SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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 ss. 240.14a-11(c) or ss. 240.14a-12
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LILLY INDUSTRIES, INC.
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] 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:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
February 26, 1999
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 22, 1999 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, 1998 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>
LILLY INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 22, 1999
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 22, 1999 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 16, 1999 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 26, 1999
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 22, 1999 and at any adjournment thereof. This Proxy Statement and
the enclosed proxy were mailed on or about February 26, 1999.
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, excluding
John C. Elbin, are current directors whose present terms of office will expire
upon completion of the election at the meeting. John C. Elbin, Vice President,
Chief Financial Officer and Secretary of the Company, has been nominated to
replace Van P. Smith who is retiring from the Board of Directors effective with
the annual meeting on April 22, 1999. 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, Paul K. Gaston, John D. Peterson and Thomas E.
Reilly, Jr. are nominees for election as directors by holders of the Class A
Stock; and William C. Dorris, John C. Elbin, 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.
<TABLE>
<CAPTION>
Name and Principal Occupation Certain Other Information
======================================================== =========================================================
<S> <C>
JAMES M. CORNELIUS Mr. Cornelius, 55, has been a director of the Company
Chairman, since 1996. He has been Chairman of the Board of
Guidant Corporation Directors of Guidant Corporation since 1994. He was
Vice President of Finance and Chief Financial Officer
of Eli Lilly and Company from prior to 1994 to
1995. He is also a director of Guidant Corporation,
American United Life Insurance Company and the
National Bank of Indianapolis.
WILLIAM C. DORRIS Mr. Dorris, 55, has been a director of the Company
Vice President, since 1989. He has been Vice President, Corporate
Corporate Development, Development of the Company since 1994. He was General
Lilly Industries, Inc. Manager of the Company's High Point Division from prior
to 1994 to 1994, of the Company's Templeton
Division from prior to 1994 to 1994 and of the
Company's Dallas Division from prior to 1994 to 1994.
JOHN C. ELBIN Mr. Elbin, 46, is a new nominee for director of the
Vice President, Chief Financial Company. He has been Vice President, Chief Financial
Officer and Secretary, Officer and Secretary of the Company since April, 1997
Lilly Industries, Inc. when he joined the Company. He was Senior Vice
President and Chief Financial Officer of Express
Scripts in 1996. He was Senior Vice President and
Chief Financial Officer of Pet Incorporated from prior
to 1994 to 1995.
PAUL K. GASTON Mr. Gaston, 65, has been a director of the Company
Former Chairman, since 1996. He was a consultant to the Company from
Guardsman Products, Inc. 1996.to 1998. He was Chairman of Guardsman Products,
Inc. from 1994 to 1996.
DOUGLAS W. HUEMME Mr. Huemme, 57, has been a director of the Company
Chairman, President and since 1990. Mr. Huemme has been Chairman, President and
Chief Executive Officer, Chief Executive Officer of the Company since prior to
Lilly Industries, Inc. 1994. He is also a director of Meridian Insurance
Group, Inc. and The Somerset Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Occupation Certain Other Information
======================================================== =========================================================
<S> <C>
HARRY MORRISON, Ph.D. Dr. Morrison, 61, has been a director of the Company
Dean, School of Science, since 1995. He has been Dean, School of Science,
Purdue University Purdue University since prior to 1994.
NORMA J. OMAN Mrs. Oman, 51, has been a director of the Company since
President and Chief 1997. She has been President and Chief Executive
Executive Officer, Officer of Meridian Insurance Group, Inc. and Meridian
Meridian Insurance Group, Inc. and Mutual Insurance Company since prior to 1994. She is
Meridian Mutual Insurance also a director of Meridian Insurance Group, Inc. and
Company Meridian Mutual Insurance Company.
JOHN D. PETERSON Mr. Peterson, 65, has been a director of the Company
Chairman, since 1964. He has been Chairman of City Securities
City Securities Corporation Corporation since prior to 1994. He is also a director
of Duke Realty Investments, Inc.
THOMAS E. REILLY, JR. Mr. Reilly, 59, has been a director of the Company
Chairman and Chief since 1981. He has been Chairman and Chief Executive
Executive Officer, Officer, Reilly Industries, Inc., a diversified
Reilly Industries, Inc. chemical manufacturing firm, since prior to 1994. He
is also a director of Bank One Corporation and Herff
Jones, Inc.
ROBERT A. TAYLOR Mr. Taylor, 45, has been a director of the Company
Executive Vice President since 1997. He has been Executive Vice President and
and Chief Operating Officer, Chief Operating Officer of the Company since 1997. He
Lilly Industries, Inc. 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 1994 to 1994.
</TABLE>
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 one meeting during the Company's
fiscal year ended November 30, 1998, formulates and presents to the Board of
Directors for its consideration recommendations as to the Chief Executive
Officer'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, 1998, 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 two meetings during the Company's
fiscal year ended November 30, 1998, 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, 1998, reviews and evaluates existing and
potential technologies of the Company. Harry Morrison, Ph.D. (Chairman), William
C. Dorris, Paul K. Gaston, Thomas E. Reilly, Jr. and Robert A. Taylor are the
current members of the Technology Committee.
The Board of Directors held five meetings during the Company's fiscal
year ended November 30, 1998. During the fiscal year, each director attended at
least 75% of the meetings of the Board of Directors and Board committees.
Directors who are also employees of the Company receive no director
fees. Non-employee directors received for the fiscal year ended November 30,
1998 an annual retainer of $15,000 (except for the chairmen of the Compensation
Committee, Policy and Nominating Committee, Audit Committee and Technology
Committee who each received an additional annual retainer of $1,500) 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 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
16, 1999 there were options for an aggregate of 54,349 shares of Class A Stock
outstanding. Options for 16,541 shares, at an exercise price of $18.78 per
share, were granted in fiscal year 1998. Options granted under the Directors
Plan will generally become exercisable on the first anniversary of the date upon
which they were granted. Option terms range from five to ten years after their
grant date. Options for 25,598 shares under the Directors Plan were exercised in
fiscal year 1998 at prices per share ranging from $10.83 to $17.17.
Other Transactions
During the 1998 fiscal year, the Company purchased 10.25 acres of land
from Meridian 465 Associates, LP for $3,000,000. Thomas E. Reilly, Jr., one of
the Company's directors, is Chairman and Chief Executive Officer of Reilly
Industries, Inc., a limited partner in Meridian 465 Associates, LP. The Company
believes that the purchase of the land was at fair market value and has received
an independent appraisal indicating that the market value of the land is in
excess of $3,000,000.
<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table lists, as of February 16, 1999 (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> <C>
James M. Cornelius 21,726 (1) * 0 *
William C. Dorris 27,174 (2) * 26,377 6.0%
Paul K. Gaston 14,331 * 0 *
Douglas W. Huemme 236,104 (3) 1.0% 43,500 9.9%
Harry Morrison, Ph.D. 4,726 (4) * 0 *
Norma J. Oman 2,363 (5) * 0 *
John D. Peterson 167,997 (6) * 0 *
Thomas E. Reilly, Jr. 44,375 (7) * 0 *
Van P. Smith 18,194 (8) * 0 *
Robert A. Taylor 19,191 (9) * 25,377 5.8%
John C. Elbin 405 * 7,423 1.7%
Larry H. Dalton 26,802 (10) * 32,989 7.5%
Kenneth L. Mills 6,000 (11) * 22,472 5.1%
All Current directors 589,388 (12) 2.6% 158,138 (13) 36.2%
and executive officers
as a group (13 persons)
Royce & Associates, Inc. 1,154,294 (14) 5.1% 0 *
1414 Avenue of the Americas
New York, NY 10019
Tweedy, Browne Company LLC 1,294,825 (14) 5.7% 0 *
52 Vanderbilt Avenue
New York, NY 10017
Wanger Asset Management, L.P. 1,700,200 (14) 7.5% 0 *
227 W. Monroe St., Ste 3000
Chicago, IL 60606
Ned L. Fox 31,287 (15) * 32,283 7.4%
Bill D. Hawkins 16,346 (16) * 23,775 5.4%
Gary D. Missildine 17,705 (17) * 36,498 8.4%
- ---------------------------------
</TABLE>
* Represents less than one percent of class of outstanding shares.
(1) Includes 4,726 shares of Class A Stock which Mr. Cornelius has the
right to acquire pursuant to currently exercisable stock options.
(2) Does not include 855 shares of Class A Stock which Mr. Dorris' wife
holds as custodian for their minor child. Mr. Dorris disclaims
beneficial ownership of those 855 shares. Includes 15,000 shares of
Class A Stock which Mr. Dorris has the right to acquire pursuant to
currently exercisable stock options.
(3) Includes 160,000 shares of Class A Stock which Mr. Huemme has the right
to acquire pursuant to currently exercisable stock options.
(4) Includes 4,726 shares of Class A Stock which Dr. Morrison has the right
to acquire pursuant to currently exercisable stock options.
(5) Includes 2,363 shares of Class A Stock which Mrs. Oman has the right to
acquire pursuant to currently exercisable stock options.
<PAGE>
(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 5,216 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 5,216 shares. Includes 9,452 shares of
Class A Stock which Mr. Reilly has the right to acquire pursuant to
currently exercisable stock options.
(8) Includes 9,452 shares of Class A Stock which Mr. Smith has the right to
acquire pursuant to currently exercisable stock options.
(9) Includes 3,333 shares of Class A Stock which Mr. Taylor has the right
to acquire pursuant to currently exercisable stock options.
(10) Includes 14,500 shares of Class A Stock which Mr. Dalton has the right
to acquire pursuant to currently exercisable stock options.
(11) Includes 6,000 shares of Class A Stock which Mr. Mills has the right to
acquire pursuant to currently exercisable stock options.
(12) Includes 236,641 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.
(13) No shares of Class B Stock are beneficially owned by non-employee
directors.
(14) Based on SEC Schedule 13G as of December 31, 1998.
(15) Includes 11,167 shares of Class A Stock which Mr. Fox has the right to
acquire pursuant to currently exercisable stock options.
(16) Includes 1,607 shares of Class A Stock which Mr. Hawkins has the right
to acquire pursuant to currently exercisable stock options.
(17) Includes 11,167 shares of Class A Stock which Mr. Missildine has the
right to acquire pursuant to currently exercisable stock options.
<PAGE>
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
The Company had a consulting agreement with Paul K. Gaston, a director
of the Company and member of the Compensation Committee. Mr. Gaston is the
former Chairman of Guardsman Products, Inc. and the agreement was a continuation
of the consulting arrangement which Mr. Gaston had with Guardsman. The
agreement, which expired on December 31, 1998, required Mr. Gaston to render
consulting and advisory services to the Company and prohibited him from
competing with the Company during the term of the agreement and for three years
thereafter. The agreement provided 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 which was approximately
$450,000 at December 31, 1998, will be paid to Mr.
Gaston in monthly installments over a period of not more than 60 months.
Douglas W. Huemme, the Company's Chairman, President and Chief
Executive Officer serves as a director of Meridian Insurance Group, Inc. Mrs.
Norma J. Oman, a current director and director nominee of the Company, is
President and Chief Executive Officer of Meridian Insurance Group, Inc. Mrs.
Oman is a current member of the Compensation Committee of the Board of Directors
of the Company.
<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 Chief Executive
Officer'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 1998.
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 1998 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 and
other performance objectives are targeted for the Company and individual
business units which become the basis for determining annual bonuses. If the
Company and 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 1998 were determined in December, 1998 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 23, 1998 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, 1998 the Chief Executive
Officer and the other four most highly compensated executive officers.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation: Shares
Other Underlying All
Fiscal Annual Stock Options Other
Name and Principal Year Salary Bonus Compensation(1) Granted
Position Compensation(2)
- --------------------------- ---------- --------------------------- -------------------- --------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Huemme 1998 $475,000 $425,000 $6,864 75,000 $115,199
Chairman, President 1997 450,000 425,000 377,810 0 116,358
and Chief Executive 1996 375,000 400,000 0 15,000 115,322
Officer
Robert A. Taylor 1998 260,000 200,000 189,548 25,000 28,796
Executive Vice 1997(3) 200,000 175,000 17,137 10,000 24,806
President and Chief
Operating Officer
John C. Elbin 1998 235,000 140,000 0 15,000 12,244
Vice President, 1997(4) 147,115 65,000 124,673 10,000 8,872
Chief Financial
Officer and Secretary
William C. Dorris 1998 180,000 100,000 0 15,000 21,770
Vice President, 1997 165,000 130,000 0 0 24,562
Corporate Development 1996 156,923 200,000 0 15,000 17,115
Larry H. Dalton 1998 165,000 75,000 0 15,000 19,462
Vice President, 1997 150,000 115,000 0 0 21,776
Manufacturing 1996 142,788 170,000 0 15,000 15,967
and Engineering
- --------------------------- ---------- ------------- ------------- ------------------- ------------------------ --------------------
</TABLE>
(1) 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. Other Annual
Compensation for Mr. Taylor and Mr. Elbin represents reimbursement for
income taxes and expenses related to their relocations.
(2) All Other Compensation is comprised of matching Company contributions
on behalf of the employees to the Employees Stock Purchase Plan, the
401(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 1998 are respectively detailed
by employee as follows: Douglas W. Huemme--$2,000, $9,600, $42,900 and
$1,800; Robert A. Taylor--$2,000, $9,600, $16,500 and $696; John C.
Elbin--$2,000, $9,600, $0 and $644; William C. Dorris--$2,000, $9,600,
$9,000 and $1,170; and Larry H. Dalton--$2,000, $9,600, $7,200 and
$662. Additionally, for Mr. Huemme only, All Other Compensation also
includes $58,899 of split-dollar life insurance premiums.
(3) Mr. Taylor was appointed as an executive officer in 1997.
(4) Mr. Elbin was appointed as an executive officer when he joined the
Company in April, 1997.
<PAGE>
STOCK OPTION GRANTS
The following table provides details regarding stock options granted to
the named executive officers in fiscal 1998. 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 overall
stock market conditions. There can be no assurance that the amounts reflected on
this table will be achieved.
FISCAL 1998 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) 1998 Share Date 5% 10%
- ---------------------------- --------------- ------------------- ------------- --------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Huemme 75,000 18.5% $18.78 01/23/08 $885,798 $2,244,786
Robert A. Taylor 25,000 6.2% 18.78 01/23/08 295,264 748,261
John C. Elbin 15,000 3.7% 18.78 01/23/08 177,158 448,957
William C. Dorris 15,000 3.7% 18.78 01/23/08 177,158 448,957
Larry H. Dalton 15,000 3.7% 18.78 01/23/08 177,158 448,957
</TABLE>
(1) Stock options granted to the named executive officers during fiscal
1998 consisted of both qualified and non-qualified options. For all
options granted, one-third become exercisable on each of January 23,
2000, 2001 and 2002. The purchase price of shares subject to these
options may be paid in cash or by exchanging shares at fair market
value. For non-qualified stock options granted, the grantee will be
reimbursed for federal income taxes resulting from exercise in an
amount equal to the Company's federal tax benefit.
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table shows stock option exercises by named executive
officers during fiscal 1998, 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, 1998. 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.
1998 STOCK OPTION EXERCISES,
OUTSTANDING GRANTS AND VALUE AS OF NOVEMBER 30, 1998
<TABLE>
<CAPTION>
Number of Value of
Shares Underlying Unexercised
Unexercised In-the-Money
Options at Options at
11/30/98 11/30/98(3)
Value ---------------------------- ---------------------------
Realized
Shares At Exercis- Unexercis- Exercis- Unexercis-
Acquired on Exercise able able (2) able able(2)
Name Exercise Date(1) Unexercis-
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Huemme 11,250 $58,837 155,000 85,000 $996,650 $61,300
Robert A. Taylor 9,833 46,521 0 43,167 0 50,094
John C. Elbin 0 0 0 25,000 0 17,500
William C. Dorris 3,000 28,980 12,833 26,667 69,435 70,885
Larry H. Dalton 5,000 32,010 10,500 26,500 58,800 69,925
</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, 1998.
(3) Amount reflecting gains on outstanding options are based on the
November 30, 1998 closing NYSE stock price which was $18.69 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 Russell 2000 Index and the Standard & Poor's Chemical
Composite Index. The comparisons are for a period of five fiscal years ended
November 30, 1998.
<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 $130,000. The Code also
places a $10,000 limit on annual contributions by an employee to the Company's
401(k) plan, 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) plan
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>
Assumed Average
Earnings During Five Years of Service at November 30, 1994
Consecutive Years
Producing Highest Average 5 10 15 20 25
- --------------------------------------------------------------------------------
$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
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 the 401(k) plan). 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, 1998 for executive officers
participating in this plan are: D. W. Huemme--22; R.A. Taylor--4; W. C.
Dorris--27; L. H. Dalton--15. 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 annual base salary, his 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 stock option vesting will
accelerate. 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 16, 1999 are entitled to notice
of, and to vote at, the Annual Meeting of Shareholders, and at any adjournment
thereof. On that date 22,772,474 shares of the Company's Class A Stock and
437,037 shares of the Company's Class B Stock were outstanding, each share 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, 1999. 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, 2000 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 October 29, 1999. If the Company
does not receive notice by January 12, 2000 of any other matter which a
shareholder desires to bring before the 2000 Annual Meeting which is not the
subject of a proposal timely submitted for inclusion in the proxy statement,
then the proxies designated by the Board of Directors for that meeting may vote
in their discretion on any such matter without mention of the matter in the
Company's proxy statement or proxy card for the meeting.
ANNUAL REPORT
The Annual Report for the Company's fiscal year ended November 30,
1998 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>
<PAGE>
PROXY LILLY INDUSTRIES, INC. CLASS A STOCK PROXY
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting April 22, 1999
The undersigned appoints Paul K. Gaston and Thomas E. Reilly, Jr., 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>
<S> <C> <C> <C> <C>
For Withhold
1. Election of Directors-- All All FOR ALL (Except Nominee(s) written below)
Nominees: James M. Cornelius, Paul K. Gaston, [ ] [ ] [ ]
John D. Peterson, Thomas E. Reilly, Jr.
---------------------------------------------
2. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
</TABLE>
Dated:_______________________, 1999
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 22, 1999
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>
<S> <C> <C> <C> <C>
For Withhold
1. Election of Directors-- All All FOR ALL (Except Nominee(s) written below)
Nominees: William C. Dorris, John C. Elbin, [ ] [ ] [ ]
Douglas W. Huemme, Harry Morrison, Ph.D., Norma
J. Oman, Robert A. Taylor
---------------------------------------------
2. In their discretion, the proxies are authorized to vote upon any other
business that may properly come before the meeting.
</TABLE>
Dated:_______________________, 1999
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.
