pursuant to currently exercisable stock options.
(15) Includes 1,833 shares of Class A Stock which Mr. Hawkins has the right to
acquire pursuant to currently exercisable stock options.
(16) Includes 13,333 shares of Class A Stock which Mr. Missildine has the right
to acquire pursuant to currently exercisable stock options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has a consulting agreement with Paul K. Gaston, a director
of the company and member of the Compensation Committee. Mr. Gaston is the
retired chairman of Guardsman Products, Inc. and the agreement is a continuation
of the consulting arrangement which Mr. Gaston had with Guardsman. The
agreement, which expires on December 31, 1998, requires Mr. Gaston to render
consulting and advisory services to the Company and prohibits him from competing
with the Company during the term of the agreement and for three years
thereafter. The agreement provides for current cash compensation for Mr. Gaston
in the amount of $100,000 per calendar year and deferred compensation in the
amount of $80,000 per calendar year plus interest. Upon the expiration of the
agreement, the deferred portion of the compensation will be paid to Mr. Gaston
in monthly installments over a period of not less than 36 months nor more than
60 months.
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview and Philosophy
The Compensation Committee of the Board of Directors of the Company is composed
entirely of non-employee directors. The Committee formulates and presents to the
Board of Directors recommendations as to the Chairman's compensation and base
salaries for all officers of the Company, the aggregate amount to be paid as
employee bonuses by the Company and the aggregate and individual bonuses to be
paid to officers of the Company. The Compensation Committee also serves as the
Stock Option Committee for the Company's 1992 Stock Option Plan. The following
report of the Compensation Committee discusses the application of the
Compensation Committee's policies to the annual and long-term compensation of
the Company's executive officers for fiscal 1997.
The objective of the Company's executive compensation program is to enhance the
Company's long-term profitability by providing compensation that will attract
and retain superior talent, reward performance and align the interests of the
executive officers with the long-term interests of the shareholders of the
Company.
Executive Officers' Compensation
For fiscal 1997 compensation for the Company's executive officers consisted of
base salary, annual cash bonuses, stock options, supplemental executive
retirement plans, and various broad based employee benefits, including pension
plans and contributions under employee stock purchase and 401(k) plans.
Base salary levels for the Company's executive officers are competitively set
relative to companies in peer businesses. In determining salaries, the Committee
also takes into account individual experience and performance.
The Company's annual bonus plan is intended to provide a direct cash incentive
to executive officers and other key employees to maximize the Company's
profitability. At the beginning of each fiscal year, financial performance
objectives are targeted for the Company and individual business units which
become the basis for determining annual bonuses. If the Company and/or business
units achieve their target performance, then participants receive an established
target bonus. The amount of bonus will increase or decrease by specified
percentage within an established range based upon actual performance compared to
target performance. In the case of the Chief Executive Officer the performance
factor most heavily weighted in determining the bonus is earnings per share. The
bonuses for 1997 were determined in December, 1997 based upon fiscal year-end
financial results.
Stock Options
Through its stock option program, the Company seeks to enable its executive
officers and other key employees to develop and maintain a long-term ownership
position in the Company's common stock, thereby creating a direct and strong
link between executive pay and shareholder return. The Committee considers stock
options to be an important portion of compensation tied to performance and a
strong incentive for increasing shareholder value over the long term. In
granting stock options, the Stock Option Committee took into account the number
of options granted in prior years, the practices of other peer companies,
reviewed surveys, and considered the executives' level of compensation and past
contributions to the Company. On January 10, 1997, April 24, 1997 and September
26, 1997 the Stock Option Committee granted the incentive stock options
reflected in the tables that follow.
Compensation Committee and
Stock Option Committee
Van P. Smith, Chairman
James M. Cornelius
Paul K. Gaston
Norma J. Oman
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Shown below is information concerning the annual and long-term compensation for
services to the Company performed during the fiscal years indicated of those
persons who were at November 30, 1997 the chief executive officer and the other
four most highly compensated executive officers.
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
---------------------------------------- Compensation:
Other Shares Underlying
Fiscal Annual Stock Options All Other
Name and Principal Position Year Salary Bonus Compensation Granted Compensation (1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Douglas W. Huemme 1997 $450,000 $425,000 $337,810 (2) 0 $116,358
Chairman, President and 1996 $375,000 $400,000 0 15,000 $115,322
Chief Executive Officer 1995 372,083 280,000 0 0 90,549
Robert A. Taylor 1997 (3) 200,000 175,000 17,137 (4) 10,000 24,806
Executive Vice President
and Chief Operating Officer
John C. Elbin 1997 (5) 147,115 65,000 124,673 (4) 10,000 8,872
Vice President and
Chief Financial Officer,
Secretary
William C. Dorris 1997 165,000 130,000 0 0 24,562
Vice President, Corporate 1996 156,923 200,000 0 15,000 17,115
Development 1995 144,167 85,000 0 5,000 10,185
Larry H. Dalton 1997 150,000 115,000 0 0 21,776
Vice President, Operations 1996 142,788 170,000 0 15,000 15,967
and Manufacturing 1995 120,000 85,000 0 4,500 11,146
</TABLE>
(1) All Other Compensation is comprised of matching Company contributions on
behalf of the employees to the Employees Stock Purchase Plan, the 40l(k)
Plan, the 401(k) Replacement Plan, and a portion of Company payments for
group term life insurance premiums. These four types of All Other
Compensation for fiscal year 1997 are respectively detailed by employee as
follows: Douglas W. Huemme--$2,000, $9,600, $41,400 and $1,800; Robert A.
Taylor--$2,000, $9,600, $12,900 and $306; John C. Elbin--$846, $7,788, $0
and $238; William C. Dorris--$2,000, $9,600, $12,300 and $662; and Larry H.
Dalton--$2,000, $9,600, $9,600 and $576. Additionally, for Mr. Huemme only,
All Other Compensation also includes $61,558 of split-dollar life insurance
benefits.
(2) Other Annual Compensation for Mr. Huemme represents reimbursement for
income taxes resulting from exercise of non-qualified stock options in an
amount equal to the Company's federal tax benefit.
(3) Mr. Taylor was appointed as an executive officer in 1997.
(4) Other Annual Compensation for Mr. Taylor and Mr. Elbin represents
reimbursement for income taxes related to their relocations.
(5) Mr. Elbin was appointed as an executive officer when he joined the Company
in April, 1997.
STOCK OPTION GRANTS
The following table provides details regarding stock options granted to the
named executive officers in fiscal 1997. In addition there are shown the
hypothetical gains or "option spreads" that would exist for the respective
options. These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term. These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises and common stock holdings are
dependent on the future performance of the Company's common stock and the
overall stock market conditions.
There can be no assurance that the amounts reflected on this table will be
achieved.
<PAGE>
FISCAL 1997 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
Potential
Percent of Realizable Value
Number Total Options Assuming Annual
of Shares Granted to Rates of Stock
Underlying Employees Exercise Price Appreciation
Options in Fiscal Price Per Expiration for Option Term
Name Granted (1) 1997 Share Date 5% 10%
- ---------------- ----------- --------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Huemme 10,000 15.5% $18.63 01/10/02 $51,471 $113,738
John C. Elbin 10,000 15.5% 16.94 04/24/02 46,802 103,420
</TABLE>
(1) Stock options granted to the named executive officers during fiscal 1997
were qualified options. For options granted to Robert A. Taylor one-third
of these options become exercisable on each of January 10, 1999, 2000 and
2001. For options granted to John C. Elbin one-third of these options
become exercisable on each of April 24, 1999, 2000 and 2001. The purchase
price of shares subject to these options may be paid in cash or by
exchanging shares at fair market value.
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table shows stock option exercises by named executive officers
during fiscal 1997, including the aggregate value realized by such officers on
the date of exercise. In addition, this table includes the number of shares
covered by both exercisable and non-exercisable stock options as of November 30,
1997. Also reported are the values for "in-the-money" options (options whose
exercise price is lower than the market value of the shares at fiscal year end)
which represent the spread between the exercise price of any such existing stock
options and the fiscal year-end market price of the stock.
1997 STOCK OPTION EXERCISES,
OUTSTANDING GRANTS AND VALUE AS OF NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Number of
shares Underlying Value of
Unexercised Unexercised
Value Options at In-the-Money
Realized 11/30/97 Options at
Shares at Unexer- 11/30/97 (3)
Acquired on Exercise Exer- cisable Exer- Unexer-
Name Exercise Date (1) cisable (2) cisable cisable (2)
- ---------------- ---------- -------- -------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Huemme 106,314 $1,434,176 136,250 40,000 $ 810,263 $ 242,100
Robert A. Taylor 4,000 31,855 7,333 20,667 31,533 50,936
John C. Elbin 0 0 0 10,000 0 14,400
William C. Dorris 23,625 278,775 15,833 11,667 88,827 67,268
Larry H. Dalton 11,625 133,593 15,500 11,500 87,015 66,360
</TABLE>
(1) Aggregate market value of shares acquired less the aggregate price paid by
executive.
(2) The shares represented could not be acquired by the respective executive as
of November 30, 1997.
(3) Amount reflecting gains on outstanding options are based on the November
30, 1997 closing NYSE stock price which was $18.38 per share.
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The line graph below compares annual changes in cumulative total return
to shareholders on the Company's Common Stock against the cumulative total
return as measured by the Standard & Poor's 500 Composite Index, the Standard &
Poor's Chemical Composite Index and the Russell 2000 Index. The Russell 2000
Index is shown for the first time. It is considered to be a more appropriate
benchmark of overall market performance than the S&P 500 because it includes
companies with market capitalizations similar to Lilly Industries, Inc. The
comparisons are for a period of five fiscal years ended November 30, 1997.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
[GRAPH OMITTED]
Dollar Value November 30 1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------
Lilly Common $100 $157 $142 $143 $208 $210
S&P 500 $100 $107 $105 $140 $176 $221
S&P Chemical $100 $107 $118 $151 $205 $239
Russell 2000 $100 $117 $114 $144 $166 $201
* Assumes $100 was invested on November 30, 1992 in Lilly Industries, Inc.
Common Stock and each index. Also, assumes reinvestment of all dividends.
<PAGE>
PENSION PLANS
Retirement benefits are provided by the Company and its subsidiaries under
non-contributory defined benefit pension plans, all of which are qualified under
Section 401 of the Internal Revenue Code("Code"). Effective December 1, 1994,
the defined benefit pension plan in which executive officers (including D. W.
Huemme, R. A. Taylor, W. C. Dorris and L. H. Dalton) of the Company participate
was amended to freeze years of service at November 30, 1994. Monthly pension
benefits under this plan are based on length of service at November 30, 1994 and
average monthly earnings for the 60 consecutive months producing the highest
average during employment. The earnings covered by the Company's pension plans
include cash salary, wages and bonuses actually paid, plus Company contributions
made on behalf of the participants pursuant to the Employees Stock Purchase Plan
of the Company and any amounts deferred or redirected by participants under any
cash or deferred arrangement and salary reduction plans maintained by the
Company under Section 401(k) and Section 125 of the Code. Such compensation for
executive officers does not vary substantially from the cash compensation
reported in the summary compensation table.
The Code limits compensation amounts used to calculate retirement benefits to
$160,000 and also limits the annual benefits that may be paid from the Company's
tax qualified plans (Section 415 limit) to $125,000. The Code also places a
$9,500 limit on annual contributions by an employee to the Company's 401(k)
plans, and in addition imposes a combined limitation when an employee is covered
by both types of plans. However, effective January 1, 1996 the Company adopted a
supplemental replacement plan that will make payments to certain executive
officers (including D. W. Huemme, R. A. Taylor, W. C. Dorris and L. H. Dalton)
in an amount equal to the difference, if any, between the benefits that would
have been payable under the defined benefit pension plan and 401(k) plans
without regard to the limitations imposed by the Code and the actual benefits
payable under such plans as so limited.
The estimated annual retirement benefits presented on a straight-life annuity
basis payable at the normal retirement age of 65 under the defined benefit
pension plan to persons in specified remuneration and years-of-service
classifications are as follows (benefits listed in the table are not subject to
any further offset):
<PAGE>
<TABLE>
<CAPTION>
Assumed Average
Earnings During Five Years of Service at November 30, 1994
Consecutive Years
Producing Highest Average 5 10 15 20 25
- ------------------------- ------ ------- ------- ------- -------
<C> <C> <C> <C> <C> <C>
$100,000 $ 6,250 $12,500 $18,750 $25,000 $31,250
200,000 12,500 25,000 37,500 50,000 62,500
300,000 18,750 37,500 56,250 75,000 93,750
400,000 25,000 50,000 75,000 100,000 125,000
500,000 31,250 62,500 93,750 125,000 156,250
600,000 37,500 75,000 112,500 150,000 187,500
700,000 43,750 87,500 131,250 175,000 218,750
800,000 50,000 100,000 150,000 200,000 250,000
900,000 56,250 112,500 168,750 225,000 281,250
</TABLE>
The years of service credited to the following executive officers of the Company
on November 30, 1994 under the pension plan in which they participate are as
follows: Douglas W. Huemme--4.5; Robert A. Taylor--0.7; William C. Dorris--23.8;
and Larry H. Dalton--11.5.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLANS
The Company maintains two executive retirement plans providing supplemental
benefits in the event of disability, retirement, or death. The Board of
Directors has retained the right to terminate, modify or reduce any benefits
payable under the plans with the exception that it may not amend or terminate
the plans to affect vested benefits.
Executive Retirement Plan Adopted 1989: Under the executive retirement plan
adopted in 1989, supplemental retirement benefits are provided for key employees
in senior management positions (including D. W. Huemme, W. C. Dorris and L. H.
Dalton). Annual retirement benefits are $15,000, $20,000, $25,000 or $50,000
(depending upon the responsibilities and duties of the position held by the
participant) for a period of 15 years after retirement. The participant must
remain continuously employed by the Company in their current position or in a
more senior management position until retirement. Benefits are payable monthly.
If a participant becomes disabled prior to retiring from the Company, it is
anticipated that the participant will receive monthly disability payments equal
to the monthly retirement benefits the participant would have received under the
retirement provisions of the plan for 15 years after the participant is
determined to be disabled. If a participant dies prior to retiring from the
Company, the participant's estate or designated beneficiary receives death
benefit payments for 15 years. If a participant who is receiving disability or
retirement benefits dies, the participant's estate or designated beneficiaries
are entitled to receive the balance of the participant's benefits monthly.
Estimated annual benefits payable upon normal retirement for the following
executive officers of the Company are: D. W. Huemme--$50,000; W. C.
Dorris--$25,000; and L. H. Dalton--$20,000. Estimated annual benefits payable
upon normal retirement for all current employee participants (excluding
executive officers) as a group are $65,000.
Executive Retirement Plan Adopted January 1, 1996: An executive retirement plan
adopted on January 1, 1996 provides for annual retirement benefits for certain
officers (including D. W. Huemme, R. A. Taylor, W. C. Dorris and L. H. Dalton)
of the Company payable at age 65 over the remaining life of the participant.
Retirement benefits are based on years of service and pay which is defined as
average annual base salary and incentive bonus for the three consecutive years
producing the highest average. A participant reaching age 62 with 22 years of
service is fully vested and will receive an annual retirement benefit equal to
55% of his pay reduced by other retirement benefits provided by the Company
(i.e., benefits from the defined benefit pension plan, the executive retirement
plan adopted in 1989, the supplemental replacement plan and certain Company
contributions to 401(k) plans). Mr. Huemme's retirement benefits under the plan
are also reduced by any benefits received from his former employer, Whittaker
Corporation.
The vesting schedule for the plan is as follows:
Years of Vesting
Age Service Percentage
--- -------- ----------
53 13 10%
54 14 20%
55 15 30%
56 16 40%
57 17 50%
58 18 60%
59 19 70%
60 20 80%
61 21 90%
62 22 100%
<PAGE>
Years of service as of November 30, 1997 for executive officers participating in
this plan are: D. W. Huemme--21; R.A. Taylor--3; W. C. Dorris--26; L. H.
Dalton--14. Mr. Huemme's years of service include his employment tenure with
Whittaker Corporation.
If a participant becomes disabled prior to retiring from the Company, that
participant will receive benefits based on pay at the date of disability and
years of service had the participant's employment continued to age 65. If a
participant dies before retiring from the Company, but after age 55, a benefit
is payable to the participant's spouse equal to 50% of normal benefits based on
pay at date of death and years of service assuming employment continued to age
65, or date of death if later.
If a participant competes with the Company, violates any trade secrets or
breaches any confidence of the Company, either before or after termination or
after retirement, the participant will forfeit all rights to any benefits under
this plan.
CHANGE IN CONTROL AGREEMENTS
The Company has entered into change in control agreements with the
executives named in the Summary Compensation Table as well as other key
employees. In general, these agreements provide for the payment of severance pay
and other benefits to a covered executive if (i) if, within three years
following a change in control, the executive's employment is terminated by the
Company without "good cause" or the executive terminates his or her employment
with "good reason," or (ii) the executive's employment is terminated in
connection with or in anticipation of a change in control. For purposes of the
agreements, a change in control will be deemed to occur if an individual,
entity, or group acquires more than 20% of the Company's Class A stock or
certain other events described in the agreements occur.
Upon becoming eligible for payments pursuant to a change in control
agreement, an executive will receive a multiple, ranging from two to two and
ninety-nine hundredths, of the sum of his or her annual base salary, his or her
target incentive compensation, and certain contributions that would have been
made or credited for the executive under certain Company stock purchase and
retirement plans. In addition, the executive will receive supplemental
retirement, health, life insurance, and disability benefits, and accelerated
stock options. To the extent that an executive is subject to excise taxes under
Code Section 4999 as a result of payments made pursuant to a change in control
agreement, the Company is obligated to pay the excise tax and gross-up the
executive for income taxes on the excise tax payment made on his behalf.
OUTSTANDING SHARES AND VOTING RIGHTS
Shareholders of record on February 17, 1998 are entitled to notice of, and to
vote at, the Annual Meeting of Shareholders, and at any adjournment thereof. On
that date 22,702,280 shares of the Company's Class A Stock and 422,687 shares of
the Company's Class B Stock were outstanding, each share (except the 8,606
shares of Class A Stock held by the Employees Stock Purchase Plan) being
entitled to one vote with respect to every matter submitted to a vote of the
shares of that class.
RELATIONSHIP WITH INDEPENDENT AUDITORS
The Company has selected the firm of Ernst & Young LLP, certified public
accountants, as independent auditors to make an examination of the accounts of
the Company for its fiscal year ending November 30, 1998. Ernst & Young LLP has
served in that capacity since 1956. Representatives of Ernst & Young LLP will be
present at the Annual Meeting with the opportunity to make a statement, if they
desire to do so, and will respond to appropriate questions.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Annual Meeting to be
held in April, 1999 must be received by the Company at its principal executive
offices for inclusion in the proxy statement and form of proxy relating to that
meeting no later than November 18, 1998.
ANNUAL REPORT
The Annual Report for the Company's fiscal year ended November 30, 1997 is
enclosed with this Proxy Statement. The Annual Report is not a part of the proxy
soliciting material. Insofar as any of the information in this Proxy Statement
has been furnished by persons other than the Company, the Company relies upon
information furnished by others for the accuracy and completeness thereof.
<PAGE>
PROXY LILLY INDUSTRIES, INC. CLASS A STOCK PROXY
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting April 23, 1998
The undersigned appoints Thomas E. Reilly, Jr. and Van P. Smith, or
either of them, with full power of substitution, as proxies to vote all shares
of Class A Stock held by the undersigned at the Annual Meeting of Shareholders
of Lilly Industries, Inc. to be held at the Indiana Convention Center & RCA
Dome, 100 South Capitol Avenue, Indianapolis, Indiana in Rooms 101 and 102 at
10:00 a.m., local time, and at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR the election of
the nominees named.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
LILLY INDUSTRIES, INC.
PLEASE MARK VOTE IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<CAPTION>
<C> <C> <C> <C>
1. Election of Directors For Withhold
All All FOR ALL (Except Nominee(s) written below)
Nominees: James M. Cornelius, [ ] [ ] [ ]____________________________________
John D. Peterson,
Thomas E. Reilly, Jr.,
Van P. Smith.
</TABLE>
2. In their discretion, the proxies
are authorized to vote upon any other
business that may properly come before
the meeting.
Dated:____________________________, 1998
Signature(s)____________________________
Please sign exactly as your name
appears. Joint owners should each sign
personally. Where applicable, indicate
your official position or representation
capacity
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
PROXY LILLY INDUSTRIES, INC. CLASS B STOCK PROXY
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting April 23, 1998
The undersigned appoints Douglas W. Huemme and Robert A. Taylor, or
either of them, with full power of substitution, as proxies to vote all shares
of Class B Stock held by the undersigned at the Annual Meeting of Shareholders
of Lilly Industries, Inc. to be held at the Indiana Convention Center & RCA
Dome, 100 South Capitol Avenue, Indianapolis, Indiana in Rooms 101 and 102 at
10:00 a.m., local time, and at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR the election of
the nominees named.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
<PAGE>
LILLY INDUSTRIES, INC.
PLEASE MARK VOTE IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<CAPTION>
<C> <C> <C> <C>
1. Election of Directors For Withhold
All All FOR ALL (Except Nominee(s) written below)
Nominees: William C. Dorris, [ ] [ ] [ ]____________________________________
Paul K. Gaston, Douglas W. Huemme,
Harry Morrison, Ph.D.,
Norma J. Oman, Robert A. Taylor
</TABLE>
2. In their discretion, the proxies
are authorized to vote upon any other
business that may properly come before
the meeting.
Dated:____________________________, 1998
Signature(s)____________________________
Please sign exactly as your name
appears. Joint owners should each sign
personally. Where applicable, indicate
your official position or representation
capacity
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
