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)
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(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):
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.
<PAGE>
[ ] 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>
LILLY INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held March 31, 2000
The Annual Meeting of Shareholders of Lilly Industries, Inc., an
Indiana corporation (the "Company"), will be held at the Corporate Offices of
Lilly Industries, Inc., located at 200 West 103rd Street, Indianapolis, Indiana
on Friday, March 31, 2000 at 10:00 A.M., local time, for the following purposes:
1. To elect ten directors. To approve a proposed amendment of the
Company' 1992 Stock Option Plan to increase the shares
reserved by one million and to limit the number of shares as
to which any individual may be granted options in any one
calendar year.
2. To transact such other business as may properly come before
the meeting.
3. The Annual Meeting of Shareholders for 2000 will be held
solely to act on the matters described above and to report the
results of voting on these matters.
The Board of Directors has established the close of business on
February 14, 2000 as the record date for determining shareholders entitled to
notice of and to vote at the meeting.
A Proxy Statement which describes the business to be acted upon follows
this Notice. A copy of the Annual Report to Shareholders for the year ended
November 30, 1999 also accompanies this Notice.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ John C. Elbin
John C. Elbin, Secretary
February 25, 2000
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"), 200 West 103rd Street,
Indianapolis, Indiana 46290, for use at the Annual Meeting of Shareholders to be
held on March 31, 2000 and at any adjournment thereof. This Proxy Statement and
the enclosed proxy card were mailed on or about February 25, 2000.
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 and for the amendment to the 1992
Stock Option Plan to increase the number of shares reserved by one million and
to limit the number of shares as to which any individual may be granted options
in any one calendar year. 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. As
of the date of this Proxy Statement, the Company knows of no other business to
be proposed at the Annual Meeting.
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 telefax 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, each executed and
delivered 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.
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 are not counted for this purpose.
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.
Name and Principal Occupation Certain Other Information
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JAMES M. CORNELIUS Mr. Cornelius, 56, has been a director
Chairman, of the Company since 1996. He has been
Guidant Corporation Chairman of the Board of Directors of
Guidant Corporation since prior to 1995.
He was Vice President of Finance and
Chief Financial Officer of Eli Lilly and
Company from prior to 1995 to 1995. He
is also a director of Guidant
Corporation, American United Life
Insurance Company, Chubb Corporation and
the National Bank of Indianapolis.
WILLIAM C. DORRIS Mr. Dorris, 56, has been a director of
Vice President, the Company since 1989. He has been Vice
Corporate Development, President, Corporate Development of the
Lilly Industries, Inc. Company since prior to 1995.
JOHN C. ELBIN Mr. Elbin, 47, has been a director of
Vice President, the Company since 1999. He has been Vice
Chief Financial Officer President, Chief Financial Officer and
and Secretary, Secretary of the Company since April,
Lilly Industries, Inc. 1997 when he joined the Company. He was
Senior Vice President and Chief
Financial Officer of Pet Incorporated
from prior to 1995 to 1995.
PAUL K. GASTON Mr. Gaston, 66, has been a director of
Former Chairman, the Company since 1996. He was a
Guardsman Products, Inc. consultant to the Company from 1996 to
1998. He was Chairman of Guardsman
Products, Inc., from prior to 1995 to
1996.
DOUGLAS W. HUEMME Mr. Huemme, 58, has been a director of
Chairman and the company since 1990. He has been
Chief Executive Officer, Chairman and Chief Executive Officer of
Lilly Industries, Inc. the Company since 1999. He has been
Chairman, President and Chief Executive
Officer of the Company from prior to
1995 to 1999. He is also a director of
Meridian Insurance Group, Inc., The
Somerset Group, Inc. and Alltrista
Corporation.
<PAGE>
Name and Principal Occupation Certain Other Information
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HARRY MORRISON, Ph.D. Dr. Morrison, 61, has been a director of
Dean, School of Science, the Company since 1995. He has been
Purdue University Dean, School of Science, Purdue
University since prior to 1995.
NORMA J. OMAN Ms. Oman, 52, has been a director of the
President and Chief Executive Officer, Company since 1997. She has been
Meridian Insurance Group, Inc. President and Chief Executive Officer of
and Meridian Mutual Insurance Company Meridian Insurance Group, Inc. and
Meridian Mutual Insurance Company since
prior to 1995. She is also a director of
Meridian Insurance Group, Inc. and
Meridian Mutual Insurance Company
JOHN D. PETERSON Mr. Peterson, 66, has been a director of
Chairman, the Company since 1964. He has been
City Securities Corporation Chairman of City Securities Corporation
since prior to 1995.
THOMAS E. REILLY, JR. Mr. Reilly, 60, has been a director of
Chairman and Chief Executive Officer, the Company since 1981. He has been
Reilly Industries, Inc. Chairman and Chief Executive Officer,
Reilly Industries, Inc., a diversified
chemical manufacturing firm, since prior
to 1995. He is also a director of Bank
One Corporation, American United Life
Insurance Company and Herff Jones, Inc.
ROBERT A. TAYLOR Mr. Taylor, 46, has been a director of
President and the Company since 1997. He has been
Chief Operating Officer, President and Chief Operating Officer of
Lilly Industries, Inc. the Company since 1999. He has been
Executive Vice President and Chief
Operating Officer of the Company from
1997 to 1999. He was Vice President and
General Manager, Wood Coatings of the
Company from prior to 1995 to 1997.
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, 1999, 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. James M. Cornelius (Chairman), Paul K. Gaston, Norma J. Oman, and John
D. Peterson are the current members of the Compensation Committee.
The Policy and Nominating Committee, which held one meeting during the
Company's fiscal year ended November 30, 1999, 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 James M. Cornelius 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, 1999, 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 reviewing the financial statements
contained in the Annual Report to Shareholders, for overseeing the adequacy of
internal controls, and for reviewing and approving fees paid to the independent
auditors. Paul K. Gaston (Chairman), James M. Cornelius, Harry Morrison, Ph.D.,
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, 1999, reviews and evaluates existing and
potential technologies of the Company. Harry Morrison, Ph.D. (Chairman), William
C. Dorris, Normal J. Oman, 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, 1999. 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,
1999 an annual retainer of $16,000 (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 $2,000) 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 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
14, 2000 there were options for an aggregate of 63,801 shares of Class A Stock
outstanding. Options for 14,178 shares, at an exercise price of $18.13 per
share, were granted in fiscal year 1999. 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 7,089 shares under the Directors Plan were exercised in
fiscal year 1999 at a price of $17.17 per share.
Pursuant to Indiana law and its Articles of Incorporation and Bylaws,
the Company is required to indemnify its directors and officers who are parties
to, or threatened to be made a party to any action, suit or proceeding by reason
of the fact that he is or was a director or officer of the Company if such
person acted in good faith and in a manner he reasonably believed, in the case
of conduct in his official capacity, was in the best interests of the Company
and in all other cases, not opposed to the best interests of the Company and
with respect to any criminal action he had reasonable cause to believe his
conduct was lawful or no reasonable cause to believe it was unlawful. These
indemnification rights are not exclusive to any other rights which a director or
executive officer may have pursuant to shareholder or director resolutions,
contracts or other instruments.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
Douglas W. Huemme, the Company's Chairman and Chief Executive Officer
serves as a director of Meridian Insurance Group, Inc. Ms. Norma J. Oman, a
current director and director nominee of the Company, is President and Chief
Executive Officer of Meridian Insurance Group, Inc. Ms. Oman is a current member
of the Compensation Committee of the Board of Directors of the Company.
<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table lists, as of February 14, 2000 (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.
<TABLE>
<CAPTION>
Class A Stock Class B Stock
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Shares Shares
Beneficially Percent Beneficially Percent
Name of Beneficial Owner Owned of Class Owned of Class
- ------------------------ -------------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
James M. Cornelius 24,089 (1) * 0 *
William C. Dorris 33,941 (2) * 26,377 5.4%
John C. Elbin 9,173 (3) * 7,423 1.5%
Paul K. Gaston 21,694 (4) * 0 *
Douglas W. Huemme 215,919 (5) * 48,000 9.9%
Harry Morrison, Ph.D. 7,089 (6) * 0 *
Norma J. Oman 4,726 (7) * 0 *
John D. Peterson 180,360 (8) * 0 *
Thomas E. Reilly, Jr. 44,883 (9) * 0 *
Robert A. Taylor 47,543 (10) * 29,500 6.1%
Larry H. Dalton 24,927 (11) * 45,291 9.3%
Kenneth L. Mills 8,667 (12) * 23,227 4.8%
All current directors and
executive officers as a group
(12 persons) 623,011 (13) 2.7% 179,818 (14) 37.0%
Tweedy, Browne Company LLC 1,643,175 (15) 7.2% 0 *
52 Vanderbilt Avenue
New York, NY 10017
Wanger Asset Management, L.P. 1,895,200 (15) 8.3% 0 *
227 W. Monroe St., Suite 3000
Chicago, IL 60606
Ned L. Fox 33,223 (16) * 32,602 6.7%
Gary D. Missildine 22,869 (17) * 36,498 7.5%
</TABLE>
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* Represents less than one percent of class of outstanding shares.
(1) Includes 7,089 shares of Class A Stock which Mr. Cornelius has the
right to acquire pursuant to currently exercisable stock options.
(2) Does not include 872 shares of Class A Stock which Mr. Dorris' wife
holds as custodian for their minor child. Mr. Dorris disclaims
beneficial ownership of those 872 shares. Includes 20,000 shares of
Class A Stock which Mr. Dorris has the right to acquire pursuant to
currently exercisable stock options.
(3) Includes 8,333 shares of Class A Stock which Mr. Elbin has the right to
acquire pursuant to currently exercisable stock options.
(4) Includes 2,363 shares of Class A Stock which Mr. Gaston has the right
to acquire pursuant to currently exercisable stock options.
(5) Includes 135,000 shares of Class A Stock which Mr. Huemm has the right
to acquire pursuant to currently exercisable stock options.
(6) Includes 7,089 shares of Class A Stock which Dr. Morriso has the right
to acquire pursuant to currently exercisable stock options.
(7) Includes 4,726 shares of Class A Stock which Ms. Oman ha the right to
acquire pursuant to currently exercisable stock options.
(8) Includes 64,018 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 9,452 shares of Class A Stock which Mr. Peterson has
the right to acquire pursuant to currently exercisable stock options.
(9) Does not include 5,318 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 5,318 shares. Includes 9,452 shares of
Class A Stock which Mr. Reilly has the right to acquire pursuant to
currently exercisable stock options.
(10) Includes 18,333 shares of Class A Stock which Mr. Taylo has the right
to acquire pursuant to currently exercisable stock options.
(11) Includes 20,000 shares of Class A Stock which Mr. Dalton has the right
to acquire pursuant to currently exercisable stock options.
(12) Includes 8,667 shares of Class A Stock which Mr. Mills has the right to
acquire pursuant to currently exercisable stock options.
(13) Includes 250,504 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.
(14) No shares of Class B Stock are beneficially owned by no employee
directors.
(15) Based on SEC Schedule 13G as of December 31, 1999.
(16) Includes 12,500 shares of Class A Stock which Mr. Fox has the right to
acquire pursuant to currently exercisable stock options.
(17) Includes 13,333 shares of Class A Stock which Mr. Missildine has the
right to acquire pursuant to currently exercisable stock options.
<PAGE>
PROPOSAL NUMBER TWO
AMENDMENTS TO THE 1992 STOCK OPTION PLAN
On January 14, 2000, the Board of Directors authorized the amendment of
the Lilly Industries, Inc. 1992 Stock Option Plan (the "Plan"), subject to
approval by the shareholders, to permit the reservation of an additional one
million shares of Class A Common Stock upon the exercise of options to be
granted under the Plan between the date of shareholder approval and January 31,
2002. A total of 2,728,864 option shares have been granted under the Plan as of
February 14, 2000, not including 308,500 option shares granted subject to
shareholder approval of this proposal to increase shares reserved under the
Plan. The option shares granted subject to shareholder approval of this proposal
were granted January 14, 2000 to officers of the Company at an option price of
$14.22 per share and expire January 14, 2010. These options become exercisable
one-third on each of January 14, 2002, 2003 and 2004 with vesting accelerated
upon the occurrence of a change in control with respect to the Company. The
option shares granted subject to shareholder approval of this proposal were
granted in the amounts indicated to the following names executive officers, all
executive officers as a group, and all officers as a group: D.W. Huemme-100,000;
R.A. Taylor-50,000; J.C. Elbin-25,000; W.C. Dorris-15,000; L.H. Dalton-10,000;
all executive officers as a group (6 persons)-207,500; and all officers as a
group (16 persons)-308,500. The maximum number of shares currently reserved for
stock option grants under the Plan is 2,771,875. The amendment will increase the
number of shares reserved or available for stock option grants by 1,000,000
shares to a total of 3,771,875 shares. The Plan has been amended as of February
23, 2000, subject to shareholder approval, to limit the number of shares as to
which any individual may be granted options to 100,000 shares in any one
calendar year. The purpose of this limitation is to enable options granted under
the Plan to be exempt from the deductibility limit imposed by Section 162(m) of
the Internal Revenue Code. This provision disallows the Company's deduction for
compensation paid to any one of the top five executives of the Company, to the
extent that compensation exceeds $1 million per year. However, compensation that
is paid pursuant to a shareholder-approved, performance-based arrangement that
meets certain requirements is exempt from this limitation. Options granted under
the Plan should be exempt from this limitation so long as their exercise price
is not less than the fair market value of the underlying shares on the date of
grant and the shareholders approve the limitation described above.
Summary of the Plan
On January 31, 1992 the Board of Directors of the Company adopted the
Plan to replace the Company's 1982 Stock Option Plan which expired for purposes
of granting new stock options on December 31, 1991. Shareholders approved
adoption of the Plan on April 23, 1992. The Company reserved up to 1,771,875
shares, adjusted for stock dividends and stock splits, of Class A Stock for
option grants under the Plan. On January 10, 1997, the Board of Directors
authorized the amendment of the Plan for the reservation of an additional one
million shares of Class A Common Stock upon exercise of options to be granted
under the Plan. Shareholders approved adoption of this amendment to the Plan on
April 24, 1997 which increased the total number of shares reserved for stock
option grants to 2,771,875. The Plan is effective until January 31, 2002 for
purposes of granting options. The closing price of a share of Class A Stock on
the New York Stock Exchange on February 14, 2000 was $12.88.
The purpose of the Plan is to provide to officers and other key
employees a favorable opportunity to acquire shares of Class A Stock, and
thereby increase their incentive to work for the success of the Company and
better enable the Company to attract and retain capable executive personnel. The
Plan provides for the grant of both incentive stock options (options that afford
favorable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the Company) and options
that do not so qualify (non-qualified stock options).
The Plan is administered, construed and interpreted by a committee
consisting of at least three members of the Board of Directors ("the Stock
Option Committee"). The Stock Option Committee selects the individuals to whom
options will be granted and determines (a) the time of grant, (b) the number of
shares of Class A Stock to be covered by each option, (c) the exercise (or
option) price, (d) the period within which the option may be exercised, (e)
whether the options will carry reload options, (f) the extent to which the
option (or related reload option) is an incentive stock option or non-qualified
stock option, (g) the extent to which stock appreciation rights are awarded with
an option, and (h) any other terms and conditions of the options granted.
Shares issued under the Plan are authorized but unissued shares of the
Company. In the event of corporate changes affecting the Company's outstanding
shares of stock, such as reorganizations, recapitalizations, stock splits, stock
dividends, mergers, consolidations and liquidations, the Stock Option Committee
will make appropriate adjustments in the number and kind of shares reserved
under the Plan and in the exercise price under, and the number and kind of
shares covered by, outstanding options granted under the Plan. Any shares
subject to an option which expires or is terminated before exercise will again
be available for issuance under the Plan.
One or more options may be granted to officers (including officers who
are members of the Board of Directors) and other key employees of the Company
and its subsidiaries who are materially responsible for the management or
operation of the business of the Company. The Stock Option Committee will
determine the exercise price of each option granted under the Plan, provided
that the exercise price of an incentive stock option may not be less than the
fair market value of the Company's Class A Stock on the date on which the option
is granted. Incentive stock options granted to any holders of more than 10% of
the combined voting power of all classes of stock of the Company must have an
exercise price no less than 110% of fair market value of the stock at date of
grant. No option may have a term longer than ten years and one day from the date
of grant. However, under the Internal Revenue Code (the "IRC"), incentive stock
options may not have terms in excess of ten years. Incentive stock options
granted to any holder of more than 10% of the combined voting power of all
classes of stock of the Company may not have terms in excess of five years.
The exercise price must be paid at the time of exercise in cash or by
tendering whole shares of Class A Stock owned by the optionee and cash having a
fair market value equal to the cash exercise price. Under certain circumstances,
the Plan permits optionees to effect a so-called "cashless exercise" by
delivering a notice to their broker together with irrevocable instructions to
deliver to the Company the total exercise price in cash and, if desired, the
amount of any taxes to be withheld from the optionee's compensation as a result
of any withholding tax obligation of the Company. Options may be exercisable in
full at any time during their term or in installments of at least 100 shares, on
a cumulative basis, as the Stock Option Committee may determine.
If an optionee ceases to be an employee of the Company, any option
granted to the optionee will generally terminate, except as specifically
provided in the optionee's stock option agreement. The Stock Option Committee
will determine, and provide in an optionee's stock option agreement, appropriate
exercise periods following the retirement, death or permanent and total
disability of the optionee. Options may not be transferred except by will or the
laws of descent and distribution. During the lifetime of an optionee, options
may be exercised only by the optionee or the optionee's guardian or legal
representative.
The aggregate fair market value of stock with respect to which
incentive stock options are exercisable for the first time by an optionee during
any calendar year under the Plan may not exceed $100,000. This limitation does
not apply to non-qualified stock options. To the extent any incentive stock
options becoming exercisable during a calendar year exceed this limitation, they
will be automatically converted to non-qualified stock options.
In the discretion of the Stock Option Committee, any option may be
accompanied by a "Reload Option." If an optionee's option agreement so provides,
a Reload Option will be granted to an optionee who pays for exercise of all or
part of an option with shares of Class A Stock. The Reload Option represents an
additional option to acquire the same number of shares of Class A Stock as used
by the optionee to exercise the original option. The Stock Option Committee will
determine whether the Reload Option is an incentive stock option or a
non-qualified stock option. If the original option was non-qualified, the Reload
Option must be also. The exercise price per share of a Reload Option will
generally be the fair market value of a share of Class A Stock as of the date of
exercise of the original option. The Committee may grant more than one Reload
Option with respect to any one option.
The Stock Option Committee may grant stock appreciation rights
("SAR's") in tandem with the grant of any option under the Plan. An SAR entitles
the holder thereof to receive, upon the surrender of the related option (or
portion thereof), an amount payable in Class A Stock and/or cash, as determined
by the Stock Option Committee, equal to the excess of the fair market value of
the shares of Class A Stock subject to such option (or portion thereof) over the
exercise price of such shares. The Stock Option Committee may limit the payment
upon exercise of an SAR to less than the amount of such excess. If an SAR is
exercised, its related stock option automatically terminates.
The Stock Option Committee may provide that a grantee of a
non-qualified stock option, following exercise thereof, will be paid a portion
of the tax benefit to be realized by the Company attributable to the federal
income tax deduction resulting from such exercise. The Committee may decide to
do this to offset the disadvantages for tax purposes to the grantee of a
non-qualified option relative to an incentive stock option.
The Stock Option Committee may determine, and provide in an optionee's
stock option agreement, that, in the event of a change in control of the
Company, outstanding options that are not otherwise exercisable will become
immediately exercisable. The effect of such change in control provisions which,
under certain circumstances, could accelerate benefits to optionholders may be
to increase the cost of a potential business combination or acquisition of
control of the Company. To the extent that this increased cost is significant,
potential acquirors may be deterred from pursuing a transaction involving the
Company, and shareholders may thus be deprived of an opportunity to sell their
shares at a favorable price. In determining whether to grant options that become
exercisable upon a change in control, the Stock Option Committee will consider
(a) whether this deterrent effect could be significant, and (b) to the extent
this provision could operate to accelerate benefits under stock options awarded
in the future, whether the expected benefits of these provisions in attracting
and retaining qualified management personnel outweigh the possible
disadvantages.
The Board of Directors may amend the Plan from time to time, and, with
the consent of the optionee, the terms and provisions of the option; provided,
however, that (a) no amendment may, without the consent of an optionee, make any
changes in any outstanding option that would adversely affect the rights of the
optionee, and (b) without approval of the holders of at least a majority of the
shares of the Company entitled to vote thereon, no amendment may materially ( i
) increase the benefits accruing to optionees, (ii) increase the number of
securities that are issuable under the Plan, or (iii) modify requirements as to
eligibility for Plan participation. The Board of Directors of the Company may
terminate the Plan at any time. In any event, no options may be granted under
the Stock Option Plan after January 31, 2002.
Under current tax laws, the grant of incentive and non-qualified stock
options will have no federal tax consequences to the Company or the optionee.
Moreover, if an incentive stock option is exercised (a) while the employee is
employed by the Company or its subsidiaries, (b) within three months after the
optionee ceases to be an employee of the Company or its subsidiaries, (c) after
the optionee's death, or (d) within one year after the optionee ceases to be an
employee of the Company or its subsidiaries if the optionee's employment is
terminated because of permanent and total disability, the exercise of the
incentive stock option will ordinarily have no federal income tax consequences
to the Company or the optionee. If the incentive stock option is not exercised
during the time periods described above, the optionee will be taxed in the same
manner as described below with respect to non-qualified stock options.
The recipient of a non-qualified stock option generally will realize
taxable ordinary income at the time of exercise of the option in an amount equal
to the excess of the fair market value of the shares acquired at the time of
such exercise over the exercise price. A like amount is generally deductible by
the Company for federal income tax purposes as of that date. However, this
deduction could be disallowed in whole or in part if the option's exercisability
is accelerated upon a change in control. Further, certain options granted under
the Plan after Section 162(m) of the Internal Revenue Code became effective for
the Plan may be subject to the disallowance of deductions under that Section.
Accordingly, the Company may not be entitled to a tax deduction equal to the
income recognized by the option holder in all cases. As described above, the
purpose of the recent amendment to limit grants to individual participants,
which shareholders are being asked to approve, is intended to ensure that future
options grants are not subject to this limit on deductibility.
At the time an SAR is granted, an optionee will recognize no taxable
income and there will be no tax consequences to the Company. The optionee will
recognize taxable income at the time the SAR is exercised in an amount equal to
the amount of cash and the fair market value of the Shares of Class A Stock
received upon such exercise. The income recognized on exercise of an SAR will be
taxable at ordinary income tax rates. The Company generally will be entitled to
a deduction with respect to the exercise of an SAR in an amount equal to the
amount of ordinary income recognized by the optionee upon such exercise.
Shares Granted and Reserved
A total of 2,728,864 option shares have been granted under the Plan as
of February 14, 2000. The maximum number of shares currently reserved for stock
grants under the Plan is 2,771,875. With adoption of the proposed amendment, the
maximum number of shares reserved or available for issuance under the Plan will
be increased to 3,771,875.
Required Vote
The proposed amendment of the Company's 1992 Stock Option Plan as
described herein requires the affirmative vote of holders of a majority of the
outstanding shares of Class A Stock and Class B Stock, voting as separate voting
groups. Abstentions from voting and broker non-votes will have the practical
effect of voting against the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL TO
AMEND THE 1992 STOCK OPTION PLAN. YOUR VOTE IS IMPORTANT.
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 1999.
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 1999 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 1999 were determined in December, 1999 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 April 22, 1999 the Board
of Directors granted the stock options reflected in the tables that follow.
Deductibility of Executive Compensation
In 1993 Congress enacted Section 162(m) of the Internal Revenue Code
(the "Code") which disallows corporate deductibility for "compensation" paid in
excess of $1 million unless the compensation is payable solely on account of
achievement of an objective performance goal. The Company has not yet
experienced any loss of deductibility as a result of Section 162(m). However, as
noted above in "Amendments to the 1992 Stock Option Plan", the shareholders are
being asked to approve an amendment to the Company's 1992 Stock Option Plan to
enable options granted in the future under the Plan to be exempt from the
application of Section 162(m). The Compensation Committee will continue to
monitor the Company's status with respect to Section 162(m) and decide in the
future what additional action if any to take with respect to the requirements of
Section 162(m).
Compensation Committee
James M. Cornelius, Chairman
Paul K. Gaston
Norma J. Oman
John D. Peterson
<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, 1999 the Chief Executive
Officer and the other four most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation:
Other Shares Underlying All
Fiscal Annual Stock Options Other
Name and Principal Position Year Salary Bonus Compensation(1) Granted Compensation(2)
- --------------------------- ----------- ------------ ----------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Huemme 1999 $500,000 $400,000 $ 72,240 100,000 $115,121
Chairman and 1998 475,000 425,000 6,864 75,000 115,199
Chief Executive Officer 1997 450,000 425,000 377,810 0 116,358
Robert A. Taylor 1999 285,000 225,000 0 50,000 31,628
President and 1998 260,000 200,000 189,548 25,000 28,796
Chief Operating Officer 1997 200,000 175,000 17,137 10,000 24,806
John C. Elbin 1999 245,000 140,000 0 25,000 12,115
Vice President, 1998 235,000 140,000 0 15,000 12,244
Chief Financial Officer 1997(3) 147,115 65,000 124,673 10,000 8,872
And Secretary
William C. Dorris 1999 188,000 90,000 0 20,000 20,257
Vice President, 1998 180,000 100,000 0 15,000 21,770
Corporate Development 1997 165,000 130,000 0 0 24,562
Larry H. Dalton 1999 170,000 75,000 0 15,000 17,211
Vice President, 1998 165,000 75,000 0 15,000 19,462
Manufacturing and 1997 150,000 115,000 0 0 21,776
Engineering
</TABLE>
(1) Other Annual compensation of 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 1999 are respectively detailed by employee as
follows: Douglas W. Huemme -- $2,000, $96,00, $45,900 and $1,416; Robert A.
Taylor -- $2,000, $9,600, $19,500 and $528; John C. Elbin -- $2,000,
$9,600, $0 and $515; William C. Dorris -- $2,000, $9,600, $7,680 and $977;
and Larry H. Dalton -- $2,000, $9,600, $5,100 and $511. Additionally, for
Mr. Huemme only, All Other Compensation also includes $56,205 of
split-dollar life insurance premiums.
(3) Mr. Elbin was appointed as an executive officer when he joined the Company
in April, 1997, therefore, compensation shown for 1997 does not represent a
full year.
<PAGE>
STOCK OPTION GRANTS
The following table provides details regarding stock options granted to
the named executive officers in fiscal 1999. 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 1999 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) 1999 Share Date 5% 10%
- ------------------ ----------- ----------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Huemme 100,000 19.8% $18.13 04/22/09 $1,140,186 $2,889,455
Robert A. Taylor 50,000 9.9% $18.13 04/22/09 570,093 1,444,728
John C. Elbin 25,000 5.0% $18.13 04/22/09 285,047 722,364
William C. Dorris 20,000 4.0% $18.13 04/22/09 228,037 577,891
Larry H. Dalton 15,000 3.0% $18.13 04/22/09 171,028 433,418
</TABLE>
(1) Stock options granted to the named executive officers during fiscal
1999 consisted of both qualified and non-qualified options. For all
options granted, one-third become exercisable on each of April 22,
2001, 2002 and 2003. Vesting is accelerated upon the occurrence of a
change in control with respect of the Company. 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 1999, 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, 1999. 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.
1999 STOCK OPTION EXERCISES,
OUTSTANDING GRANTS AND VALUE AS OF NOVEMBER 30, 1999
<TABLE>
<CAPTION>
Number of Value of
Value Shares Underlying Unexercised
Realized Unexercised In-the Money
Shares At Options at Options at
Acquired on Exercise 11/30/99 11/30/99 (3)
Name Exercise Date(1) Exercisable Unexercisable(2) Exercisable Unexercisable(2)
- ---- -------- ------- ----------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Douglas W. Huemme 30,000 $206,400 130,000 180,000 $216,600 $ 8,450
Robert A. Taylor 4,834 23,020 3,334 84,999 0 5,633
John C. Elbin 0 0 3,334 46,666 0 0
William C. Dorris 4,500 19,035 15,000 40,000 18,800 6,900
Larry H. Dalton 2,500 9,650 14,500 35,000 18,300 6,900
</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, 1999
(3) Amount reflecting gains on outstanding options are based on the
November 30, 1999 closing NYSE stock price which was $13.94 per share.
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, 1999.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
[GRAPH OMITTED]
Dollar Value November 30 1994 1995 1996 1997 1998 1999
- ------------------------ ---- ---- ---- ---- ---- ----
Lilly Common $100 $100 $146 $147 $152 $116
Russell 2000 $100 $126 $145 $176 $163 $186
S&P Chemical Composite $100 $127 $173 $202 $196 $200
* Assumes $100 was invested on November 30, 1994 in Lilly Industries, Inc.
Common Stock and each indes. 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, some of which are
qualified under Section 401 of the Internal Revenue Code("Code"). Effective
December 1, 1994, the defined qualified 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 deferre
arrangement and salary reduction plans maintained by the Company under Section
401(k) and Section 125 of the Code, subject in the case of qualified plans to
the limits described below. 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, J.C. Elbin, 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):
<TABLE>
<CAPTION>
Assumed Average
Earnings During Five Years of Service at November 30, 1994
Consecutive Years
Producing Highest Average 5 10 15 20 25
- -------------------------------- -------------- -------------- --------------- -------------- --------------
<S> <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--11.9.
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, J. C.
Elbin, 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.
<PAGE>
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%
Years of service as of November 30, 1999 for executive officers
participating in this plan are: D. W. Huemme--23.5; R.A. Taylor--5.7; W. C.
Dorris--28.7; J.C. Elbin - 2.6; L. H. Dalton--16.8. Mr. Huemme's years of
service include his employment tenure with his former employer.
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.
EMPLOYMENT AGREEMENT
On January 14, 2000, the Company entered into an employment agreement
with Douglas W. Huemme which provides for his employment as Chairman and Chief
Executive Officer of the Company at a minimum annual base salary of $500,000.
The term of the agreement is through January 14, 2002; provided, however, that
commencing on January 14, 2001 and each anniversary thereafter, the term will be
automatically extended for an additional one year unless the Board of Directors
or Mr. Huemme give written notice to the other at least one year prior thereto
that the term of the agreement will not be extended. Mr. Huemme will also
participate in incentive compensation, employee benefit, and retirement plans
applicable to other executive officers of the Company. Upon expiration of the
term of the agreement, Mr. Huemme agrees to provide consulting services to the
Company for a period of three years for which he will be paid $100,000 per year.
During the term of the agreement, if Mr. Huemme's employment is terminate
without cause or for good reason (as such terms are defined in the employment
agreement), then he shall receive annual base salary and incentive compensation
earned as if he had continued his employment through the expiration date of the
employment agreement. Any separation payments made under this agreement shall be
offset by any severance payable under Mr. Huemme's change in control agreement.
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 14, 2000 are entitled to notice
of, and to vote at, the Annual Meeting of Shareholders, and at any adjournment
thereof. On that date 22,733,318 shares of the Company's Class A Stock and
486,306 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, 2001 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 28, 2000. If the Company
does not receive notice by January 12, 2001 of any other matter which a
shareholder desires to bring before the 2001 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,
1999 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 March 31, 2000
The undersigned appoints John C. Elbin and William C. Dorris 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 Corporate offices of Lilly Industries, Inc.,
located at 200 West 103rd Street, Indianapolis, Indiana at 10:00 a.m., local
time, and at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR items 1 and 2.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
MARK THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE
IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDAITONS.
Election of directors - Nominees: James M. Cornelius, Paul K. Gaston,
John D. Peterson, Thomas E. Reilly, Jr.
[ ] FOR ALL [ ] WITHHOLD ALL [ ] FOR ALL (Except Nominee(s) written below).
- --------------------------------------------------------------------------------
Proposal to amend the 1992 Stock Option Plan as provided in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon any other business
that may properly come before the meeting.
Dated:________________________, 2000
------------------------------------
------------------------------------
Signature(s)
Please sign exactly as your name
appears. Joint owners should each
sign personally. Where applicable,
indicate your official position or
representation capacity.
<PAGE>
PROXY LILLY INDUSTRIES, INC. CLASS B STOCK PROXY
Proxy Solicited on Behalf of the Board of Directors
For Annual Meeting March 31, 2000
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 Corporate Offices of Lilly
Industries, Inc. located at 200 W. 103rd Street, Indianapolis, Indiana at 10:00
a.m., local time, and at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR items 1 and 2.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
MARK THE APPROPRIATE BOXES, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE
IN ACCORDANCE WITH THE BOARD OF DIRECTORS RECOMMENDAITONS.
Election of directors - Nominees: William C. Dorris, Joh C. Elbin, Douglas W.
Huemme, Harry Morrison, Ph.D., Norma J. Oman, Robert A. Taylor
[ ] FOR ALL [ ] WITHHOLD ALL [ ] FOR ALL (Except Nominee(s) written below).
- --------------------------------------------------------------------------------
Proposal to amend the 1992 Stock Option Plan as provided in the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon any other business
that may properly come before the meeting.
Dated:________________________, 2000
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Signature(s)
Please sign exactly as your name
appears. Joint owners should each
sign personally. Where applicable,
indicate your official position or
representation capacity.
<PAGE>
APPENDIX A
AMENDMENT TO THE
LILLY INDUSTRIES, INC. 1992 STOCK OPTION PLAN
The Lilly Industries, Inc. 1992 Stock Option Plan (the "Plan") is
hereby amended, effective as of February 23, 2000 (the "Effective Date"), as set
forth below.
1. The first sentence of Section 4 of the Plan is hereby amended
to read in its entirety as follows:
There shall be reserved for issuance upon exercise of options
granted under the Plan, 3,771,875 shares of Class A Stock,
without par value, of the Corporation which may be authorized
but unissued shares of the Corporation.
2. Section 4 of the Plan is hereby amended by adding the
following sentence at the end thereof:
Notwithstanding any other provision of the Plan, from and
after February 23, 2000, no individual may be granted options
with respect to more than 100,000 shares during any one
calendar year. The limitation of the preceding sentence shall
be subject to adjustment pursuant to Section 7 hereof.
3. The first sentence of Section 7 of the Plan is hereby amended
to read in its entirety as follows:
In the event of any change after the effective date of the
Plan in the outstanding stock of the Corporation by reason of
any reorganization, recapitalization, stock split, stock
dividend, combination of shares, exchange of shares, merger or
consolidation, liquidation, or any other change after the
effective date of the Plan in the nature of the shares of
stock of the Corporation, the Committee shall determine what
changes, if any, are appropriate in the number and kind of
shares reserved under the Plan, in the option price tender and
the number and kind of shares covered by outstanding options
granted under the Plan and in the number of shares set forth
in the limitation contained in the last sentence of Section 4.
Any determination of the Committee hereunder shall be
conclusive.
4. The Plan is in all other respects ratified and confirmed
without amendment.
