FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Fiscal Year ended November 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-6953
LILLY INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
INDIANA 35-0471010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 W. 103rd Street
Indianapolis, Indiana 46290
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
317-814-8700
Securities registered pursuant to Section 12(b) of the Act:
Class A Stock, without par value
Common Share Purchase Right
(Title of class)
New York Stock Exchange
(name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 14, 2000 was $288,728,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of February 14, 2000.
22,733,318 shares of Class A Common Stock, without par value; 486,306 shares
of Class B Common Stock, without par value
DOCUMENTS INCORPORATED BY REFERENCE
Part II: Items 5 Annual Report to Shareholders for Fiscal
through 8 Year Ended November 30, 1999
Part III: Items 10 Proxy Statement for Annual Meeting of
through 13 Shareholders to be held March 31, 2000
<PAGE>
PART I
Lilly Industries, Inc.
Item 1. BUSINESS
Business Description
Lilly Industries, Inc. (referred to herein as "Lilly" or the "Company") was
founded in 1865, and incorporated under the laws of the State of Indiana on
December 5, 1888. The Company believes it is a leader in the industrial coatings
and specialty chemicals industry, one of the five largest industrial coatings
and specialty chemicals manufacturers in North America, and one of the 15
largest in the world based on net sales of $656.2 million in fiscal 1999. Lilly
formulates, manufactures and markets industrial coatings and specialty chemicals
to original equipment manufacturers, enhancing the appearance of and providing
durability to products such as home and office furniture, cabinets, appliances,
building products, transportation, agricultural and construction equipment,
mirrors and a variety of metal and fiberglass reinforced surfaces. A significant
amount of the Company's sales represent industrial coatings and specialty
chemicals developed in cooperation with its customers to meet their specific
product requirements, resulting in a number of primary supplier relationships
with those customers.
No one class of similar products (other than protective and decorative coatings)
accounted for 10% or more of the consolidated revenues of the Company in any of
the last three fiscal years (1). The Company has only one reportable operating
segment, and employs approximately 2,400 people. The Company has plants or sales
offices in the U.S., Australia, Canada, China, Germany, Ireland, Malaysia,
Mexico, Singapore, Taiwan and the United Kingdom.
(1) References in this Form 10-K are references to the Company's fiscal years
ended November 30, 1999, 1998 and 1997.
<PAGE>
Industrial Coatings and Specialty Chemicals Industry
Industrial coatings and specialty chemicals protect a wide range of manufactured
goods from the effects of external elements over the life of the product. In
addition, industrial coatings and specialty chemicals make products more
aesthetically pleasing to end use customers. Lilly competes in three end use
markets: (i) wood coatings, such as lacquer and protective coatings for
furniture, building products and kitchen cabinets; (ii) metal coatings, such as
liquid and powder coatings used to finish building products, furniture,
appliances and transportation equipment; and (iii) composites and glass
coatings, such as gelcoats and specialty chemicals for transportation equipment,
recreational vehicles and mirrors.
Sales for the global paints and coatings market equal approximately $57 billion
annually, with annual sales for the domestic market equaling approximately $17
billion. Annual sales for the industrial coatings and specialty chemicals
segment in which Lilly participates are approximately $27 billion globally and
$9 billion domestically. The balance of the market consists primarily of
architectural coatings (primarily house paints), a market in which Lilly does
not compete, and specialty coatings, including maintenance coatings and traffic
paints.
The industrial coatings and specialty chemicals industry is a mature and highly
fragmented industry in the U.S., growing in-line with industrial production, and
includes many small competitors. Long term annual unit growth in the U.S.
industrial coatings and specialty chemicals business is projected between 1% and
2%, largely tied to fluctuations in general economic cycles. Annual unit growth
rate is projected between 1% and 2% in Europe and between 4% and 6% in Asia. The
North American industrial coatings and specialty chemicals industry is divided
among over 700 participants.
Due to its maturity and historically fragmented participant base, this industry
is undergoing consolidation through mergers and acquisitions. Consolidation of
the industrial coatings and specialty chemicals industry is being driven by
several factors, including (i) the need for growth in maturing markets; (ii)
environmental costs which, together with a more demanding global customer base,
will make it difficult for smaller manufacturers with limited financial
resources to remain independent; and (iii) the increasing technical and
financial resources of the larger companies. To date, the effects of industry
consolidation include a greater concentration of market share with fewer
companies, a reduction in the number of competitors, and the creation of new
synergies within the larger industrial coatings and specialty chemicals
companies, such as raw material purchasing power and manufacturing economies of
scale.
Competition
The industrial coatings and specialty chemicals industry is competitive, with
more than 700 North American manufacturers operating in numerous end-use
markets. Manufacturers include large international companies as well as small
regional firms, and no one manufacturer dominates. Competitive advantages
include developing industrial coatings and specialty chemicals that meet
specific customer requirements, pricing industrial coatings and specialty
chemicals competitively and rapidly delivering quality products. Technological
developments that reduce negative environmental effects are also an important
competitive factor.
Lilly is one of the top five industrial coatings and specialty chemicals
manufacturers in North America, one of the top 15 worldwide. While Lilly is
among the top five North American producers of industrial coatings and specialty
chemicals, some competitors are generally more diversified and have greater
financial resources than the Company. Major competitors include Akzo Nobel;
Ferro Corporation; BASF; The Sherwin-Williams Company; PPG Industries, Inc.; and
The Valspar Corporation.
End Use Markets
The Company focuses on three end use markets, wood coatings; metal coatings; and
composites and glass coatings. These three markets accounted for approximately
46%, 43%, and 11% of the Company's fiscal 1999 net sales, respectively. The
following provides a summary of these markets.
<PAGE>
Wood Coatings. Lilly's wood coatings provide a full range of custom-formulated
coatings designed to enhance the beauty of wood while providing maximum
durability for products such as residential and office furniture, building
products and kitchen cabinets. Wood coatings are manufactured at six U.S.
locations, as well as five foreign facilities located in Canada, China, Ireland,
Malaysia and Taiwan.
Metal Coatings. The Company's metal coatings provide specialized coatings for
numerous applications such as appliances, building products and fixtures (such
as residential siding, aluminum gutters, and metal roofing), agricultural and
construction equipment, furniture, bicycles, digital satellite systems,
automotive trim and wheels, entry and garage doors, computers, window trim,
shelving, and playground equipment. These coatings include traditional liquid
coatings as well as coil coatings and a full range of decorative and functional
powder coatings. The coil coatings process is considered one of the most
environmentally safe, energy-efficient methods of applying coatings to metal
substrates. Lilly's technical innovation has produced conventional and
water-borne coil coatings formulated with proprietary resins that provide high
durability, flexibility, corrosion resistance and chemical resistance. Powder
coatings are experiencing growth because of their environmental desirability, as
powder coatings have no solvent content. Lilly powder coatings are
environmentally compliant and provide outstanding durability and performance for
both interior and exterior applications. Metal coatings are manufactured at
thirteen facilities in the U.S. and facilities in Canada and Germany.
Composites and Glass Coatings. The Company's composites include gelcoats and
fiberglass reinforced plastic composites for boats, recreational vehicles,
cultured marble vanity tops, custom van and truck components and personal
watercraft. Lilly's glass coatings are well recognized globally. The Company's
glass coatings provide mirror manufacturers with everything needed to convert
glass into mirrors of premier quality. Glass coatings are manufactured at one
U.S. facility located in Connecticut, and foreign facilities located in Canada
and Germany.
Distribution and Customers
Lilly's technical sales force of approximately 700 people market and sell its
industrial coatings and specialty chemicals directly to over 6,000 customers
throughout the world. Most of the Company's customers are located throughout the
United States and Canada, with the remaining customers concentrated in Europe
and Asia-Pacific. The Company is not dependent upon any single customer or few
customers. The loss of any single customer would not have a material adverse
impact on the Company. No single customer of the Company represented more than
5% of net sales. International sales, including U.S. exports, were $176.6
million in fiscal year 1999, which represented 27% of consolidated sales.
Information concerning the Company's net sales, operating income and assets in
foreign countries and the United States for the three years ended November 30,
1999 is set forth in Note 9 in the Notes to Consolidated Financial Statements in
the Company's 1999 Annual Report to Shareholders, which is incorporated herein
by reference.
<PAGE>
The Company has no significant order backlog. No material part of the business
is subject to re-negotiation of profit or termination of contracts or
subcontracts at the election of any governments. Historically, first quarter
operating results are below operating results for the second, third and fourth
quarters due to the lower demand for industrial production which typically
occurs in December.
Raw Materials
Raw materials are the largest single cost in the industrial coatings and
specialty chemicals business, representing about half of the selling price of
most products. The typical product consists of pigments dispersed in a liquid
known as the "vehicle," which is usually composed of one or more polymers, and a
solvent. The solvent helps the product coat the substrate; the polymers form a
film to hold the product coating in place after the solvent has evaporated and
provides the unique performance characteristics of the product coating. Solvents
are typically petrochemical-based products that evaporate quickly. However, the
use of petrochemical-based solvents is declining as environmentally friendly
technologies, such as water-borne liquid and powder coatings, gain market share.
The pigment, usually an inorganic substance, provides the color. "Fillers" and
"extender pigments" provide gloss and sheen control, while specialty chemicals
known as additives, enhance the flow and application properties of the product
coating.
The Company manufactures its industrial coatings and specialty chemicals from a
variety of polymers, pigments, solvents and other chemicals, the bulk of which
are obtained from petrochemical feed stocks. In addition to petrochemicals, the
Company uses both silver and copper. Under normal conditions, all of these raw
materials are available on the open market, although prices and availability are
subject to fluctuation from time to time. Lilly, like most other companies in
the industrial coatings and specialty chemicals industry, uses a variety of
organic and inorganic materials in its products. No single raw material cost
currently accounts for over 5% of net sales and most account for less than 1% of
net sales.
The Company's largest single raw material cost is for titanium dioxide (TiO2),
which is a white pigment, and accounts for approximately 30% of pigment usage in
the industrial coatings and specialty chemicals industry. The Company's annual
expenditures for TiO2 total approximately 5% of the Company's annual net sales.
Research and Development
Lilly's Corporate Technology Center, as well as laboratories at its major
facilities, emphasize the development of product finishes to meet specific
requirements of customers and the maintenance of quality throughout the
manufacturing process. They are also engaged in research directed toward
development of new products and new manufacturing and application techniques.
Research and development expenses were $21.2 million (3.2% of net sales), $20.6
million (3.3% of net sales), and $18.7 million (3.1% of net sales) for the
fiscal years 1999, 1998 and 1997, respectively. Future research and development
expenses as a percent of net sales are anticipated to remain at current levels
with emphasis on new product development.
The Company holds several patents and trademarks, and considers patent and
trademark protection to be important, but no individual patent is currently
material to the Company's business as a whole. The Company has patents and
licenses for glass coatings which are material to that specific business; and
new patents are continually being developed to sustain the Company's competitive
advantage.
Properties
Lilly maintains thirty principal facilities, of which eighteen were located in
the U.S. See Item 2 - Properties. The plants range in size from approximately
260,000 square feet to approximately 9,000 square feet. The facilities vary in
age and are well maintained and adequate for their present uses. Utilization
rates vary from site to site depending on capacity, customers served and range
of production capabilities. The Company believes it can take advantage of
special situations (e.g., special orders, new customers, new technology) that
may arise during the course of an operating cycle by adding capacity through
incremental shifts. Each facility operates technical support centers to assist
customers in addressing both application and processing issues.
<PAGE>
Although the Company has traditionally located its domestic plants near its
customer base, the Company has begun to rely on larger, more efficient,
centralized plants in the U.S. With respect to its foreign operations, the
Company continues to adhere to its strategy of following, and being in close
proximity to its customers as they open plants around the world.
Employees and Collective Bargaining Units
As of November 30, 1999, Lilly employed approximately 2,400 people. The
industrial coatings and specialty chemical industry is not heavily unionized and
to the extent there is unionization, it is highly fragmented. Unionized workers
account for approximately 10% of the Company's total work force and operate
through five separate unions at six Lilly facilities. The Company believes its
relations with its employees are good.
Environmental Regulation
The Company's operations are subject to numerous foreign, federal, state and
local environmental laws and regulations relating to protection of the
environment, employee health and safety, and the discharge, storage, treatment
and disposal of hazardous materials. In the United States, these laws include
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund"), the Resource Conservation and Recovery Act, the Clean
Water Act, and the Clean Air Act. Certain operations of the Company use
pigments, resins and solvents that contain chemicals that are considered
hazardous under various environmental laws. Accordingly, management closely
monitors the Company's environmental performance at its facilities. Management
believes the Company is in compliance in material respects with all
environmental laws and regulations.
CERCLA imposes joint and several liability, without regard to fault or the
legality of the original conduct, on certain classes of persons that are
considered to have contributed to the release of hazardous substances into the
environment. These persons include the owner and operator of the site where the
release occurred and companies that disposed or arranged for disposal of the
hazardous substances found at the site. The Company has been named as a
potentially responsible party ("PRP") by the United States Environmental
Protection Agency ("EPA") or similar state agencies with respect to several
inactive waste processing and/or disposal sites where clean-up costs have been
incurred or may be incurred. In addition to these sites, the Company is
currently investigating and remediating on-site disposal areas at certain of its
current and former facilities.
The Company continually assesses its environmental matters and establishes
reserves to provide for these matters as they arise. The Company's experience to
date leads it to believe it will have continuing expenditures for compliance
with provisions regulating protection of the environment and remediation efforts
at waste and manufacturing sites. However, management believes such expenditures
will not have a material adverse effect on operating results or the financial
position of the Company as a whole.
Under the Clean Air Act Amendments of 1990 ("CAAA"), the EPA is required to
regulate volatile organic compound ("VOC") emissions from a variety of consumer
and commercial products, including industrial coatings and specialty chemicals.
Accordingly, the EPA has issued various regulations that limit VOCs from
industrial coatings and specialty chemicals. Although the Company cannot
accurately assess the impact of these regulations prior to their promulgation or
implementation in final form, based on currently available information, the
Company believes these regulations will not have a material adverse effect on
the operating results or the financial position of the Company as a whole.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements which constitute forward
looking statements within the meaning of Section 27A of the Securities Act.
Discussions containing such forward looking statements may be found under the
captions "Management's Discussion and Analysis of Results of Operations and
Financial Condition ("MD&A"), and "Business," as well as elsewhere within this
Report. Forward looking statements include statements regarding the intent,
belief or current expectations of the Company, primarily with respect to the
future operating performance of the Company or related industry developments.
When used in this Report, terms such as "anticipate," "believe," "estimate,"
"expect," "intend," "indicate," "may be," "objective," "plan," "predict," and
"will be" are intended to identify such statements. Forward looking statements
are not guarantees of future performance and involve risks and uncertainties.
Forward looking statements are based upon management's expectations at the time
they are made. Actual results could differ materially from those projected in
the forward looking statements as a result of the risk factors set forth below
and the matters set forth in this Report generally, many of which are beyond the
control of the Company. The Company cautions the reader, however, the following
list of factors may not be exhaustive.
<PAGE>
Sensitivity to General Economic and Industry Conditions
The Company's business, and the industrial coatings and specialty chemicals
industry as a whole, is cyclical in nature and affected by the general trends of
the economy. In particular, consumer behavior and confidence, the level of
personal discretionary spending, housing activity, interest rates, credit
availability, and demographics influence the Company's end use markets, such as
the housing, building products, construction and agricultural equipment,
appliance, furniture and automotive industries. During economic downturns, these
industries tend to experience declines, which in turn diminish demand for the
Company's products.
Effects of Leverage
The Company's level of indebtedness will have several important effects on its
operations including (i) a substantial portion of the Company's cash flow from
operations will be dedicated to debt service obligations, (ii) the covenants
contained in the Company's revolving credit facility and senior notes may limit
the Company's ability to borrow additional funds, and (iii) the Company's
leveraged financial position may make the Company more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures, and plan
for, or react to, changes in market conditions.
Environmental Matters
The operations of the Company, like those of other companies in the industrial
coatings and specialty chemicals industry, are subject to numerous foreign,
federal, state and local environmental laws and regulations. While the Company
believes it is currently in material compliance with environmental requirements,
any failure to comply with such present and future requirements could subject
the Company to future liabilities. The imposition of more stringent
environmental requirements, or a determination the Company is potentially
responsible for site remediation where contamination is not presently known
could result in expenditures for which no accrual has been made.
Mature Industry
The industrial coatings and specialty chemicals industry is a mature business in
the U.S., growing in line with industrial production. Long-term annual growth in
the U.S. industrial coatings and specialty chemicals industry is projected in
the 1% to 2% range. To expand and remain competitive, the Company will be
required to continue (i) to develop industrial coatings and specialty chemicals
that meet specific customer requirements, (ii) to price those industrial
coatings and specialty chemicals competitively, and (iii) to deliver quality
products on time. In addition, the Company will also need to keep pace with
technological developments to remain competitive, particularly technological
developments that relate to environmental demands such as reductions of volatile
organic compound emissions imposed by government regulations.
Raw Materials
Approximately 50% of the Company's operating costs are typically attributable to
the cost of raw materials. The cost of these raw materials, most of which are
derived from petrochemical products, depends on numerous factors, including
changes in the economy, the level of foreign and domestic production, and the
crude oil supply and demand balance. A rise in the price of raw materials could
materially increase the Company's operating costs and thereby adversely affect
its profit margins.
International Operations
During fiscal 1999, the Company's international sales, including U.S. exports
accounted for approximately 27% of total sales, and this percentage may increase
in the coming years. The Company's international operations subject it to the
risks of doing business abroad, including currency fluctuations, various trade
barriers, restrictions on the transfer of funds, greater difficulty in accounts
receivable collection, burdens of complying with a wide variety of foreign laws,
and, in certain parts of the world, economic, social, and political instability,
any of which could have an adverse effect on the Company's financial position
and results of operations.
<PAGE>
Executive Officers of the Company
The executive officers of the Company, the age of each, the positions and
offices held by each during the last five years, and the period during which
each has served in such positions and offices are as follows:
Name of
Executive Officer Age Positions and Offices Held
- ----------------- --- --------------------------
Douglas W. Huemme 58 Director since 1990; Chairman and
Chief Executive Officer of the
Company since prior to 1995;
President from prior to 1995 to
April, 1999.
Robert A. Taylor 45 Director since April, 1997;
President since April, 1999;
Chief Operating Officer since
February, 1997; Executive Vice
President from February, 1997 to
April, 1999; Vice President
and General Manager, Wood
Coatings from prior to 1995 to
February, 1997;
Larry H. Dalton 52 Vice President - Manufacturing
and Engineering since prior to
1995.
William C. Dorris 56 Director since 1989; Vice
President - Corporate Development since
prior to 1995.
John C. Elbin 46 Director since April, 1999,
Vice President, Chief Financial
Officer and Secretary since
April, 1997 when he joined the Company;
Senior Vice
President and Chief Financial
Officer of Pet Incorporated
from prior to 1995 to 1995.
A. Barry Melnkovic 42 Vice President - Human
Resources since April, 1996;
Director, Corporate Employee &
Labor Relations and Director
Corporate Compensation and
Benefits, Cummins Engine
Company, Inc., from prior to
1995 to 1996.
Kenneth L. Mills 51 Corporate Controller since 1999.
Corporate Accounting Director
from prior to 1995 to 1999. Assistant
Secretary since prior to 1995.
Each executive officer will serve as such until his successor is chosen and
qualified. No family relationships exist among the Company's executive officers.
<PAGE>
Item 2. Properties.
The Company has thirty principal facilities. The locations and approximate
square footage at those facilities are as follows:
Location Square Feet
High Point, North Carolina (2 locations) 320,000
Indianapolis, Indiana 260,000
Grand Rapids, Michigan 165,000
North Kansas City, Missouri 138,000
Eschweiler, Germany 121,000
Fremont, Michigan 120,000
London, Ontario, Canada 103,000
Cornwall, Ontario, Canada 97,000
Bowling Green, Kentucky 94,000
Moline, Illinois 76,000
Kaohsiung Hsien, Taiwan, R.O.C. 64,000
Montebello, California 58,000
Charlotte, North Carolina 57,000
Rocky Hill, Connecticut 57,000
Gardena, California 52,000
Paulsboro, New Jersey 47,000
Dallas, Texas 36,000
Little Rock, Arkansas 35,000
Guadalupe, Mexico 35,000
Seattle, Washington 30,000
Elkhart, Indiana 25,000
Dongguan, China 25,000
Selangor, Malaysia 20,000
Davie, Florida 14,000
Ballinamore, Ireland 12,000
Abingdon, England 12,000
Wallenfels, West Germany 9,000
North Sydney, Australia 1,000
Singapore 1,000
All of these principal facilities noted above are owned directly or indirectly
by the Company, except for leased facilities in Grand Rapids, Michigan;
Dongguan, China; Selangor, Malaysia; Abingdon, England; Singapore; and North
Sydney, Australia.
Item 3. Legal Proceedings.
The Company is involved in various litigation and other asserted and unasserted
claims arising in the ordinary course of business, primarily relating to product
warranty and clean-up costs at independently operated waste treatment/disposal
sites previously used by the Company or the predecessors of businesses purchased
by the Company. While the results of lawsuits or other proceedings against the
Company cannot be predicted with certainty, management believes that uninsured
and unreserved losses, if any, arising from these proceedings will not have a
material adverse effect on the business or consolidated financial position of
the Company.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of fiscal 1999 to a vote of
security holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Company's Common Equity and Related
Stockholder Matters.
The information required by this item is incorporated by reference herein from
the information included under caption "Stock Trading and Dividend Information"
in the Company's 1999 Annual Report to Shareholders and is included in Exhibit
13. There is no public trading market for the Company's Class B Common Stock.
Item 6. Selected Financial Data.
The information required by this item is incorporated by reference herein from
the information included under the caption "Selected Financial Data" in the
Company's 1999 Annual Report to Shareholders and is included in Exhibit 13.
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
The information required by this item is incorporated by reference herein from
the information included under the caption "Management's Discussion and Analysis
of Results of Operations and Financial Condition" in the Company's 1999 Annual
Report to Shareholders and is included in Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company is subject to market risk in the form of interest rate risk and
foreign currency risk. Both interest rate risk and foreign currency risk are
immaterial to the Company.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company are incorporated by
reference from the Company's 1999 Annual Report to Shareholders and are included
in Exhibit 13.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
No information is required to be disclosed under this item of this report
pursuant to Instruction 1 to Item 304 of Regulation S-K.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company.
The information required by this item with respect to directors of the Company
is incorporated herein by reference from the section entitled "Proposal Number
One, Election of Directors" of the Company's definitive Proxy Statement relating
to its Annual Meeting of Shareholders to be held March 31, 2000. See Part I, for
a list of the Company's executive officers, and their ages, positions and
offices.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by reference from
the section entitled "Compensation of Executive Officers" of the Company's
definitive Proxy Statement relating to its Annual Meeting of Shareholders to be
held March 31, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is incorporated herein by reference from
the sections entitled "Share Ownership of Certain Beneficial Owners" and
"Proposal Number One, Election of Directors" of the Company's definitive Proxy
Statement relating to its Annual Meeting of Shareholders to be held March 31,
2000.
Item 13. Certain Relationships and Related Transactions.
The information required by this item, if any, is incorporated herein by
reference from the section entitled "Proposal Number One, Election of Directors"
of the Company's definitive Proxy statement relating to its Annual Meeting of
Shareholders to be held March 31, 2000.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)-1 The following items, included in the Company's 1999 Annual
Report to Shareholders, are incorporated herein by reference
and are included herein in Exhibit 13.
Report of Independent Auditors
Consolidated Balance Sheets -- November 30, 1999 and 1998
Consolidated Statements of Income -- Years ended November 30,
1999, 1998 and 1997
Consolidated Statements of Cash Flows -- Years ended November
30, 1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity -- Years ended
November 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements -- November 30,
1999
(a)-2 The following financial statement schedule is filed as a part
of this report.
Schedule II
Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
(a)-3 Exhibits.
Exhibits Incorporated by Reference
EXHIBIT INDEX
Exhibit No. Description
2 Merger Agreement, dated March 4, 1996, by and among Lilly
Industries, Inc., LP Acquisition Corporation and Guardsman
Products, Inc. This exhibit is incorporated by reference to
Exhibit 2 to Lilly Industries, Inc.'s Form 8-K Current Report
filed with the SEC on April 22, 1996.
3.1 Restated Articles of Incorporation of Lilly Industries, Inc., as
amended. This exhibit is incorporated by reference to Exhibit
3(a) to Lilly Industries, Inc.'s Form 10-K Annual Report for the
fiscal year ended November 30, 1996.
3.2 Restated By-Laws of Lilly Industries, Inc., as amended. This
exhibit is incorporated by reference to Exhibit 3(b) to Lilly
Industries, Inc.'s Form 10-K Annual Report for the fiscal year
ended November 30, 1993.
4.1 Indenture, dated November 10, 1997,between Lilly Industries, Inc
and Harris Trust and Savings Bank. This exhibit is incorporated
by reference to Exhibit 4.1 to Lilly Industries, Inc.'s
Registration Statement on Form S-4 filed with the Commission on
December 5, 1997 (Commission No. 333-41587).
4.2 Credit Agreement, dated October 24, 1997, between Lilly
Industries, Inc., the Lenders Signatory thereto, and NBD Bank,
N.A. as Agent. This exhiit is incorporated by reference to
Exhibit 4.2 to Lilly Industries, Inc.'s Registration Statement on
Form S-4 filed with the Commission on December 5, 1997
(Commission No. 333-41587). First Amendment to Credit Agreement
among Lilly Industries, Inc., the lenders signatory thereto and
NBD Bank, N.A. as agent, dated as of April 4, 1998 is
incorporated by reference to Exhibit 4.4 to Lilly Industries,
Inc.'s Form 10-K Annual Report for the fiscal year ended November
30, 1998.
4.3 Rights Agreement, dated January 12, 1996, between Lilly
Industries, Inc. and KeyCorp Shareholder Services, Inc. as Rights
Agent. This exhibit is incorporated by reference to Exhibit 4 to
Lilly Industries, Inc.'s Form 8-A filed with the SEC on January
23, 1996.
10.1 Registration Agreement, dated November 5, 1997, between Lilly
Industries, Inc. and Salomon Brothers, Inc., Lehman Brothers,
Inc. and Schroder & Co., Inc. This exhibit is incorporated by
reference to Exhibit 10.1 to Lilly Industries, Inc.'s
Registration Statement on Form S-4 filed with the Commission on
December 5, 1997 (Commission No. 333-41587).
10.2 Form of Exchange Agent Agreement, dated December 22, 1997,
between Lilly Industries, Inc. and Harris Trust and Savings Bank.
This exhibit is incorporated by reference to Exhibit 10.2 to
Lilly Industries, Inc.'s Registration Statement on Form S-4 filed
with the Commission on December 5,1997 (Commission No.
333-41587).
*10.3 Lilly Industries, Inc. Unfunded Supplemental Retirement Plan (as
in effect November 29, 1990). This exhibit is Incorporated by
reference to Exhibit 10(b) to Lilly Industries, Inc.'s Form 10-K
Annual Report for the fiscal year ended November 30, 1990.
*10.4 Lilly Industries, Inc. Unfunded Excess Benefit Plan. This exhibit
is incorporated by reference to Exhibit 10(c) to Lilly
Industries, Inc.'s Form 10-K Annual Report for the fiscal year
ended November 30, 1989.
*10.5 Lilly Industries, Inc. Second Unfunded Supplemental Retirement
Plan (effective June 4, 1990). This exhibit is incorporated by
reference to Exhibit 10(f) to Lilly Industries, Inc.'s Form 10-K
Annual Report for the fiscal year ended November 30, 1990.
*10.7 Lilly Industries, Inc. 1991 Director Stock Option Plan. This
exhibit is incorporated by reference to Exhibit 10(i) to Lilly
Industries, Inc.'s Form 10-K Annual Report for the fiscal year
ended November 30, 1991.
*10.8 Lilly Industries, Inc. 1992 Stock Option Plan. This exhibit is
incorporated by reference to Exhibit 10(j) to Lilly Industries,
Inc.'s Form 10-K Annual Report for the fiscal year ended November
30, 1991. First Amendment to Lilly Industries, Inc. 1992 Stock
Option Plan. This exhibit is incorporated by reference to Exhibit
10.8 to Lilly Industries, Inc.'s Registration Statement on Form
S-4 filed with the Commission on December 5, 1997 (Commission No.
333-41587).
*10.9 Lilly Industries, Inc. Executive Retirement Plan (effective as of
January1, 1996). This exhibit is incorporated by reference to
Exhibit 10(i) to Lilly Industries, Inc.'s Form 10-K Annual Report
for the fiscal year ended November 30, 1996.
*10.10 Lilly Industries, Inc. Retirement Plan (effective as of January
1, 1996) and Trust Agreement for Lilly Industries, Inc.
Replacement Plan between Lilly Industries, Inc. and Bankers Trust
Company of Des Moines, dated September 27, 1996. This exhibit is
incorporated by reference to Exhibit 10(j) to Lilly Industries,
Inc.'s Form 10-K Annual Report for the fiscal year ended November
30, 1996.
*10.11 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Hugh M. Cates. This exhibit is
incorporated by reference to Exhibit 10(1) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.12 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Larry H. Dalton. This exhibit is
incorporated by reference to Exhibit 10(2) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.13 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and William C. Dorris. This exhibit is
incorporated by reference to Exhibit 10(3) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
<PAGE>
*10.14 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and John C. Elbin. This exhibit is
incorporated by reference to Exhibit 10(4) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.15 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Ned L. Fox. This exhibit is incorporated
by reference to Exhibit 10(5) to Lilly Industries, Inc.'s Form
10-Q Quarterly Report for the fiscal quarter ended August 31,
1997.
*10.16 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Douglas W. Huemme. This exhibit is
incorporated by reference to Exhibit 10(6) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.17 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and A. Barry Melnkovic. This exhibit is
incorporated by reference to Exhibit 10(7) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.18 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and John D. Million. This exhibit is
incorporated by reference to Exhibit 10(8) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.19 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Kenneth L. Mills. This exhibit is
incorporated by reference to Exhibit 10(9) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.20 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Gary D. Missildine. This exhibit is
incorporated by reference to Exhibit 10(10) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.21 Change in Control Agreement, dated September 5, 1997, by and
between Registrant and Robert A. Taylor. This exhibit is
incorporated by reference to Exhibit 10(11) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.22 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Keith C. Vander Hyde, Jr. This exhibit is
incorporated by reference to Exhibit 10(12) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
*10.23 Change in Control Agreement, dated September 26, 1997, by and
between Registrant and Jay M Wiegner. This exhibit is
incorporated by reference to Exhibit 10(13) to Lilly Industries,
Inc.'s Form 10-Q Quarterly Report for the fiscal quarter ended
August 31, 1997.
* Management contracts and compensatory plans required to be filed
pursuant to Item 14(c) of Form 10-K.
<PAGE>
Exhibits Filed Herewith:
4.4 Second Amendment to Credit Agreement among Lilly Industries, Inc., the
Lenders Signatory thereto and NBD Bank, N.A., as agent, dated as of
August 31, 1999.
4.5 Letter date November 29, 1999 appointing National CityBank as Rights
Agent under the Rights Agreement dated January 12, 1996 referenced as
Exhibit 4.3 to this Form 10-K
10.24 Douglas W. Huemme Executive Employment Agreement dated as of January
14, 2000.
10.25 Change in Control Agreement, dated February 3, 2000, by and between
Registrant and Olin R. Rocker.
10.26 Change in Control Agreement, dated February 3, 2000, by and between
Registrant and Alan DeBlandre.
10.27 Change in Control Agreement, dated February 3, 2000, by and between
Registrant and Virgil E. Underwood.
13 Excerpts from the Lilly Industries, Inc. 1999 Annual Report.
21 List of Subsidiaries.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 25, 2000
LILLY INDUSTRIES, INC.
/s/ Douglas W. Huemme
------------------------------
Douglas W. Huemme,
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Signature Title Date
(1) Principal Executive
Officer and Director
/s/ Douglas W. Huemme Chairman and Chief February 25, 2000
- ----------------------- Executive Officer
Douglas W. Huemme
(2) Principal Financial
Officer and Director
/s/ John C. Elbin Vice President, February 25, 2000
- ------------------------ Chief Financial Officer
John C. Elbin and Secretary
(3) Principal
Accounting Officer
/s/ Kenneth L. Mills Corporate Controller February 25, 2000
- ----------------------- and Assistant
Kenneth L. Mills Secretary
<PAGE>
(4) A majority of the
Board of Directors
/s/ James M. Cornelius Director February 25, 2000
- ---------------------------
James M. Cornelius
/s/ William C. Dorris Director February 25, 2000
- ---------------------------
William C. Dorris
/s/ Paul K. Gaston Director February 25, 2000
- ---------------------------
Paul K. Gaston
/s/ Harry Morrison, Ph.D. Director February 25, 2000
- ---------------------------
Harry Morrison, Ph.D.
/s/ Norma J. Oman Director February 25, 2000
- ---------------------------
Norma J. Oman
/s/ John D. Peterson Director February 25, 2000
- ---------------------------
John D. Peterson
/s/ Thomas E. Reilly, Jr. Director February 25, 2000
- ---------------------------
Thomas E. Reilly, Jr.
/s/ Robert A. Taylor Director February 25, 2000
- ---------------------------
Robert A. Taylor
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------ ------ ------ ------ ------
Additions
Description Balance at Deductions- Balance
Beginning Charged to Charged to Acquired in Describe at End of
of Period Costs and Other Accounts Business Period
Expenditures -Describe Combination
<S> <C> <C> <C> <C> <C> <C>
Year ended November 30, 1999:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $1,981,000 $127,000 $-- $-- $333,000 (A) $1,775,000
==============================================================================================
Year ended November 30, 1998:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $2,139,000 $752,000 $-- $-- $910,000 (A) $1,981,000
==============================================================================================
Year ended November 30, 1997:
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
accounts receivable $2,705,759 $538,000 $-- $-- $1,104,759 (A) $2,139,000
==============================================================================================
</TABLE>
Note A - Uncollectible accounts receivable charged off, net of recoveries.
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT made as of the 31st day of August, 1999, by and
among LILLY INDUSTRIES, INC., an Indiana corporation (the "Borrower"), the
LENDERS party hereto, and BANK ONE, INDIANA, N.A., as successor by merger to NBD
BANK, N.A., a national banking association, as agent for the Lenders hereunder
(in such capacity, the "Agent");
W I T N E S S E T H:
WHEREAS, as of October 24, 1997, the parties hereto entered into a
certain Credit Agreement, as amended April 4, 1998 (as amended, the
"Agreement"); and
WHEREAS, the Borrower has requested modifications to the Agreement (a)
to allow the Borrower to obtain mortgage financing on its new headquarters in
Indianapolis, Indiana, and (b) to change the calculation of the Fixed Charge
Coverage Ratio, and the Required Lenders have consented to such modifications
subject to and as provided in this Second Amendment;
NOW, THEREFORE, in consideration of the premises, and the mutual
promises herein contained, the parties agree that the Agreement shall be, and it
hereby is, amended as provided herein and the parties further agree as follows:
PART I. AMENDATORY PROVISIONS
SECTION 1 Definitions
1.1 Defined Terms.
-------------
Section 1.1 of the Agreement is hereby amended by substituting the
following definition in lieu of the like existing definition:
"Fixed Charge Coverage Ratio" means, with respect to Borrower
and its Subsidiaries determined on a Consolidated basis, the ratio of
(a) the sum of (i) EBITDA minus (ii) Capital Expenditures, plus (iii)
Permitted Corporate Headquarters Expenditures, plus (iv) Rentals, to
(b) the sum of (i) interest expense, plus (ii) scheduled principal
payments in respect of Indebtedness paid in such period, plus (iii)
taxes paid, plus (iv) Rentals, plus (v) dividends paid in such period,
all as determined on the last day of each fiscal quarter of Borrower by
reference to the Financial Statements; in each instance determined for
the trailing four (4) quarter period ending on the date of
determination. Section 1.1 of the Agreement is hereby further amended
by adding the following definition:
"Mortgage Lien" shall have the meaning ascribed in Schedule
5.2.2.
"Permitted Corporate Headquarters Expenditures" means any
expenditures incurred in any quarter related to the purchase and
construction of the Borrower's corporate headquarters (including
furniture and fixtures) located at 200 West 103rd, Indianapolis,
Indiana 46290, but only to the extent the sum of all such expenditures
whenever incurred do not exceed $15,000,000 in the aggregate.
SECTION 5 Covenants
5.2. Negative Covenants.
-------------------
5.2.15. Restrictive Agreements. Section 5.2.15 of the
Agreement is hereby amended by adding "and excluding any restrictions
under the Mortgage Lien" after "Documents" in the second line thereof.
PART II. SCHEDULES
The Agreement is hereby amended by substituting Schedule 4.10, 5.2.2
and 5.2.3 to this Second Amendment in lieu of Schedules 4.10, 5.2.2 and 5.2.3,
respectively, to the Agreement.
PART III. CONTINUING EFFECT
Except as expressly modified herein:
(a) All terms, conditions, representations, warranties and
covenants contained in the Agreement shall remain the same and shall
continue in full force and effect, interpreted, wherever possible, in a
manner consistent with this Second Amendment; provided, however, in the
event of any irreconcilable inconsistency, this Second Amendment shall
control;
(b) The representations and warranties contained in the
Agreement shall survive this Second Amendment in their original form as
continuing representations and warranties of the Borrower; and
(c) Capitalized terms used in this Second Amendment, and not
specifically herein defined, shall have the meanings ascribed to them
in the Agreement.
In consideration hereof, the Borrower represents, warrants, covenants and agrees
that:
(aa) Each representation and warranty set forth in the
Agreement, as hereby amended, remains true and correct as of the date
hereof in all material respects, except to the extent that such
representation and warranty is expressly intended to apply solely to an
earlier date and except changes reflecting transactions permitted by
the Agreement;
(bb) There currently exists no offsets, counterclaims or
defenses to the performance of the Obligations (such offsets,
counterclaims or defenses, if any, being hereby expressly waived);
(cc) There has not occurred any Default or Unmatured Default;
and
(dd) After giving effect to this Second Amendment and any
transactions contemplated hereby, no Default or Unmatured Default is or
will be occasioned hereby or thereby.
PART IV. INDEPENDENT CREDIT DECISION
Each Lender acknowledges that it has, independently and without
reliance upon the Agent or any other Lender, based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Second Amendment.
PART V. CONDITIONS PRECEDENT
Notwithstanding anything contained in this Second Amendment to the
contrary, the Lenders shall have no obligation under this Second Amendment until
each of the following conditions precedent have been fulfilled to the
satisfaction of the Agent:
(a) Each of the conditions set forth in Section 6.2 of the
Agreement shall have been satisfied;
(b) The Agent shall have received counterparts of this Second
Amendment duly executed by the Agent, Borrower and the Required
Lenders;
(c) A fee shall be paid by Borrower to the Agent for the
benefit of each Lender that has executed and delivered a counterpart of
this Second Amendment by September 8, 1999 in an amount equal to $3,000
for each such Lender;
(d) All legal matters incident to this Second Amendment shall
be reasonably satisfactory to the Agent and its counsel.
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have caused
this Second Amendment to be executed by their respective officers duly
authorized as of the date first above written.
[This space intentionally left blank]
<PAGE>
SIGNATURE PAGE OF
LILLY INDUSTRIES, INC.
TO
SECOND AMENDMENT TO
CREDIT AGREEMENT
LILLY INDUSTRIES, INC.
By: /s/ John C. Elbin
John C. Elbin, Vice President,
Chief Financial Officer and Secretary
Address:
200 West 103rd Street
Indianapolis, Indiana 46290
Attention: John C. Elbin
Facsimile: 317-814-8780
<PAGE>
SIGNATURE PAGE OF
BANK ONE, INDIANA, N.A. TO
SECOND AMENDMENT TO
CREDIT AGREEMENT
BANK ONE, INDIANA, N.A.(successor by
merger to NBD BANK, N.A.),
individually and as Agent
By: Dennis L. Bassett
Its: Senior Vice President
<PAGE>
SIGNATURE PAGE OF
FIRST UNION NATIONAL BANK
TO
SECOND AMENDMENT TO
CREDIT AGREEMENT
FIRST UNION NATIONAL BANK
By: David C. Hauglia
Its: Vice President
<PAGE>
SIGNATURE PAGE OF
HARRIS TRUST AND SAVINGS BANK
TO
SECOND AMENDMENT TO
CREDIT AGREEMENT
HARRIS TRUST AND SAVINGS BANK
By: Thad D. Rascne
Its: Vice President
<PAGE>
SIGNATURE PAGE OF
KEYBANK NATIONAL ASSOCIATION
TO
SECOND AMENDMENT TO
CREDIT AGREEMENT
KEYBANK NATIONAL ASSOCIATION
By: Frank J. Jancar
Its: Vice President
<PAGE>
SIGNATURE PAGE OF
NATIONAL CITY BANK OF INDIANA
TO
SECOND AMENDMENT TO
CREDIT AGREEMENT
NATIONAL CITY BANK OF INDIANA
By:
Its: Vice President
<PAGE>
SIGNATURE PAGE OF
BANK OF AMERICA N.A.
TO
SECOND AMENDMENT TO CREDIT AGREEMENT
BANK OF AMERICA N.A. (formerly
known as Bank of America N.T. & S.A.)
By:
Its: Managing Director
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
among
LILLY INDUSTRIES, INC.
an Indiana corporation
the Lenders Signatory Hereto
and
BANK ONE, INDIANA, N.A. (successor by merger to NBD Bank, N.A.), as Agent
Dated as of August 31, 1999
<PAGE>
TABLE OF CONTENTS
PART I. AMENDATORY PROVISIONS ........................................... 1
SECTION 1 Definitions ................................. 1
1.1 Defined Terms............... 1
SECTION 5 Covenants.................................... 2
5.2 Negative Covenants............. 2
5.2.15 Restrictive Agreements......... 2
PART II. SCHEDULES......................................................... 2
PART III. CONTINUING EFFECT................................................. 2
PART IV. INDEPENDENT CREDIT DECISION....................................... 3
PART V. CONDITIONS PRECEDENT.............................................. 3
<PAGE>
SCHEDULE 4.10 and 5.2.3
Indebtedness
The Borrower incorporates Schedule 5.2.2 by reference into Schedules
4.10 and 5.2.3.
A 10-year economic development note relating to the State of Kentucky.
The principal amount of the note is $186,000 and the lender is National City
Bank.
Indebtedness in the aggregate principal amount not exceeding
$15,000,000 owed to a Lender party to the Agreement secured by the Mortgage
Lien, including any renewal, extension or refinancing thereof.
<PAGE>
SCHEDULE 5.2.2
Permitted Liens
The mortgage lien in favor of a Lender party to the Agreement
encumbering Borrower's real estate located at 2200 West 103rd, Indianapolis,
Indiana 46290, and all buildings and improvements now or hereafter located
thereon and all other tangible personal property owned by Borrower and now or
hereafter used or intended for use in constructing, furnishing, equipping and
operating any improvements located on such real estate (the "Mortgage Lien").
November 29, 1999
Via Certified Mail
Mr. J. Dean Presson
Vice President National City Bank
Corporate Trust Administration
629 Euclid Avenue, Suite 635
Cleveland, OH 4414
Re: Lilly Industries, Inc. Rights Agreement
Dear Mr. Presson:
Pursuant to Section 21 of that certain Rights Agreement by and between Lilly
Industries, Inc. ("Lilly") and KeyCorp Shareholder Services, Inc. ("KeyCorp"),
dated as of January 12, 1996 (the "Agreement"), Lilly hereby provides notice
that, effective December 6, 1999, KeyCorp shall be removed as Rights Agent under
this Agreement. Pursuant to Section 21 of the Agreement, Lilly has appointed
National City Bank to be the successor Rights Agent effective as of December 6,
1999. For your records, please find enclosed a copy of the Rights Agreement.
Sincerely,
John C. Elbin
Vice President, Chief Financial Officer
and Secretary
Encls.
JCE/la
119905
<PAGE>
November 29, 1999
Via Certified Mail
Corporate Trust Officer
KeyCorp Shareholder Services, Inc.
127 Public Square, 15th Floor
Cleveland, OH 4414
Re: Lilly Industries, Inc. Rights Agreement
To Whom It May Concern:
Pursuant to Section 21 of that certain Rights Agreement by and between Lilly
Industries, Inc. ("Lilly") and KeyCorp Shareholder Services, Inc. ("KeyCorp"),
dated as of January 12, 1996 (the "Agreement"), Lilly hereby provides notice
that effective December 6, 1999, KeyCorp shall be removed as Rights Agent under
this Agreement.
Sincerely,
John C. Elbin
Vice President, Chief Financial Officer
and Secretary
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 14th day of January 2000
by and between LILLY INDUSTRIES, INC. (the "Company"), an Indiana corporation
with its principal place of business in Indianapolis, Indiana, and DOUGLAS W.
HUEMME ("Executive").
Background
Executive has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since 1991. The Company recognizes Executive's
service, experience, and knowledge in the coatings industry generally and with
the Company specifically, and desires to retain the future services of Executive
to the date of his retirement, and Executive wishes to continue to be employed
by the Company on the terms set out in this Agreement.
Agreement
In consideration of the mutual promises and covenants made herein, and
intending to be legally bound, the parties agree as follows:
1. Employment. The Company hereby agrees to continue the employment of
Executive as Chairman of the Board of Directors and Chief Executive Officer of
the Company and in such other capacity as the Company and Executive may mutually
agree from time to time. As Chairman and Chief Executive Officer, Executive
shall report directly to, and be subject to the direction of, the Board of
Directors of the Company (the "Board"). Executive shall perform all management
and executive duties incident to the offices of the Chairman and Chief Executive
Officer, and such other duties as, from time to time, may be assigned to him by
the Board. Executive, if so appointed or elected, shall serve as an officer of
the Company or of any other company which is a subsidiary or affiliate of the
Company ("Affiliate") or as a director of an Affiliate, and, if appointed or
elected, shall serve in each of such other capacities without compensation in
addition to the compensation and benefits provided in this Agreement.
2. Employment Term. The employment of Executive under this Agreement
shall commence on January 14, 2000 (the "Commencement Date") and shall continue
until the close of business on January 14, 2002; provided, however, that
commencing on January 14, 2001 and on each anniversary thereafter, the term of
this Agreement shall automatically be extended for an additional one (1) year
unless either the Board or Executive give written notice to the other at least
one (1) year prior thereto that the term of the Agreement shall not be extended.
Notwithstanding the foregoing, the employment of Executive hereunder shall be
subject to resignation or termination in accordance with the provisions of
Section 6. As used in this Agreement, the term "Expiration Date" means January
14, 2002 or, if applicable, the annual anniversary thereafter on which the
employment of Executive shall automatically terminate in accordance with the
provisions of this Section 2, and the term "Employment Term" means the period
beginning on the Commencement Date and ending on the earlier of the Expiration
Date, "Termination Date," "Resignation Date," or other date Executive ceases to
be employed by the Company in accordance with Section 6.
- 1 -
<PAGE>
3. Compensation. Executive shall receive a base salary of no less than
Five Hundred Thousand and No/100 Dollars ($500,000.00) per year beginning on the
Commencement Date ("Annual Base Salary"). In addition, Executive shall receive a
year-end bonus ("Bonus") paid in accordance with the Company's bonus plan for
its corporate executive officers. The Annual Base Salary and Bonus of Executive
shall be set annually by the Board.
4. Other Benefits. In addition to the Annual Base Salary and Bonus,
Executive shall be entitled to the following benefits during the Employment Term
and to the extent specifically so provided for the period after the Employment
Term regardless of the type of termination:
(a) Executive shall have the right to participate in the
Company's group life, supplemental life, medical, dental, accidental
death and dismemberment, long-term disability, and other insurance
programs, sick pay program, flexible spending plan, tuition assistance
plan, 401(k) savings and employee stock purchase plans, incentive and
non- qualified stock option programs, pension plan, and any other
employee benefit plan offered by the Company to its executive officers
as a group, on the same terms as the other executive officers of the
Company.
(b) The Company shall reimburse Executive for all reasonable
travel and other business out-of-pocket expenses incurred by Executive
in the performance of his duties hereunder. Such reimbursements shall
be subject to the policies and procedures established by the Company.
(c) Executive shall be entitled to continued participation in
the Company's Second Unfunded Supplemental Retirement Plan pursuant to
the terms of said plan, as amended by letter dated December 22, 1993.
(d) Executive shall be entitled to continued participation in
the Company's Executive Retirement Plan pursuant to the terms of said
plan, as amended by letter dated June 14, 1996.
(e) Executive shall be entitled to continued participation in
the Company's Replacement Plan pursuant to the terms of said plan.
(f) Executive shall be entitled to the continued protections
and benefits of the Company's Change in Control Agreement, executed on
September 26, 1997.
(g) Executive shall be entitled to continued participation in
the Company's Split Dollar Insurance Agreement providing $2.0 million
of death benefit. Notwithstanding the terms of said agreement, the
Company shall pay the premiums as required under Section 4 thereof
until the policy value is sufficient to be in paid-up status.
- 2 -
<PAGE>
(h) Executive shall be reimbursed for fees and expenses
incurred by him in connection with the preparation of his income taxes
and the receipt of financial and estate planning advice; provided,
however, the reimbursed amount shall be grossed up to cover any income
taxes of Executive arising out of any reimbursement under this
subsection.
(i) Executive shall receive an annual executive physical
examination to be provided by the Company at no cost to Executive, as
approved by the Board.
(j) The Company shall pay all club membership dues of
Executive, as approved by the Board; provided, however, the reimbursed
amount shall be grossed up to cover any income taxes of Executive
arising out of any reimbursement under this subsection.
(k) Executive and his spouse shall be entitled to medical and
dental benefits coverage upon retirement, substantially similar to
existing coverage.
(l) Executive shall be entitled to five (5) weeks of paid
vacation time per year. Such vacation time shall not cumulate year to
year.
(m) If Executive retires or is subject to a Long-Term
Disability, or if the employment of Executive terminates in the
circumstances described in Section 7, the Company shall accelerate and
make immediately exercisable, any and all unmatured options (whether or
not such options are otherwise exercisable) which Executive then holds,
to acquire securities from the Company; provided, however, that
Executive shall have until the original expiration date to exercise any
such outstanding options. If such acceleration causes any incentive
stock option to be converted to a nonqualified stock option, Executive
shall be grossed up for any income taxes to the extent of the tax
savings to the Company as a result of such conversion. This section
shall apply in all cases except if Executive is terminated for cause
under Section 6(c).
5. Employment Duties and Best Efforts. During the Employment Term,
Executive shall work full-time for the Company and shall devote his full
attention, knowledge, skills, energies and best efforts to the performance of
his duties and responsibilities to the Company and its Affiliates and in his
activities to further the businesses and interests of the Company and its
Affiliates. The Board recognizes the benefit to the Company of Executive serving
on other company and not-for- profit boards, so long as such services do not
significantly interfere with the performance of his duties under this Agreement.
Throughout the Employment Term, Executive shall not indirectly engage in any
activity which would significantly interfere with the faithful performance of
his duties under this Agreement.
- 3 -
<PAGE>
6. Termination. Executive's employment may terminate, in addition to
its automatic termination at the Expiration Date under Section 2, as follows:
(a) Termination Upon Death. In the event of Executive's death,
the Employment Term shall cease, and Executive's Beneficiary, as
defined below, shall be entitled to receive: (i) his Annual Base Salary
at the rate then in effect pursuant to Section 3 for a period of six
(6) months following the date of death; (ii) a year-end Bonus (paid in
accordance with the Company's bonus plan) prorated for the months
during which Executive received his Annual Base Salary for that fiscal
year in which his death occurs; and (iii) any medical, pension, death,
disability, supplemental executive retirement plan ("SERP") and/or
other benefits to which Executive is entitled under the terms of this
Agreement or under the terms of any employee benefit plan of the
Company in which he participates and which is in effect at the time of
his death. All compensation hereunder shall be subject to withholding
and other applicable tax laws. Executive's Beneficiary shall mean a
revocable trust created by Executive during his lifetime and in
existence at the date of his death, but only if Executive has given
written notice to the Company of the existence of such trust by
providing the name of the trust, the date created, and the name of the
trustee, or in the absence of such notification, Executive's
Beneficiary shall be his estate.
(b) Termination Upon Long-Term Disability. In the event of
Executive's Long- Term Disability, the Employment Term shall cease, and
Executive shall be entitled to receive: (i) his Annual Base Salary at
the rate then in effect pursuant to Section 3 for a period of six (6)
months following the date the Long-Term Disability first occurs; (ii) a
year- end Bonus (paid in accordance with the Company's bonus plan)
prorated for the months during which Executive received his Annual Base
Salary for that fiscal year in which the Long-Term Disability occurs;
and (iii) any medical, pension, death, disability, SERP and/or other
benefits to which Executive is entitled under the terms of this
Agreement or under the terms of any employee benefit plan of the
Company in which he participates and which is in effect at the time his
Long-Term Disability occurs. Following the expiration of six (6)
months, Executive shall be entitled to benefits under the Company's
long-term disability insurance program, pursuant to the terms
thereunder. For purposes of this Agreement, "Long- Term Disability"
shall mean a physical or mental disability which renders Executive
incapable of performing his duties under this Agreement or comparable
duties for another employer and which disability is reasonably expected
to continue for a period of at least six (6) months or more, as
determined in good faith by the Board based on reasonable medical
evidence, including the opinion of an independent physician mutually
agreed to by Executive and the Company (which agreement shall not be
unreasonably withheld). All compensation hereunder shall be subject to
withholding and other applicable tax laws.
(c) Termination for Cause. In the event Executive:
(i) commits any dishonest, fraudulent, or felonious
act which act has a material adverse effect on the Company;
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<PAGE>
(ii) commits any gross dereliction of duties or
willful malfeasance in the discharge of his duties to the
Company or any of its Affiliates having a material adverse
effect on the Company;
(iii) discloses or uses confidential information as
set forth in Section 11 to a party unrelated to the Company or
an Affiliate, other than in the normal and ordinary
performance of service for the Company or Affiliate which has
a material adverse effect on the Company; or
(iv) engages in competition as set forth in Section
12 with the Company or an Affiliate which has a material
adverse effect on the Company;
then the Employment Term shall terminate automatically upon action by
the Board. Such termination shall be treated as a termination for
"Cause" and the "Termination Date" shall be the actual date Executive
terminates employment with the Company, notwithstanding any resignation
under Section 6(e). If, prior to the Expiration Date, the Board
terminates Executive's employment for Cause, Executive shall be
entitled to payment of that portion of the Annual Base Salary under
Section 3 that Executive earned through and including the Termination
Date at the rate of the Annual Base Salary in effect at that time;
provided, however, that Executive shall not be eligible for any Bonus
under Section 3 with respect to any periods before or after said
Termination Date. In no event shall Executive be eligible to receive
any portion of his Annual Base Salary or any other compensation or
benefits under this Agreement with respect to any future periods
beginning on or after the Termination Date, including, but not limited
to, any Bonus under Section 3, except any vested retirement or medical
benefits under any employee benefit plan.
(d) Termination for Good Reason. Executive shall have the
right to terminate his employment with the Company for "Good Reason" by
providing written notice of the termination to the Company
("Termination Notice"). The effective date of Executive's termination
shall be that specified in the Termination Notice, or the actual date
Executive terminates employment with the Company, whichever occurs
earlier (the "Termination Date"). For purposes of this Agreement, "Good
Reason" shall mean:
(i) Any change in Executive's title, authority, or
responsibilities which, in Executive's reasonable judgment,
does not represent a promotion from his status, title,
position or responsibilities under this Agreement;
(ii) The assignment to Executive of any duties or
work responsibilities which, in Executive's reasonable
judgment, are inconsistent with his status, title, position or
work responsibilities under this Agreement;
(iii) A reduction by the Company in Executive's
Annual Base Salary;
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<PAGE>
(iv) The relocation of the Company's principal office
or the reassignment of Executive to a location more than forty
(40) miles from the location at which Executive performed his
duties at the Commencement Date of this Agreement (except for
required travel on the Company's business to an extent
substantially consistent with his business travel obligations
immediately prior to the relocation);
(v) The failure by the Company to continue in effect
any Bonus or other compensation plan in which Executive
participates, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to
continue Executive's participation therein, or any action by
the Company which would directly or indirectly materially
reduce his participation therein or reward opportunities
thereunder;
(vi) The failure by the Company to continue in effect
in substantially equivalent form any employee benefit plan
(including any medical, hospitalization, life insurance or
disability benefit plan in which Executive participates), or
any material fringe benefit or perquisite enjoyed by
Executive, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with
respect to such plan;
(vii) Any material breach by the Company of any
provision of this Agreement;
(viii) The failure of the Company to obtain a
satisfactory agreement from any successor or assign of the
Company to assume and agree to perform this Agreement;
(ix) A family emergency of Executive which is
approved by the Board, which approval shall not be
unreasonably withheld; or
(x) Executive's terminal illness, if Executive
provides the Board satisfactory evidence of such illness from
his medical doctor(s).
If, prior to the Expiration Date, Executive terminates his employment
with the Company for Good Reason, Executive shall be entitled to
payment of that portion of the Annual Base Salary under Section 3 that
Executive earned through and including the Termination Date, at the
rate of the Annual Base Salary in effect at that time. In addition,
Executive shall be entitled to the separation benefits under Section 7.
(e) Termination With Notice. Executive may resign
from his employment with the Company pursuant to this
Agreement at any time by providing written notice to the Board
of his resignation at least twelve (12) months prior to the
effective date of the
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<PAGE>
resignation (the "Resignation Notice"). The effective date of
Executive's resignation shall be that specified in the Resignation
Notice, or the actual date Executive terminates employment with the
Company as the result of a resignation, whichever occurs earlier (the
"Resignation Date"). If, prior to the Expiration Date, Executive
resigns his employment, Executive shall be entitled to payment of that
portion of the Annual Base Salary and prorated Bonus under Section 3
that Executive earned through and including the Resignation Date, at
the rate of the Annual Base Salary in effect at that time. Executive
shall not be eligible to receive any portion of the Annual Base Salary
with respect to any future periods beginning on or after the
Resignation Date, including, but not limited to, any Bonus under
Section 3 which was not due and payable in accordance with the
provisions thereof prior to the Resignation Date. Executive shall be
entitled, however, to any medical, pension, death, disability, SERP
and/or other benefits to which he is entitled under this Agreement or
under the terms of any employee benefit plan of the Company in which he
participates and which is in effect at the time of his Resignation
Date.
(f) Termination Without Cause. The Board may, in its sole
discretion, terminate Executive's employment with the Company pursuant
to this Agreement at any time without Cause, by providing written
notice to Executive at least thirty (30) days prior to the "Termination
Date". The term "Termination Date" shall mean the actual date Executive
terminates employment with the Company as a result of action taken by
the Board, and not as a result of Executive's resignation as provided
in Section 6(e). If, prior to the Expiration Date, the Board terminates
Executive's employment without Cause, Executive shall be entitled to
payment of that portion of the Annual Base Salary under Section 3 that
Executive earned through and including the Termination Date, at the
rate of the Annual Base Salary in effect at that time. In addition,
Executive shall be entitled to the separation benefits under Section 7.
7. Separation Protections. Executive shall be entitled to separation
pay as provided in this Section 7, if the Company terminates Executive's
employment without Cause or if Executive terminates his employment for Good
Reason. In the event of such termination, the Company shall pay or provide
Executive:
(a) Executive's Annual Base Salary at the rate in effect as of
his Termination Date, payable through the Expiration Date as if
Executive had continued in his employment;
(b) An amount equal to all Bonus payments to which Executive
would have been entitled had he continued in his employment through the
Expiration Date;
(c) During the period Executive's Annual Base Salary is
continued under this Section 7, Executive shall be entitled to continue
his (and his spouse's) coverage under the Company's group medical,
dental, accident, life and disability benefit insurance plans in which
Executive was entitled to participate immediately prior to his
Termination Date. In the event Executive's participation in any such
plan, program or arrangement is not legally
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<PAGE>
possible under any such plan, or any such plan, program or arrangement
is discontinued or the benefits thereunder are materially reduced, the
Company shall arrange to provide Executive with benefits substantially
similar to those which Executive would have otherwise been entitled to
receive under such plans, programs and arrangements prior thereto at
the Company's cost;
(d) As provided under Section 4(m), the Company shall
accelerate and make immediately exercisable any and all unmatured
options (whether or not such options are otherwise exercisable) which
Executive then holds to acquire securities from the Company; provided,
however, that Executive shall have until the original expiration date
to exercise any such outstanding options.
Any separation payments made under this Section 7 shall be offset by any
severance amounts payable under the September 26, 1997 Change in Control
Agreement, exclusive of any excise taxes and/or gross-up payments. The
separation payments under this Section 7 shall be subject to all applicable
federal and state income and other withholding taxes.
8. Relocation Expenses. At the Expiration Date or upon Executive's
resignation or termination of employment under Section 6, the Company shall pay
or reimburse Executive for all reasonable costs incurred by Executive in
relocating to a location within the continental United States (but outside of
Hamilton County and the counties contiguous to it) within five (5) years from
the date of Executive's resignation or termination, including all reasonable
costs of moving, selling Executive's residence and purchasing a new residence,
and with full reimbursement of income taxes, but not including any guarantee of
the market value of Executive's residence; provided, however, that any of such
costs which are also paid or reimbursed by any third party shall not be paid or
reimbursed by the Company and Executive shall return any monies already paid or
reimbursed by the Company in such event.
9. Fees and Expenses. The Company shall pay all reasonable legal fees
and related expenses (including the costs of experts, evidence and counsel)
incurred by Executive as a result of (a) Executive's termination of employment
for Good Reason (including all such fees and expenses, if any, incurred in
contesting or disputing any such termination of employment whether or not such
contest or dispute is resolved in Executive's favor), (b) the Company's
termination of Executive's employment without Cause, or (c) Executive seeking to
obtain or enforce any right or benefit provided by this Agreement or by any
other plan or arrangement maintained by the Company under which Executive is or
may be entitled to receive benefits, unless the Company shall ultimately prevail
in establishing termination of Executive's employment for Cause. In addition,
the Company shall gross up any payments under this Section 9 to cover any income
taxes of Executive arising out of any reimbursement under this Section 9.
10. Inventions. Executive agrees that all processes, discoveries,
formulas, improvements, technologies, designs and inventions ("Inventions"),
including new contributions, improvements, ideas and discoveries, whether
patentable or not, conceived, developed, invented or made by him,
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<PAGE>
or by him jointly with others, during the Employment Term shall belong to the
Company or its Affiliates. Executive shall further:
(a) promptly disclose such Inventions to the Company;
(b) assign to the Company, without additional
compensation, all patent and other rights to such
Inventions, whether patentable or unpatentable,
including all substitute, continuation-in-part and
reissue applications, patents of addition, and
confirmation relative thereto, for the United States
of America and foreign countries;
(c) sign all papers necessary to carry out the foregoing;
and
(d) give testimony in support of his inventorship.
Furthermore, if any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by Executive within one (1)
year after the termination of his Employment Term by the Company, it is to be
presumed that the Invention was conceived or made during the Employment Term.
Executive agrees that he will not assert any rights to any Invention as having
been made or acquired by him prior to June 4, 1990, his original date of
employment by the Company, except for Inventions, if any, disclosed to the
Company in writing prior to said date.
11. Confidentiality Covenant. Executive agrees that while he is
employed by the Company and at all times thereafter he shall not, directly or
indirectly, disclose or use to the detriment of the Company or any of its
Affiliates or for the benefit of any other person or firm any confidential
information or trade secrets of the Company or any of its Affiliates which are
not readily available in the public domain (including, but not limited to, the
identity and particular needs of any customer of the Company or any of its
Affiliates, the methods and techniques of any of the businesses of the Company
or any of its Affiliates, the marketing and business plans and objectives of the
Company or any of its Affiliates, and the formula of any product of the Company
or any of its Affiliates). Furthermore, Executive shall promptly deliver to the
Company upon termination of his employment, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints,
formulas, and other documents (and all copies thereof, excluding Executive's
personal calendar and telephone directory) relating to the businesses of the
Company or any of its Affiliates and all property associated therewith, which he
may then possess or have under his control. This Agreement supplements and does
not supersede Executive's obligations under a statute or the common law to
protect the Company's trade secrets and confidential information.
12. Covenant Not to Compete. The restrictions of this Section 12 shall
apply during the Employment Term and for the two (2) year period following the
end of the Employment Term. If Executive breaches any provision of this
Agreement, the period during which the restrictions of this Agreement apply
shall be extended for an additional period equal to the period of the breach
plus an additional three (3) months. While the restrictions of this Section 12
apply, Executive is
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<PAGE>
prohibited from engaging in any direct or indirect competition with the Company
or an Affiliate, including, but not limited to:
(a) Directly or indirectly accepting employment with,
consulting with, or assisting any activity or business that is the same
as, substantially similar to, or competitive with that of the Company
or an Affiliate, including a business that is involved with the sale,
design, development, manufacture, or production of products competitive
with those sold (or anticipated to be sold) by the Company or an
Affiliate. This prohibition shall apply to any employment with,
involvement in, or control of another business, whether as an employee,
owner, manager, sole proprietor, joint venturer, partner, shareholder,
independent contractor, consultant, officer, director, or in any other
capacity. This prohibition shall not prevent the ownership of stock of
less than five percent (5%) of the outstanding shares of any
publicly-held competitor of the Company or Affiliate, provided that (i)
the investment is passive, (ii) Executive has no other involvement with
the corporation, and (iii) Executive makes full disclosure to the
Company of the stock ownership at the time Executive acquires it.
(b) Soliciting, contacting, or servicing any current customer
or client of the Company or Affiliate, or any person who has been a
customer or client of the Company or Affiliate at any time during the
previous three (3) years, or any potential customer or client of the
Company or Affiliate whom Executive has solicited on behalf of the
Company or Affiliate in the previous year.
(c) Directly or indirectly seeking to influence, facilitate,
or encourage any employee of the Company or Affiliate to leave its
employment.
The restrictions outlined above shall be applicable and enforceable
only in the geographical area served by the Company or an Affiliate during the
two (2) years prior to Executive's termination of employment with the Company.
Executive agrees to inform any prospective competing employer about the
existence of this Section 12 before accepting new employment and shall not
agree, as a term of any new employment, that the new employer will defend
Executive or pay his attorneys' fees in the event of a lawsuit brought by the
Company to enforce the terms of this Section 12.
13. Remedies for Breach. Executive acknowledges that breach of the
covenants contained in Sections 10, 11, and 12 would cause the Company immediate
and irreparable harm and that the legal remedies for breach of the covenants
contained in Sections 10, 11 and 12 are inadequate, and therefore agrees that,
in addition to any or all other remedies available to the Company and its
Affiliates, in the event of a breach or a threatened breach of any covenant
contained in Section 10, 11 or 12, the Company or any of its Affiliates may:
(a) Obtain immediate injunctive relief in the form of a
temporary restraining order without notice, preliminary injunction,
and/or permanent injunction against
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<PAGE>
Executive to enforce the terms of this Agreement, and the Company shall
not be required to post any bond or other security to obtain such
injunctive relief from the courts; and
(b) Recover from Executive an amount equal to (i) all sums
paid by the Company or any of its Affiliates to him after commencement
of the breach plus (ii) all costs and expenses (including reasonable
attorneys' fees) incurred by the Company or any of its Affiliates in
enforcement of the covenant plus (iii) all revenues derived from the
actions in breach of the covenants which are received by Executive or
by any person or firm on whose behalf Executive breached or threatened
to breach the covenants in Section 10, 11 or 12.
14. Notice. Any notice required to be given by the Company hereunder to
Executive shall be in proper form if signed by the Secretary of the Company or
other person designated by the Board. Until one party shall advise the other in
writing to the contrary, notices shall be deemed delivered
(a) To the Company if delivered to the Secretary of the
Company, or, if mailed, by certified or registered mail, postage
prepaid, to:
Lilly Industries, Inc.
200 West 103rd Street
Indianapolis, Indiana 46290
Attn: Chair of Compensation Committee/
Board of Directors
(b) To Executive if delivered to Executive in person or if
mailed, by certified or registered mail, postage prepaid, to the
address as designated by Executive on his most recent personnel form
containing such information.
15. Liability Insurance Coverage and Indemnification. Nothing in this
Agreement shall deprive Executive, either during or subsequent to the
termination of his employment pursuant to this Agreement, of the benefits of the
Company's existing or hereafter obtained liability insurance coverage, subject
to the terms and conditions of such coverage, nor of any right to
indemnification agreement between the Company and Executive, subject to the
limitations on indemnification set forth therein.
16. Consulting. Upon expiration of the Employment Term (including
extensions), Executive agrees to provide consulting services to the Company, as
an independent contractor and as requested by the Company, for a period of
thirty-six (36) months after such expiration. In consideration for Executive's
consulting services, Company shall pay to Executive One Hundred Thousand and
No/100 Dollars ($100,000.00) for each of the three (3) twelve (12) month periods
in such thirty-six (36) month period. Each payment shall be made on the first
day of each twelve (12) month period. This Section 16 shall apply in all cases
except if Executive is terminated for Cause
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<PAGE>
under Section 6(c), in the case of death of Executive, or if Executive is
subject to a Long-Term Disability.
17. Non-assignability, Binding Agreement.
(a) By Executive. Executive shall not assign or delegate this
Agreement or any right, duty, obligation, or interest under this
Agreement without the Company's prior written consent; provided,
however, that nothing shall preclude Executive from designating
beneficiaries to receive benefits payable under this Agreement upon his
death, and nothing shall preclude Executive's executors,
administrators, or their legal representatives, from assigning any
rights under this Agreement to any person.
(b) By the Company. The Company shall assign, delegate, or
transfer this Agreement and all of its rights and obligations under
this Agreement to any of its Affiliates or subsidiaries or to any
business entity that, by merger, consolidation, or otherwise, acquires
all or substantially all of the assets of the Company or to which the
Company transfers all or substantially all of its assets.
(c) Binding Effect. Except as limited under Sections 17(a) and
(b), this Agreement shall be binding upon and inure to the benefit of
the parties, any successors to or assigns of the Company, Executive's
heirs, and the personal representatives or executor of Executive's
estate.
18. Severability. If a court of competent jurisdiction makes a final
determination that any term or provision of this Agreement is invalid or
unenforceable, and all rights to appeal the determination have been exhausted or
the period of time during which any appeal of the determination may be perfected
has been exhausted, the remaining terms and provisions shall be unimpaired and
the invalid or unenforceable term or provision shall be deemed replaced by a
term or provision that is valid and enforceable and that most closely
approximates the intention of the parties with respect to the invalid or
unenforceable term or provision, as evidenced by the remaining valid and
enforceable terms and conditions of this Agreement.
19. Amend. No provision of this Agreement may be modified, amended,
waived, or discharged in any manner except by an instrument in writing signed by
Executive and on behalf of the Company by such officer as may be specifically
designated by the Board. No agreement or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
any party which are not expressly set forth in this Agreement.
20. Waiver. The waiver by any party of compliance by any other party
with any provision of this Agreement shall not operate or be construed as a
waiver of any other provision of this Agreement (whether or not similar), or a
continuing waiver or a waiver of any subsequent breach by a party of a provision
of this Agreement. Performance by any party of any act not required of it under
the terms and conditions of this Agreement shall not constitute a waiver of the
limitations on
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its obligations under this Agreement, and no performance shall estop that party
from asserting those limitations as to any further or future performance of its
obligations.
21. Applicable Law and Forum. This Agreement has been entered into in
the State of Indiana and shall be governed by and construed in accordance with
the laws of the State of Indiana. Except as specifically provided elsewhere in
this Agreement, the parties agree that any action in law or equity brought by
any party arising from or in connection with this Agreement or arising from or
in connection with the performance by either party of its obligations hereunder
shall be brought only in the United States District Court for the Southern
District of Indiana, Indianapolis Division or the Circuit Court of Marion
County, Indiana, and the parties hereto consent to the jurisdiction of such
forums.
22. Prior Employment Agreements. This Agreement is a complete and total
integration of the understanding of the parties with respect to the subject
matter of this Agreement and supersedes all prior or contemporaneous
negotiations, commitments, agreements, writings and discussions with respect to
the subject matter of this Agreement, except those agreements which are
specifically identified herein. Any and all such prior negotiations,
commitments, agreements, writings and discussions shall have no force or effect,
except those agreements which are specifically identified herein.
23. Heading. The headings of the Sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction of this Agreement.
24. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one counterpart,
signed by the party against which enforcement is sought, needs to be produced to
evidence the existence of this Agreement.
EXECUTED as of the date first written above.
EXECUTIVE LILLY INDUSTRIES, INC.
- ----------------------------- By:
------------------------------------
Douglas W. Huemme James M. Cornelius, Compensation
Committee Chairman, Board of
Directors
By:
------------------------------------
John C. Elbin, Vice President and
Chief Financial Officer
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LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
OLIN RAY CROCKER
This CHANGE IN CONTROL AGREEMENT, dated as of February 3, 2000,
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 200 West 103rd Street,
Indianapolis, Indiana 46290 (the "Company") and OLIN RAY CROCKER, an individual
residing at 4572 Peebles Road, Oak Ridge, North Carolina 27310 ("Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by Executive and the Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of Executive is
terminated before such a Change in Control, or an anticipated Change in Control,
and Executive reasonably demonstrates that such termination occurred in
connection with, or in anticipation of such a Change in Control (whether or not
such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive, in a
cash lump sum, an amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus ----
(ii) an amount equal to the targeted
variable compensation of Executive
for the year in which such
termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus ----
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan
during the twelve (12) months following
Executive's date of termination, had
Executive's employment and/or the plan or
amounts contributed thereto by the Company
on Executive's behalf not been reduced or
terminated (or, at Executive's election, two
(2) times an amount equal to any
contributions the Company made on
Executive's behalf to such plan for any plan
year ending either in the twelve (12) months
before a Change in Control or any fiscal
year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan and under the Company's
Executive Replacement Plan during the
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<PAGE>
twelve (12) months following Executive's
date of termination, had Executive's
employment and/or the amounts contributed
thereto by the Company on Executive's behalf
not been reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an
administratively reasonable period (but not to exceed sixty (60) days)
after the Release Effective Date (as defined in Section 4(b) hereof).
Such payments shall be in addition to any salary, variable compensation
or benefits earned or accrued by Executive for services rendered prior
to his termination.
(b) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to Executive under the
terms of such plans. In the event Executive's participation in any such
plan, program, or arrangement is barred, or any such plan, program, or
arrangement is discontinued or the benefits thereunder are materially
reduced, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would have otherwise
been entitled to receive under such plans, programs, and arrangements
prior thereto at the Company's cost.
(c) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such termination of employment to exercise any outstanding stock
options and after such ninety (90) days any and all unexpired stock
options shall lapse; and, provided, further, however, any tax benefit
provisions with respect to any stock options shall apply to any and all
unmatured stock options (whether or not such stock options are
otherwise exercisable). If as a result of such acceleration of
incentive stock options the $100,000 limitation would be exceeded with
respect to an optionee, such incentive stock options shall be
converted, as of the date such incentive stock options become
exercisable, to non-qualified stock options to the extent necessary to
comply with the $100,000 limitation and the Company shall pay to
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<PAGE>
such optionee an additional cash payment equal to the tax benefit to be
received by the Company attributable to its federal income tax
deduction resulting from the exercise of such converted non-qualified
stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer; or
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
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<PAGE>
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
Executive which qualifies Executive for permanent disability insurance
payments in accordance with such policy. The Committee may require
subsequent proof of continued Disability, prior to the sixty-fifth
(65th) birthday of Executive, at intervals of not less than six (6)
months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with Executive's
status, position or responsibilities; or any
removal of Executive from, or failure to
reappoint or reelect Executive to, any of
such positions, except in connection with
the termination of Executive's employment
for Disability, death, Good Cause, or by
Executive other than for Good Reason;
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<PAGE>
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
Executive, as those enjoyed by all other
corporate officers of the Company or any
Affiliated Employer from time to time either
before or after a Change in Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive(which
satisfaction may not be unreasonably
withheld)
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<PAGE>
from any successor or assign of the Company
to assume and agree to perform this
Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 3(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary,
Executive's right to terminate his employment for Good Reason pursuant
to this subsection shall not be affected by Executive's incapacity due
to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to Executive that
will equal (based on Executive's good faith
representations of Executive's income tax
position for the year of payment hereunder)
the sum of (i) all excise tax imposed on
Executive by Section 4999 of the Code and
(ii) all additional state and federal income
taxes attributable to the additional
payments to Executive pursuant to this
Section 4(a)(1), including all state and
federal income taxes on the additional
income tax payments hereunder ("Additional
Payment").
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<PAGE>
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and Executive
shall provide in writing within ten (10)
days of Executive's receipt of such notice,
a good faith representation of Executive's
income tax position so that such Additional
Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive,
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
(b) Release of Claims. As a condition of Executive receiving
from the Company the payments and benefits provided for in this
Agreement, which payments and benefits Executive is not otherwise
entitled to receive, Executive understands and agrees that he will be
required to execute a release of all claims against the Company
(arising out of matters
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<PAGE>
occurring on or prior to such termination) in the form attached hereto
as Exhibit 1 (the "Release"). Executive acknowledges that he has been
advised in writing to consult with an attorney prior to executing the
Release, and Executive agrees that he will consult with his attorney
prior to executing the Release. The Executive and the Company agree
that Executive has a period of twenty-one (21) days within which to
consider this Release, and has a period of seven (7) days following the
execution of the Release within which to revoke the Release. The
parties also acknowledge and agree that the Release shall not be
effective or enforceable until the seven (7) day revocation period
expires. The date on which this seven (7) day period expires shall be
the effective date of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from Executive the benefits entitled to be provided to
Executive hereunder, and Executive has complied with all of his
obligations under this Agreement, the Company irrevocably authorizes
Executive from time to time to retain counsel of Executive's choice, at
the expense of the Company as provided in this subsection, to represent
Executive in connection with the
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<PAGE>
initiation or defense of any litigation or other legal action, whether
such action is by or against the Company or any director, officer,
shareholder, or other person affiliated with the Company, in any
jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company
irrevocably consents to Executive entering into an attorney-client
relationship with such counsel, and in that connection the Company and
Executive agree that a confidential relationship shall exist between
Executive and such counsel. The reasonable fees and expenses of counsel
selected from time to time by Executive as herein above provided shall
be paid or reimbursed to Executive by the Company on a regular,
periodic basis upon presentation by Executive of a statement or
statements prepared by such counsel in accordance with its customary
practices. Any legal expenses incurred by the Company by reason of any
dispute between the parties as to enforceability of or the terms
contained in this Agreement, notwithstanding the outcome of any such
dispute, shall be the sole responsibility of the Company, and the
Company shall not take any action to seek reimbursement from Executive
for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to Executive prior to a Change in Control.
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<PAGE>
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that Executive is entitled to receive, and
Executive will not be entitled to participate in, or receive benefits
from, any other severance plan or
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<PAGE>
severance policy or program of the Company, and Executive shall not be
entitled to any severance benefits other than as identified in this
Agreement and Executive hereby waives any and all rights to any such
other severance benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, Executive has executed and, pursuant to the
authorization from its Board, the Company has caused this Agreement to be
executed in its name and on its behalf, all as of the day and year first above
written.
"EXECUTIVE"
- -----------------------------------------------------
Olin Ray Crocker
"LILLY INDUSTRIES, INC."
- -----------------------------------------------------
Chairman of the Board
- -----------------------------------------------------
Chairman of the Compensation Committee
588652.1-2/21/00
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of February 3, 2000, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits Executive was not otherwise entitled to receive, Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that Executive has a period of
seven (7) days following the execution of this Release within which to revoke
the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to Executive's employment with
the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Olin Ray Crocker
Date
WITNESS:
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
ALAIN DEBLANDRE
This CHANGE IN CONTROL AGREEMENT, dated as of February 3, 2000,
evidences an agreement by and between LILLY INDUSTRIES, INC., a Canadian
corporation organized under the laws of the Province of Ontario, having its
principal executive offices at 65 Duke Street, London, Ontario ("Lilly Canada"),
a subsidiary of Lilly Industries, Inc., an Indiana corporation having its
principal executive offices at 200 West 103rd Street, Indianapolis, Indiana
46290 (the "Company") and ALAIN DEBLANDRE, an individual residing at 1216 Gordon
Street, Guelph, Ontario, Canada N1H 6H9 ("Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company and Lilly Canada will have the continued undivided time, attention,
loyalty, and dedication of Executive, notwithstanding the possibility, threat or
occurrence of a Change in Control (as defined in subsection 3(c) hereof) of the
Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company and Lilly
Canada currently and in the event of any threatened or pending Change in
Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with Lilly Canada on the terms agreed to by Executive and Lilly
Canada from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, Lilly Canada agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(c) hereof): either (i) the Company or Lilly Canada terminates the employment
of Executive before age sixty-five (65) for any reason other than Good Cause (as
defined in subsection 3(h) hereof), death, Disability (as defined in subsection
3(g) hereof), or (ii) Executive voluntarily terminates his employment for Good
Reason (as defined in subsection 3(i) hereof), or (b) the employment of
Executive is terminated before such a Change in Control, or an anticipated
Change in Control, and Executive reasonably demonstrates that such termination
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<PAGE>
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, Lilly Canada shall pay or
provide the following:
(a) Severance Pay. Lilly Canada shall pay to Executive, in a
cash lump sum, an amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) Executive's annual base salary at
the rate in effect as of the date of
termination of employment (or, at
Executive's election, at the rate in
effect on any date during the period
beginning on the first day of the
month immediately prior to the
occurrence of events constituting
"Good Reason" or a Change in
Control), plus
(ii) an amount equal to the targeted
variable compensation of Executive
for the year in which such
termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus ----
(2) two (2) times an amount equal to any
contributions the Company or Lilly Canada
would have otherwise made on Executive's
behalf to the Company's Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company or Lilly Canada on Executive's
behalf not been reduced or terminated (or,
at Executive's election, two (2) times an
amount equal to any contributions the
Company or Lilly Canada made on Executive's
behalf to such plan for any plan year ending
either in the twelve (12) months before a
Change in Control or any fiscal year after a
Change in Control).
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<PAGE>
Lilly Canada shall make such lump sum payments within an
administratively reasonable period (but not to exceed sixty (60) days)
after the Release Effective Date (as defined in Section 4(a) hereof).
Such payments shall be in addition to any salary, vacation pay,
variable compensation or benefits earned or accrued by Executive for
services rendered prior to his termination.
(b) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's or Lilly Canada's
cost, Executive's coverage under the Company's or Lilly Canada's group
insurance, health and accident, life, and disability benefit plans in
which Executive was entitled to participate immediately prior to the
Change in Control provided that continued participation is possible
under the general terms and provisions of such plans, programs, and
arrangements; provided, however, such continuation coverage shall run
concurrently with any continuation coverage otherwise available to
Executive under the terms of such plans. In the event Executive's
participation in any such plan, program, or arrangement is barred, or
any such plan, program, or arrangement is discontinued or the benefits
thereunder are materially reduced, the Company shall arrange to provide
Executive with benefits substantially similar to those which Executive
would have otherwise been entitled to receive under such plans,
programs, and arrangements prior thereto at the Company's cost.
(c) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such termination of employment to exercise any outstanding stock
options and after such ninety (90) days any and all unexpired stock
options shall lapse; and, provided, further, however, any tax benefit
provisions with respect to any stock options shall apply to any and all
unmatured stock options (whether or not such stock options are
otherwise exercisable).
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Board" means the board of directors of Lilly Industries,
Inc, an Indiana corporation.
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<PAGE>
(c) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer; or
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
(d) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(e) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc., an Indiana corporation.
(f) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(g) "Disability" means a disability as determined for purposes
of any group disability insurance policy of Lilly Canada in effect for
Executive which qualifies Executive for permanent disability insurance
payments in accordance with such policy. The Committee may require
subsequent proof of continued Disability, prior to the sixty-fifth
(65th) birthday of Executive, at intervals of not less than six (6)
months.
(h) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
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<PAGE>
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company or an Affiliated
Employer.
(i) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with Executive's
status, position or responsibilities; or any
removal of Executive from, or failure to
reappoint or reelect Executive to, any of
such positions, except in connection with
the termination of Executive's employment
for Disability, death, Good Cause, or by
Executive other than for Good Reason;
(2) a reduction by Lilly Canada in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or Lilly Canada's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company or Lilly
Canada effected in the preceding twelve (12)
months;
(3) a change by Lilly Canada in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
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<PAGE>
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by Lilly Canada to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
Executive, as those enjoyed by all other
corporate officers of the Company or any
Affiliated Employer from time to time either
before or after a Change in Control;
(6) the failure of the Company or Lilly Canada
to obtain an agreement satisfactory to
Executive (which satisfaction may not be
unreasonably withheld) from any successor or
assign of the Company to assume and agree to
perform this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection (k) hereof; or
(8) any request by Lilly Canada that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary,
Executive's right to terminate his employment for Good Reason pursuant
to this subsection shall not be affected by Executive's incapacity due
to physical or mental illness.
(j) "Lilly Canada" means Lilly Industries, Inc., a Canadian
corporation organized under the laws of the Province of Ontario.
(k) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this
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<PAGE>
Agreement relied upon and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Release of Claims. As a condition of Executive receiving
from Lilly Canada or the Company the payments and benefits provided for
in this Agreement, which payments and benefits Executive is not
otherwise entitled to receive, Executive understands and agrees that he
will be required to execute a release of all claims against the Company
or Lilly Canada (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and Executive agrees
that he will consult with his attorney prior to executing the Release.
The Executive and the Company and Lilly Canada agree that Executive has
a period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY AND LILLY CANADA OF THE RELEASE REQUESTED BY THE COMPANY AND/OR
LILLY CANADA, AND THE PASSAGE OF ALL NECESSARY WAITING PERIODS IN
CONNECTION THEREWITH, SHALL BE A CONDITION TO THE RECEIPT OF ANY
PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY AND LILLY CANADA
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY AND LILLY CANADA THE RELEASE REQUESTED BY THE
COMPANY AND/OR LILLY CANADA, THE EXECUTIVE SHALL NOT BE ENTITLED TO ANY
PAYMENTS OR BENEFITS UNDER THIS AGREEMENT AND ALL SUCH PAYMENTS AND
BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company and Lilly Canada are
aware that upon the occurrence of a Change in Control, the Board or a
shareholder of the Company and Lilly Canada may then cause or attempt
to cause the Company or Lilly Canada to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the
Company or Lilly Canada to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company and
Lilly Canada that Executive not be required to incur the expenses
associated with the enforcement of
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<PAGE>
Executive's rights under this Agreement by litigation or other legal
action, nor that Executive be bound to negotiate any settlement of
Executive's rights hereunder, because the cost and expense of such
legal action or settlement would substantially detract from the
benefits intended to be extended to Executive hereunder. Accordingly,
if following a Change in Control it should appear to Executive that the
Company or Lilly Canada has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
Lilly Canada or any other person (including the Internal Revenue
Service) takes any action to declare this Agreement void or
unenforceable, or institutes any litigation or other legal action
designed to deny, diminish or to recover from Executive the benefits
entitled to be provided to Executive hereunder, and Executive has
complied with all of his obligations under this Agreement, the Company
and Lilly Canada irrevocably authorizes Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as
provided in this subsection, to represent Executive in connection with
the initiation or defense of any litigation or other legal action,
whether such action is by or against the Company or Lilly Canada or any
director, officer, shareholder, or other person affiliated with the
Company or Lilly Canada, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and
such counsel, the Company and Lilly Canada irrevocably consents to
Executive entering into an attorney-client relationship with such
counsel, and in that connection the Company and Lilly Canada and
Executive agree that a confidential relationship shall exist between
Executive and such counsel. The reasonable fees and expenses of counsel
selected from time to time by Executive as herein above provided shall
be paid or reimbursed to Executive by the Company or Lilly Canada on a
regular, periodic basis upon presentation by Executive of a statement
or statements prepared by such counsel in accordance with its customary
practices. Any legal expenses incurred by the Company or Lilly Canada
by reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company and
Lilly Canada, and the Company and Lilly Canada shall not take any
action to seek reimbursement from Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement, and is inclusive of Executive's entitlement to
termination pay and severance pay under the Employment Standards Act,
R.S.O. 1990, E.14, as amended. The Company and Lilly Canada shall not
be entitled to set off against the amounts payable to Executive any
amounts earned by Executive in other employment after termination of
Executive's employment with Lilly Canada, or any amounts which might
have been earned by Executive in other employment, had Executive sought
such other employment, or any set-off, counterclaim, recoupment,
defense, or any other claim, right, or action which the Company or
Lilly Canada may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by Lilly Canada or by Executive shall be communicated by
written Notice of Termination to the other
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<PAGE>
party hereto in accordance with subsection 3(k) hereof and shall
provide at least ten (10) business days notice prior to the date of
termination. Solely for purposes of this Agreement, no such purported
termination shall be effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company and Lilly Canada shall
not be assignable by Executive other than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by Executive's legal representatives. This Agreement
shall inure to the benefit of and be binding upon the Company and Lilly
Canada and their successors and assigns. The Company and Lilly Canada
shall assign this Agreement to any corporation or other business entity
succeeding to substantially all of the business and assets of the
Company by merger, consolidation, sale of assets, or otherwise and
shall obtain the assumption of this Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana, U.S.A.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
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<PAGE>
(l) Waivers. The Executive's or the Company's or Lilly
Canada's failure to insist upon strict compliance with any provision of
this Agreement or the failure to assert any right Executive or the
Company or Lilly Canada may have hereunder, including, without
limitation, the right of Executive to terminate Executive's employment
for Good Reason, shall not be deemed to be a waiver of such provision
or right, or of any other provision or right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that Executive is entitled to receive, and
Executive will not be entitled to participate in, or receive benefits
from, any other severance plan or severance policy or program of the
Company, and Executive shall not be entitled to any severance benefits
other than as identified in this Agreement and Executive hereby waives
any and all rights to any such other severance benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
6. Guarantee. The Company guarantees the obligations and
performance of Lilly Canada under this Agreement.
IN WITNESS WHEREOF, Executive has executed and, pursuant to the
authorization from its Board, the Company has caused this Agreement to be
executed in its name and on its behalf, all as of the day and year first above
written.
"EXECUTIVE"
- -----------------------------------------------------
Alain DeBlandre
"LILLY INDUSTRIES, INC., a Canadian
Corporation"
- -----------------------------------------------------
President
"LILLY INDUSTRIES, INC., an Indiana
Corporation"
- -----------------------------------------------------
Chairman of the Board
- -----------------------------------------------------
Chairman of the Compensation Committee
574258.3-2/21/00 574258.3-2/21/00
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC., a Canadian
corporation organized under the laws of the Province of Ontario, having its
principal executive offices at 65 Duke Street, London, Ontario ("Lilly Canada"),
a subsidiary of Lilly Industries, Inc., an Indiana corporation having its
principal executive offices at 200 West 103rd Street, Indianapolis, Indiana
46290 (the "Company"), the payments and benefits provided for in the Change in
Control Agreement, dated as of February 3, 2000, (the "Change in Control
Agreement") between the Company and the undersigned ("Executive"), which
payments and benefits Executive was not otherwise entitled to receive, Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the
Employment Standards Act, R.S.O. 1990, E.14, as amended, the National Labor
Relations Act, the Family and Medical Leave Act, the Fair Labor Standards Act or
the Worker Adjustment and Retraining Notification Act, those alleging
discrimination on the basis of race, color, sex, religion, national origin, age,
disability, or handicap or any other prohibited ground of discrimination under
the Human Rights Code, R.S.O. 1990, H.19, as amended, the Age Discrimination in
Employment Act of 1967, the Rehabilitation Act of 1973, the Americans with
Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil Rights Act of
1991, the Employee Retirement Income Security Act of 1974, or any other federal,
state, or local law, rule, ordinance, or regulation as presently enacted or
adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT EXECUTIVE
DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF THIS RELEASE,
OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT OF CLAIMS FOR
BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR PROGRAM OF THE
COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN CONTROL
AGREEMENT.
With respect to any claim that Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
Exhibit 1
<PAGE>
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that Executive has a period of
seven (7) days following the execution of this Release within which to revoke
the Release.
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to Executive's employment with
the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he seeks
employment with the Company in violation of this Agreement and is hired, the
Company shall have the right to immediately and unconditionally terminate his
employment without any reason and without recourse by Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Alain DeBlandre
Date
WITNESS:
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
VIRGIL E. UNDERWOOD
This CHANGE IN CONTROL AGREEMENT, dated as of February 3, 2000,
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 200 West 103rd Street,
Indianapolis, Indiana 46290 (the "Company") and VIRGIL E. UNDERWOOD, an
individual residing at 432 Calumet Way, Bowling Green, Kentucky 42104
("Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by Executive and the Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of Executive is
terminated before such a Change in Control, or an anticipated Change in Control,
and Executive reasonably demonstrates that such termination occurred in
connection with, or in anticipation of such a Change in Control (whether or not
such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive, in a
cash lump sum, an amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus ----
(ii) an amount equal to the targeted
variable compensation of Executive
for the year in which such
termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus ----
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan
during the twelve (12) months following
Executive's date of termination, had
Executive's employment and/or the plan or
amounts contributed thereto by the Company
on Executive's behalf not been reduced or
terminated (or, at Executive's election, two
(2) times an amount equal to any
contributions the Company made on
Executive's behalf to such plan for any plan
year ending either in the twelve (12) months
before a Change in Control or any fiscal
year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan and under the Company's
Executive Replacement Plan during the
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<PAGE>
twelve (12) months following Executive's
date of termination, had Executive's
employment and/or the amounts contributed
thereto by the Company on Executive's behalf
not been reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an
administratively reasonable period (but not to exceed sixty (60) days)
after the Release Effective Date (as defined in Section 4(b) hereof).
Such payments shall be in addition to any salary, variable compensation
or benefits earned or accrued by Executive for services rendered prior
to his termination.
(b) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to Executive under the
terms of such plans. In the event Executive's participation in any such
plan, program, or arrangement is barred, or any such plan, program, or
arrangement is discontinued or the benefits thereunder are materially
reduced, the Company shall arrange to provide Executive with benefits
substantially similar to those which Executive would have otherwise
been entitled to receive under such plans, programs, and arrangements
prior thereto at the Company's cost.
(c) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such termination of employment to exercise any outstanding stock
options and after such ninety (90) days any and all unexpired stock
options shall lapse; and, provided, further, however, any tax benefit
provisions with respect to any stock options shall apply to any and all
unmatured stock options (whether or not such stock options are
otherwise exercisable). If as a result of such acceleration of
incentive stock options the $100,000 limitation would be exceeded with
respect to an optionee, such incentive stock options shall be
converted, as of the date such incentive stock options become
exercisable, to non-qualified stock options to the extent necessary to
comply with the $100,000 limitation and the Company shall pay to
- 3 -
<PAGE>
such optionee an additional cash payment equal to the tax benefit to be
received by the Company attributable to its federal income tax
deduction resulting from the exercise of such converted non-qualified
stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer; or
(6) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
- 4 -
<PAGE>
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
Executive which qualifies Executive for permanent disability insurance
payments in accordance with such policy. The Committee may require
subsequent proof of continued Disability, prior to the sixty-fifth
(65th) birthday of Executive, at intervals of not less than six (6)
months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written
consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with Executive's
status, position or responsibilities; or any
removal of Executive from, or failure to
reappoint or reelect Executive to, any of
such positions, except in connection with
the termination of Executive's employment
for Disability, death, Good Cause, or by
Executive other than for Good Reason;
- 5 -
<PAGE>
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
Executive, as those enjoyed by all other
corporate officers of the Company or any
Affiliated Employer from time to time either
before or after a Change in Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld)
- 6 -
<PAGE>
from any successor or assign of the Company
to assume and agree to perform this
Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 3(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary,
Executive's right to terminate his employment for Good Reason pursuant
to this subsection shall not be affected by Executive's incapacity due
to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to Executive that
will equal (based on Executive's good faith
representations of Executive's income tax
position for the year of payment hereunder)
the sum of (i) all excise tax imposed on
Executive by Section 4999 of the Code and
(ii) all additional state and federal income
taxes attributable to the additional
payments to Executive pursuant to this
Section 4(a)(1), including all state and
federal income taxes on the additional
income tax payments hereunder ("Additional
Payment").
- 7 -
<PAGE>
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and Executive
shall provide in writing within ten (10)
days of Executive's receipt of such notice,
a good faith representation of Executive's
income tax position so that such Additional
Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive,
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
(b) Release of Claims. As a condition of Executive receiving
from the Company the payments and benefits provided for in this
Agreement, which payments and benefits Executive is not otherwise
entitled to receive, Executive understands and agrees that he will be
required to execute a release of all claims against the Company
(arising out of matters
- 8 -
<PAGE>
occurring on or prior to such termination) in the form attached hereto
as Exhibit 1 (the "Release"). Executive acknowledges that he has been
advised in writing to consult with an attorney prior to executing the
Release, and Executive agrees that he will consult with his attorney
prior to executing the Release. The Executive and the Company agree
that Executive has a period of twenty-one (21) days within which to
consider this Release, and has a period of seven (7) days following the
execution of the Release within which to revoke the Release. The
parties also acknowledge and agree that the Release shall not be
effective or enforceable until the seven (7) day revocation period
expires. The date on which this seven (7) day period expires shall be
the effective date of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from Executive the benefits entitled to be provided to
Executive hereunder, and Executive has complied with all of his
obligations under this Agreement, the Company irrevocably authorizes
Executive from time to time to retain counsel of Executive's choice, at
the expense of the Company as provided in this subsection, to represent
Executive in connection with the
- 9 -
<PAGE>
initiation or defense of any litigation or other legal action, whether
such action is by or against the Company or any director, officer,
shareholder, or other person affiliated with the Company, in any
jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company
irrevocably consents to Executive entering into an attorney-client
relationship with such counsel, and in that connection the Company and
Executive agree that a confidential relationship shall exist between
Executive and such counsel. The reasonable fees and expenses of counsel
selected from time to time by Executive as herein above provided shall
be paid or reimbursed to Executive by the Company on a regular,
periodic basis upon presentation by Executive of a statement or
statements prepared by such counsel in accordance with its customary
practices. Any legal expenses incurred by the Company by reason of any
dispute between the parties as to enforceability of or the terms
contained in this Agreement, notwithstanding the outcome of any such
dispute, shall be the sole responsibility of the Company, and the
Company shall not take any action to seek reimbursement from Executive
for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to Executive prior to a Change in Control.
- 10 -
<PAGE>
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that Executive is entitled to receive, and
Executive will not be entitled to participate in, or receive benefits
from, any other severance plan or
- 11 -
<PAGE>
severance policy or program of the Company, and Executive shall not be
entitled to any severance benefits other than as identified in this
Agreement and Executive hereby waives any and all rights to any such
other severance benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, Executive has executed and, pursuant to the
authorization from its Board, the Company has caused this Agreement to be
executed in its name and on its behalf, all as of the day and year first above
written.
"EXECUTIVE"
- -----------------------------------------------------
Virgil E. Underwood
"LILLY INDUSTRIES, INC."
- -----------------------------------------------------
Chairman of the Board
- -----------------------------------------------------
Chairman of the Compensation Committee
571136.2-2/21/00
- 12 -
<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of February 3, 2000, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits Executive was not otherwise entitled to receive, Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that Executive has a period of
seven (7) days following the execution of this Release within which to revoke
the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to Executive's employment with
the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Virgil E. Underwood
Date
WITNESS:
Selected Financial data1
(in thousands, except per share data and number of employees)
Lilly Industries, Inc. and Subsidiaries
SELECTED FINANCIAL DATA (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF EMPLOYEES)
<TABLE>
<CAPTION>
Year Ended November 30 1999 1998 1997 1996 (2)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net sales $656,201 $619,002 $601,296 $508,976
Cost of products sold 401,286 379,641 373,015 321,748
Gross margin percentage 38.8% 38.7% 38.0% 36.8%
Selling, general and administrative expenses 160,861 146,763 139,467 112,361
Research and development expenses 21,154 20,567 18,680 17,294
Operating income 72,900 72,031 70,134 57,573
Operating income percentage 11.1% 11.6% 11.7% 11.3%
Interest expense, net 15,791 16,919 18,967 13,938
Income taxes 23,155 22,867 23,068 11,039
Effective income tax rate 41.0% 42.0% 45.1% 45.0%
Net income 33,321 31,579 28,095 24,060
EBITDA (3) 93,202 91,389 92,120 73,233
EBITDA interest coverage (4) 5.9 5.4 4.9 5.3
Per Share Data (5)
Net income, diluted 1.43 1.35 1.20 1.04
Cash dividends .32 .32 .32 .32
Book value 8.28 7.15 6.21 5.36
Price range of common stock 20 1/8-13 1/8 24 5/8-14 3/8 24 1/8-163/4 19 3/4-12 1/4
Other Data
Total assets 550,426 516,485 501,795 521,860
Working capital 48,720 50,071 52,126 50,579
Capital expenditures (6) 41,472 17,015 12,673 19,233
Depreciation 10,391 9,102 8,850 6,453
Amortization 10,544 10,922 13,140 9,097
Total debt 206,803 203,700 224,171 261,561
EBITDA to total debt 45.1% 44.9% 41.1% 28.0%
Book value 192,171 165,575 142,439 121,889
Return on equity 18.6% 20.5% 21.3% 20.8%
Debt to total capitalization 52% 55% 61% 68%
Number of employees 2,395 2,291 2,116 2,140
Sales per employee 274 270 283 274
Operating income per employee 30 31 33 31
Average shares outstanding, diluted (7) 23,320 23,400 23,400 23,100
</TABLE>
1 This table of Selected Financial Data should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and Financial
Condition and the Company's consolidated financial statements included
herein.
2 1996 includes the effect of the acquisition of Guardsman Products, Inc. on
April 8, 1996 and excludes the effect of a restructuring charge of $9,607
which reduced net income by $5,284 or $.23 per diluted share.
3 EBITDA represents earnings before interest, taxes, depreciation and
amortization.
4 EBITDA interest coverage is determined by dividing EBITDA by net interest
expense.
5 Adjusted for all stock splits and stock dividends through November 30, 1999
inclusive. Prices are rounded to nearest 1/8th.
6 Excludes effect of acquisitions.
7 Used to calculate net income per diluted share.
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991 1990 1989
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operations
Net sales $328,345 $331,306 $284,325 $236,476 $220,508 $240,146 $219,713
Cost of products sold 219,899 214,809 189,111 152,480 150,669 161,626 145,592
Gross margin percentage 33.0% 35.2% 33.5% 35.5% 31.7% 32.7% 33.7%
Selling, general and
administrative expenses 59,874 61,498 53,319 50,128 46,921 50,404 44,113
Research and development expenses 13,184 12,982 12,325 11,030 10,606 10,814 9,708
Operating income 35,388 42,017 29,570 22,838 12,312 17,302 20,300
Operating income percentage 10.8% 12.7% 10.4% 9.7% 5.6% 7.2% 9.2%
Interest expense, net 1,487 2,465 1,568 1,245 2,254 2,573 1,111
Income taxes 13,510 16,350 11,784 9,201 4,417 6,850 8,399
Effective income tax rate 40.0% 41.2% 42.2% 42.0% 41.0% 40.6% 40.6%
Net income 20,264 23,302 16,155 12,706 6,357 10,022 12,574
EBITDA (3) 43,435 51,082 36,394 29,944 19,994 26,117 26,670
EBITDA interest coverage (4) 29.2 20.7 23.2 24.1 8.9 10.2 24.0
Per Share Data (5)
Net income, diluted .88 1.00 .70 .55 .27 .41 .51
Cash dividends .31 .27 .24 .22 .21 .20 .17
Book value 4.86 4.38 3.60 3.16 3.16 3.10 3.00
Price range of common stock 15-11 18-11 3/4 15 7/8-9 3/8 9 3/4-5 5/8 6 1/8-4 1/8 7 5/8-4 7 1/8-5 3/8
Other Data
Total assets 183,582 190,252 167,044 117,049 127,342 125,371 129,025
Working capital 35,505 41,604 33,270 27,131 30,405 34,513 40,389
Capital expenditures (6) 15,599 6,693 7,598 3,262 1,928 3,968 2,486
Depreciation 4,251 4,637 3,746 3,965 4,038 4,021 3,387
Amortization 3,923 4,328 3,141 2,827 2,928 2,651 1,199
Total debt 28,229 35,110 44,101 14,642 21,501 28,345 25,560
EBITDA to total debt 153.9% 145.5% 82.5% 204.5% 93.0% 92.1% 104.3%
Book value 109,374 99,424 81,128 70,125 74,187 73,185 74,482
Return on equity 19.4% 25.8% 21.4% 17.6% 8.6% 13.6% 17.9%
Debt to total capitalization 21% 26% 35% 17% 22% 28% 26%
Number of employees 1,148 1,182 1,176 1,072 1,140 1,230 1,350
Sales per employee 282 281 253 214 186 186 174
Operating income per employee 30 36 26 21 10 13 16
Average shares outstanding, diluted (7) 23,086 23,231 22,962 23,048 23,521 24,738 25,043
</TABLE>
Management's Discussion and Analysis of Results of Operations and Financial
Condition
Operating Results 1999 vs. 1998
Consolidated net sales increased 6% to a record $656.2 million for fiscal year
1999. Sales benefited from strong volume increases, particularly in wood and
metal coatings. Wood coatings increased in all major markets served, with
especially strong growth in the Asia-Pacific Region. Metal coatings sales were
led by continued large increases in powder coatings. The Company's international
sales, including U.S. exports, grew $27.3 million to $176.6 million during 1999,
representing growth of 18.3% over 1998. International sales now account for 27%
of consolidated sales. Sales to the Company's three end-use markets (wood, metal
and composites and glass) represented 46%, 43%, and 11% of 1999 consolidated
sales, respectively. Overall, selling prices were stable during the year.
Gross profit margin improved slightly to 38.8% of sales in 1999, rising 0.1
percentage point over 1998. Raw material costs are the largest component of the
Company's cost structure. Continued emphasis on supply chain management, raw
material consolidation, as well as favorable pricing in certain commodity
markets, produced a 0.2 percentage point reduction in raw material costs as a
percentage of net sales. Improvements in raw material costs were partially
offset by a slight increase in direct labor and overhead costs. The Company will
continue to pursue improvement in gross margin by reducing the number of raw
materials used in products, process re-engineering, company-wide purchasing
opportunities, and product re-formulations.
As a percentage of sales, operating expenses increased 0.7 percentage points to
27.7%. Selling, general and administrative expenses, as a percentage of sales,
increased 0.8 percentage points to 24.5%, primarily due to continued investments
in selling, marketing and other infrastructure enhancements, as the Company
continues to focus on global expansion and capturing additional market share in
certain markets. Research and development expense increased by $0.6 million to
$21.2 million for 1999.
Net interest expense continued to decline during 1999, falling $1.1 million to
$15.8 million, a decrease of 6.7%. The reduction in interest expense reflects
improved cash management practices coupled with lower average market rates of
interest, which reduced the cost of borrowing under the Company's variable rate
debt facilities.
The Company's effective tax rate declined one full percentage point to 41.0% for
1999, due primarily to a full year's impact of U.S. state and international tax
planning strategies. The effective tax rate remained above U.S. statutory rates
principally due to the impact of non-deductible amortization of intangibles
acquired as part of the Guardsman Products, Inc. ("GPI") acquisition in 1996,
and generally higher foreign tax rates.
Operating Results 1998 vs. 1997
Consolidated net sales increased 2.9% to a record $619.0 million for fiscal year
1998, despite a $10 million unfavorable impact from foreign currency
translations. Sales benefited from the December, 1997 acquisition in Germany of
Merckens Lackchemie GmbH & Company. The acquisition helped boost the Company's
international sales, including U.S. exports, to $149.3 million during 1998,
representing growth of 18.0% over 1997. During 1998, Lilly experienced volume
growth in each of its end-use markets. Sales to the Company's three end-use
markets (wood, metal, and composites and glass) represented 44%, 44%, and 12% of
1998 consolidated sales, respectively. Overall, selling prices were stable
during the year.
Gross profit margin continued to improve in 1998, rising 0.7 percentage points
over 1997 to 38.7%. Raw material costs are the largest component of the
Company's cost structure. However, continued emphasis on supply chain
management, as well as favorable pricing in certain commodity markets, produced
a 1.1% reduction in raw material costs as a percentage of net sales.
Improvements in raw material costs were partially mitigated by a slight increase
in direct labor and overhead costs. The Company will continue to pursue
improvement in gross margin by reducing the number of raw materials used in
products, process re-engineering, company-wide purchasing opportunities and
product re-formulations.
As a percentage of sales, operating expenses increased 0.7 percentage points to
27.0%. Selling, general and administrative expenses, as a percentage of sales,
increased from 23.2% to 23.7%, primarily due to increased marketing initiatives.
In addition, the Company made record expenditures on research and development,
which rose 10.1% to $20.6 million.
Net interest expense declined significantly during 1998, falling $2.0 million,
reflecting the benefits of the Company's 1997 debt restructuring and lower
average debt outstanding. Continued strong cash flow from operations allowed the
Company to reduce average debt outstanding during 1998, while lower average
market rates of interest reduced the cost of borrowing under the Company's
variable rate debt facilities. The improvement in interest expense was partially
offset by additional interest expense associated with borrowings to finance the
Company's acquisition in Germany in December, 1997.
The Company's effective tax rate declined significantly to 42.0% during 1998,
due primarily to implementation of international tax planning strategies. The
effective tax rate remained above U.S. statutory rates, primarily due to the
impact of non-deductible intangibles acquired as part of the GPI acquisition in
1996 and generally higher foreign tax rates.
Environmental
The Company's operations, like those of most companies in the coatings industry,
are subject to regulations related to maintaining or improving the quality of
the environment. Such regulations, along with the Company's own internal
compliance efforts, have required, and will continue to require, ongoing
expenditures. Spending for environmental compliance is not anticipated to be
material to the Company's financial position. The Company has been notified that
it is a potentially responsible party for clean-up costs with respect to several
government investigations at independently operated waste disposal sites
previously used by the Company. Management has accrued, as appropriate, for
these environmental liabilities. Management believes the liabilities associated
with these sites will not have a material adverse effect on its operating
results or financial position.
Year 2000
The Company completed all Year 2000 ("Y2K") readiness procedures during 1999 and
did not experience any significant adverse effects on its systems or operations
from the transition to Y2K. All critical IT systems were inventoried and
assessed, and replacement of non-conforming IT systems began in 1998 and was
completed in 1999.
The Company estimates the total cost of resolving the Y2K issue was $5 million.
Of this amount, the Company estimates $2 million was spent during fiscal year
1999. Approximately 70% of total Y2K costs were comprised of equipment and
software replacement costs with the balance being comprised of assessment and
remediation costs. Y2K costs were expensed as incurred except for new systems
and equipment, which were capitalized and will be charged to expense over the
estimated useful life of the related assets.
Liquidity and Capital Resources
During fiscal 1999, the Company continued to maintain a $175 million revolving
credit facility ("Facility") and $100 million in senior notes ("Notes"). Both
the Facility and the Notes are unsecured and require no principal amortization.
The remaining terms on the Facility and Notes are three and eight years,
respectively, as of November 30, 1999. During fiscal 1998, the Company's German
subsidiary entered into a five-year, Deutsche Mark-denominated $10,000,000
revolving credit facility ("German Facility") to fund the German acquisition.
The German Facility is unsecured. Principal amounts available for borrowing
under the German Facility decline over the five-year term of the agreement.
Management expects to fund required debt service on all borrowings from
operating cash flows.
The Company's total debt increased during 1999 by $3.1 million to a total of
$206.8 million. The relatively low increase was mainly a result of capital
investments in infrastructure expansion and improvements. Additional amounts
available for borrowing under the Facility for general operating or other
purposes totaled $74.9 million as of November 30, 1999. Management believes
funds available from internal and external sources are sufficient to meet the
liquidity needs of the Company during the next twelve months.
Cash provided by operating activities declined by $16.5 million to $38.7 million
during 1999. Higher net income was offset by the cash effect of changes in
certain operating assets and liabilities including increases in accounts
receivable and inventories to support higher sales levels.
Cash used by investing activities increased by $17.2 million to $42.1 million
during 1999. The increase was driven by a $24.5 million increase in capital
expenditures primarily offset by a decrease of $8.5 million in payments for
acquired businesses. Future investing activities are expected to be financed
from internal sources and existing credit facilities.
Cash used by financing activities decreased by $22.9 million to $4.2 million
during 1999. Cash dividend payments of $7.4 million during 1999 remained the
same as 1998 while long term borrowings increased by $3.1 million. In 1998
principal payments exceeded borrowings by $20.5 million.
The Company focuses on three key measures of liquidity and access to capital
markets: EBITDA (earnings before interest, taxes, depreciation and
amortization); Interest Coverage (EBITDA divided by net interest expense); and
Debt Capitalization (debt divided by the sum of debt plus equity). For 1999, the
Company generated EBITDA of $93.2 million, an increase of $1.8 million over
1998. Interest Coverage improved to 5.9 times, due primarily to reduced interest
expense associated with lower average borrowings and generally lower market
rates of interest. Debt Capitalization improved 3.4 percentage points to 51.8%
due to a relatively stable debt level and higher net income retained in the
business during 1999.
Forward-looking statements
Statements in this annual report that are not strictly historical may be
"forward-looking statements," which involve risks and uncertainties. Risk
factors include general economic and industry conditions, effects of leverage,
environmental matters, technological developments, product pricing, raw material
cost changes, and international operations, among others, which are set forth in
the Company's SEC filings.
Consolidated Statements of Income
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended November 30 1999 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 656,201 $ 619,002 $ 601,296
Costs and expenses:
Cost of products sold 401,286 379,641 373,015
Selling, general and administrative 160,861 146,763 139,467
Research and development 21,154 20,567 18,680
----------------------------------------
583,301 546,971 531,162
----------------------------------------
Operating income 72,900 72,031 70,134
Other expenses:
Sundry expense (633) (666) (4)
Interest expense, net (15,791) (16,919) (18,967)
----------------------------------------
(16,424) (17,585) (18,971)
----------------------------------------
Income before income taxes 56,476 54,446 51,163
Income taxes 23,155 22,867 23,068
----------------------------------------
Net income $ 33,321 $ 31,579 $ 28,095
========================================
Net income per share:
Basic $ 1.44 $ 1.36 $ 1.22
Diluted $ 1.43 $ 1.35 $ 1.20
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
November 30 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 5,714 $ 13,326
Accounts receivable, less allowance for doubtful
accounts (1999, $1,775; 1998, $1,981) 91,369 82,039
Inventories 58,500 50,796
Deferred income taxes 2,848 3,251
Other 3,426 2,620
-------------------------
Total current assets 161,857 152,032
Other assets:
Goodwill, less amortization (1999, $27,769; 1998, $21,547) 210,811 214,960
Other intangibles, less amortization (1999, $23,129; 1998, $22,621) 23,067 26,068
Deferred income taxes 3,974 8,838
Sundry 18,781 12,419
-------------------------
256,633 262,285
Property and equipment:
Land 13,872 11,845
Buildings 75,232 62,725
Equipment 110,610 87,787
Accumulated depreciation (67,778) (60,189)
-------------------------
131,936 102,168
-------------------------
$ 550,426 $ 516,485
=========================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 60,317 $ 56,958
Salaries and payroll related items 20,975 21,624
Other 27,293 21,651
Income taxes payable 4,552 1,728
-------------------------
Total current liabilities 113,137 101,961
Long-term debt 206,803 203,700
Other liabilities 38,315 45,249
Shareholders' equity:
Capital stock, $.55 stated value per share:
Class A (limited voting) - 27,969 shares issued
(1998, 27,825 shares) 15,539 15,459
Class B (voting) - 540 shares issued 300 300
Additional capital 83,833 81,890
Retained earnings 133,807 107,914
Accumulated other comprehensive loss (3,509) (4,096)
Cost of capital stock in treasury (37,799) (35,892)
-------------------------
192,171 165,575
-------------------------
$ 550,426 $ 516,485
=========================
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended November 30 1999 1998 1997
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 33,321 $ 31,579 $ 28,095
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 10,391 9,102 8,850
Amortization 10,544 10,922 13,140
Deferred income taxes 5,267 209 4,085
Changes in operating assets and liabilities net of
effects from acquired business:
Accounts receivable (9,162) (422) 4,581
Inventories (7,680) (2,574) 1,842
Accounts payable and accrued expenses 11,101 5,985 2,933
Sundry (15,044) 418 (4,226)
-------------------------------------
Net cash provided by operating activities 38,738 55,219 59,300
Investing Activities
Purchases of property and equipment (41,472) (17,015) (12,673)
Payment for acquired business (2,721) (11,253) -
Sundry 2,052 3,367 5,716
-------------------------------------
Net cash used by investing activities (42,141) (24,901) (6,957)
Financing Activities
Dividends paid (7,428) (7,410) (7,340)
Proceeds from senior notes - - 99,200
Proceeds from short-term and long-term borrowings 3,103 - -
Principal payments on short-term and long-term borrowings - (20,470) (136,590)
Sundry 116 809 (4,324)
-------------------------------------
Net cash used by financing activities (4,209) (27,071) (49,054)
-------------------------------------
(Decrease) increase in cash and cash equivalents (7,612) 3,247 3,289
Cash and cash equivalents at beginning of year 13,326 10,079 6,790
-------------------------------------
Cash and cash equivalents at end of year $ 5,714 $ 13,326 $ 10,079
=====================================
</TABLE>
See accompanying notes.
<PAGE>
Consolidated Statements of Shareholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Cost of Accumulated
Class A Class B Capital Other
Common Common Additional Retained Stock in Comprehensive
Stock Stock Capital Earnings Treasury Income (Loss) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1996 $15,103 $ 300 $ 75,433 $ 62,990 $ (32,025) $ 88 $ 121,889
Comprehensive income:
Net income -- -- -- 28,095 -- -- 28,095
Currency translation adjustments -- -- -- -- -- (2,342) (2,342)
----------
Total comprehensive income -- -- -- -- -- -- 25,753
Stock options exercised 272 -- 3,834 -- (2,119) -- 1,987
Disqualifying disposition
of stock options -- -- 150 -- -- -- 150
Cash dividends paid -- -- -- (7,340) -- -- (7,340)
-------------------------------------------------------------------------------------
Balance at November 30, 1997 15,375 300 79,417 83,745 (34,144) (2,254) 142,439
Comprehensive income:
Net income -- -- -- 31,579 -- -- 31,579
Currency translation adjustments -- -- -- -- -- (1,842) (1,842)
----------
Total comprehensive income -- -- -- -- -- -- 29,737
Stock options exercised 84 -- 1,820 -- (1,018) -- 886
Disqualifying disposition
of stock options -- -- 653 -- -- -- 653
Cash dividends paid -- -- -- (7,410) -- -- (7,410)
Repurchase of common stock -- -- -- -- (730) -- (730)
-------------------------------------------------------------------------------------
Balance at November 30, 1998 15,459 300 81,890 107,914 (35,892) (4,096) 165,575
Comprehensive income:
Net income -- -- -- 33,321 -- -- 33,321
Currency translation adjustments -- -- -- -- -- 587 587
----------
Total comprehensive income -- -- -- -- -- -- 33,908
Stock options exercised 80 -- 1,870 -- (1,421) -- 529
Disqualifying disposition
of stock options -- -- 73 -- -- -- 73
Cash dividends paid -- -- -- (7,428) -- -- (7,428)
Repurchase of common stock -- -- -- -- (486) -- (486)
-------------------------------------------------------------------------------------
Balance at November 30, 1999 $15,539 $ 300 $ 83,833 $ 133,807 $ (37,799) $ (3,509) $ 192,171
=====================================================================================
</TABLE>
See accompanying notes.
<PAGE>
Notes to Consolidated Financial Statements
November 30, 1999
1. Summary of Significant Accounting Policies
Business. Lilly Industries, Inc. and its subsidiaries (the "Company") are
principally in the business of formulating, manufacturing, and marketing
industrial coatings and specialty chemicals to original equipment manufacturers
on a worldwide basis. Primary manufacturing operations are located in North
America, Europe and Asia-Pacific. The Company operates within three business
segments which serve three end-use markets.
Consolidation and Use of Estimates. The consolidated financial statements
include the accounts of all subsidiaries after elimination of significant
intercompany accounts and transactions. Preparation of these statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Revenue Recognition. Revenue from sales of products is recognized at the time
products are shipped to the customer.
Cash Equivalents. Cash equivalents include time deposits and certificates of
deposit with original maturities of three months or less.
Inventories. Coatings inventories in the United States are stated at the lower
of cost, determined by the last-in, first-out (LIFO) method, or market. All
other inventories are stated at the lower of cost, determined by the first-in,
first-out (FIFO) method, or market.
Intangible Assets. Goodwill, which represents the excess of cost over fair value
of net assets of purchased businesses, is amortized by the straight-line method
over periods ranging from 20 to 40 years. Other intangible assets consist of
noncompete agreements, customer lists and technology and are amortized by the
straight-line method over periods ranging from 5 to 20 years.
The Company periodically evaluates the carrying value of intangible assets to
determine if an impairment has occurred. This evaluation is based on various
analyses including reviewing anticipated cash flows.
Property and Equipment. Property and equipment is recorded on the basis of cost
and includes expenditures for new facilities and items which substantially
increase the useful life of existing buildings and equipment. Depreciation is
based on estimated useful lives (ranging from 3 to 45 years) and computed
primarily by the straight-line method.
Interest-Rate Swap Agreements. The Company periodically enters into interest
rate swap agreements ("Swaps") to modify the interest characteristics of its
outstanding debt. Swap agreements involve the exchange of floating rate and
fixed rate interest payment flows between or among counterparties, including the
Company, banks and / or other financial intermediaries. Such flows are
calculated based upon a predetermined notional principal amount over the life of
the Swaps. The notional amount of each Swap represents all or a portion of the
principal balance of the Company's underlying debt obligation(s). The
differential to be paid or received is accrued and recognized as an adjustment
of interest expense.
Reclassifications. Certain prior year amounts in the accompanying financial
statements have been reclassified to conform with the current year presentation.
2. New Accounting Standards
Effective December 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
statement establishes new rules for the reporting and display of comprehensive
income and its components. The Company has reported, in addition to net income,
the components of other comprehensive income in its consolidated statements of
shareholders' equity. Prior year financial statements have been reclassified to
conform to the requirements of SFAS No. 130. Implementation of this disclosure
standard had no impact on the Company's financial position or results of
operations.
Effective November 30, 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." Statement 131 requires
public business enterprises to report information about operating segments in
annual financial statements and selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of this statement did not affect the Company's financial position
or results of operations.
Effective December 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." Statement 132
revises the disclosure requirements for employers' pensions and other retiree
benefits. Implementation of this disclosure standard did not affect the
Company's financial position or results of operations.
Effective December 1, 1998, the Company adopted the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The SOP requires capitalization of certain costs incurred in the
development of internal-use software, including external direct material and
service costs, employee payroll and payroll-related costs, and capitalized
interest. Prior to adoption of SOP 98-1, the Company expensed certain of these
costs as incurred. The effect of the adoption of this statement on consolidated
earnings during the current period is immaterial.
3. Inventories
The principal inventory classifications at November 30 are summarized as follows
(in thousands):
1999 1998
- --------------------------------------------------------------------------------
Finished products $33,628 $29,761
Raw materials 30,048 27,411
------------------
63,676 57,172
Less adjustment of certain inventories to LIFO basis 5,176 6,376
------------------
$58,500 $50,796
==================
Inventory cost is determined by the LIFO method of inventory valuation for
approximately 61% and 64% of inventories at November 30, 1999 and 1998,
respectively.
4. Long-Term Debt
Long-term debt consists of the following as of November 30 (in thousands):
1999 1998
- --------------------------------------------------------------------------------
7.75% Unsecured Senior Notes $100,000 $100,000
Revolving Credit Facility 100,100 93,700
German Credit Facility 6,703 10,000
--------------------------
$206,803 $203,700
==========================
In February 1998, the Company's German subsidiary ("Subsidiary") entered into an
unsecured Deutsche Mark ("DEM") denominated revolving credit facility ("German
Facility") with a bank. The maximum borrowings available under the German
Facility are $6,703,000 until November 29, 2000; thereafter, $4,460,000 until
November 29, 2001; thereafter, $2,060,000 until maturity of the German Facility
in February, 2003. German Facility advances of greater than $52,000 bear
interest, at the Subsidiary's option, at either (i) the money market rate of the
bank's German affiliate, or (ii) the Frankfurt, Germany Interbank Offered Rate
for DEM deposits plus an interest rate margin of between 0.40% and 0.80%,
depending on the Subsidiary's leverage at the time of each borrowing. Other
advances bear interest at the prime rate of the bank's German affiliate. The
principal of the German Facility is due upon maturity in February, 2003.
In November 1997, the Company restructured its long-term debt into a
$175,000,000 revolving credit facility ("Facility") with a group of financial
institutions and $100,000,000 of senior notes ("Notes"). The Notes were issued
as a 144A private placement offering and were subsequently registered. The
Facility is unsecured and provides for borrowings under a revolving note.
Interest is payable upon maturity of each revolving advance under the Facility,
but in no case less frequently than quarterly. The principal of the Facility is
due in October, 2002. The Notes are unsecured. Interest is payable on June 1 and
December 1 of each year the Notes are outstanding. The principle of the Notes is
due December, 2007. The Facility bears interest, at the Company's option, (i)
the higher of the agent bank's prime rate (8.50% at November 30, 1999) or the
Federal Funds rate plus 0.50% or, (ii) the London Interbank Offered Rate for
U.S. Dollars plus 0.30% to 0.75%, depending upon the Company's credit rating. A
commitment fee ranging from 0.10% to 0.25%, depending upon the Company's credit
rating, is payable on the unused portion of the Facility.
In April 1996, the Company entered into a forty-four month amortizing interest
rate swap agreement with a notional amount of $175,000,000. This agreement
expired November 30, 1999. This agreement effectively converted a portion of the
Facility from variable rate debt to fixed rate debt.
Interest of $15,818,000, $12,369,000 and $20,628,000 was paid in fiscal 1999,
1998 and 1997, respectively.
The Company is subject to various debt covenants under the German Facility,
Facility and Notes, including affirmative and negative covenants which require
the maintenance of certain ratios for maximum leverage, fixed charge coverage
and interest coverage. Additionally, such covenants place certain restrictions
on the Company's ability to engage in mergers and acquisitions and incur
additional indebtedness.
5. Income Taxes
Income tax expense for the years ended November 30 is comprised of the following
components (in thousands):
1999 1998 1997
- --------------------------------------------------------------------------------
Current expense:
Federal $ 8,942 $ 12,757 $ 10,612
Foreign 8,126 7,290 7,674
State 820 2,358 697
-----------------------------------------
17,888 22,405 18,983
Deferred expense (credit):
Federal 4,334 593 2,818
Foreign 384 (139) 210
State 549 8 1,057
-----------------------------------------
5,267 462 4,085
-----------------------------------------
$ 23,155 $ 22,867 $ 23,068
=========================================
A reconciliation of the statutory U.S. federal rate to the effective income tax
rate for the years ended November 30 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory U.S. federal income tax rate 35.0% 35.0% 35.0%
Increase resulting from:
Goodwill 3.5 3.6 3.9
State income taxes, net of federal income tax benefit 1.6 2.8 2.3
Foreign 1.3 1.8 2.2
Other items (.4) (1.2) 1.7
----------------------------
Effective income tax rate 41.0% 42.0% 45.1%
============================
</TABLE>
Deferred income taxes are recorded based upon differences between the financial
statement and tax basis of assets and liabilities.
The deferred tax assets and liabilities recorded on the balance sheet at
November 30 are as follows (in thousands):
1999 1998
- --------------------------------------------------------------------------------
Deferred tax assets:
Goodwill and intangibles $ 1,121 $ 1,279
Employee benefits 5,812 5,565
Accounts receivable, inventory and other 11,051 13,839
------------------
17,984 20,683
Deferred tax liabilities:
Property and equipment 6,582 5,526
Pension 4,580 3,068
------------------
11,162 8,594
------------------
Net deferred tax assets $ 6,822 $12,089
==================
No provision has been made for U.S. federal income taxes on certain
undistributed earnings of foreign subsidiaries that the Company intends to
permanently invest or that may be remitted tax-free. The total of undistributed
earnings that would be subject to federal income tax if remitted under existing
law is approximately $24,500,000 at November 30, 1999. Determination of the
unrecognized deferred tax liability related to these earnings is not practicable
because of the complexities with its hypothetical calculation. Upon distribution
of these earnings, the Company will be subject to U.S. taxes and withholding
taxes payable to various foreign governments. A credit for foreign taxes already
paid would be available to reduce the U.S. tax liability.
Income taxes of $16,600,000, $21,800,000 and $20,500,000 were paid in 1999, 1998
and 1997, respectively.
6. Capital Stock
The Company has two classes of common stock, Class A stock and Class B stock.
Authorized shares of Class A and Class B stock are 97,000,000 and 3,000,000,
respectively. The limited voting rights of Class A shareholders are equal to
voting rights of Class B shareholders only with regard to voting for merger,
consolidation or dissolution of the Company and voting and electing four
directors of the Company if there are ten or more directors and two directors if
there are nine or fewer directors. With respect to all rights other than voting,
Class A shareholders are the same as Class B shareholders.
The terms of the Class B stock, which is held only by employees, provide that
these shares be exchanged for Class A stock on a share-for-share basis when the
shareholder ceases to be an employee or decides to dispose of the shares.
Accordingly, 3,000,000 shares of authorized Class A stock are reserved for this
purpose.
On January 12, 1996, the Company's board of directors ("Board") declared a
dividend of one purchase right for each outstanding share of Class A and Class B
stock. In addition, one right is distributed for each share issued after January
26, 1996. Upon exercise, each right entitles holders to purchase from the
Company one share of stock at $55 per share, subject to certain adjustments. The
rights become exercisable when a person or group acquires beneficial ownership
of 15 percent or more of Class A stock or becomes the beneficial owner of an
amount of Class A stock (but not less than 10 percent) which the Board
determines to be substantial and not in the Company's best long-term interests
or following the announcement of a tender or exchange offer for 30% or more of
the Class A stock.
In the event a person acquires 15 percent or more of Class A stock, or is
determined by the Board to be a substantial owner whose ownership is not in the
Company's best long-term interests or an acquiring person engages in certain
self-dealing transactions, each holder will have the right to receive that
number of common shares having a market value of two times the exercise price of
the right. At any time after a person becomes an acquiring person, but before
such person acquires 50 percent or more of outstanding Class A stock, the Board
may exchange each right for one common share (subject to adjustment).
In the event the Company is involved in certain business combination
transactions, or 50 percent or more of the Company's consolidated assets or
earning power are sold, each holder will have the right to receive, upon
exercise at the then-current exercise price of the right, that number of shares
of common stock of the acquiring company having a market value of two times the
exercise price of the right.
<PAGE>
The Company may redeem the rights at a price of $.01 per right at any time prior
to the time a person or group becomes an acquiring person as defined by the
rights agreement. The rights expire in January, 2006.
A summary of shares issued and held in treasury follows (in thousands):
Capital Stock Capital Stock
Issued Held in Treasury
Class A Class B Class A Class B
- --------------------------------------------------------------------------------
Balance at December 1, 1996 27,184 540 4,810 191
Class A exchanged for Class B -- -- 106 (106)
Class B exchanged for Class A -- -- (22) 22
Stock options exercised 490 -- 29 75
-------------------------------------
Balance at November 30, 1997 27,674 540 4,923 182
Class A exchanged for Class B -- -- 92 (92)
Class B exchanged for Class A -- -- (9) 9
Acquisition for treasury -- -- 39 --
Stock options exercised 151 -- 37 12
-------------------------------------
Balance at November 30, 1998 27,825 540 5,082 111
Class A exchanged for Class B -- -- 36 (36)
Class B exchanged for Class A -- -- (13) 13
Acquisition for treasury -- -- 32 --
Stock options exercised 144 -- 56 19
-------------------------------------
Balance at November 30, 1999 27,969 540 5,193 107
=====================================
Incentive stock option plans entitle certain directors, officers and other key
employees to buy shares of Class A stock at prices not less than fair market
value on the date of grant. The options vest and become exercisable ratably over
a three-year period commencing two years after the date of grant and expire five
or ten years after the date of grant. Certain options are granted with stock
appreciation rights (SAR) and reload options. An SAR entitles the option holder
to receive a cash payment equal to the difference between the option price and
the current value of Class A stock. The reload option entitles the option holder
to the same number of options exercised with an option price equal to the fair
market value at the date of exercise. Shares reserved under these plans were
1,785,129 and 1,931,420 at November 30, 1999 and 1998, respectively.
A summary of stock option activity for the years ended November 30 follows:
Weighted
Average
Number of Exercise
Shares Price
- --------------------------------------------------------------------------------
Balance at December 1, 1996 1,212,290 $ 11.05
Grants 77,072 18.43
Exercised (489,610) 8.39
Terminated (10,250) 13.39
------------------------
Balance at November 30, 1997 789,502 13.39
Grants 460,022 18.84
Exercised (151,233) 12.60
Terminated (37,975) 17.41
------------------------
Balance at November 30, 1998 1,060,316 15.72
Grants 561,095 18.21
Exercised (146,291) 13.57
Terminated (80,230) 18.93
------------------------
Balance at November 30, 1999 1,394,890 $ 16.76
========================
<PAGE>
At November 30, 1999 the range of exercise prices and weighted-average remaining
contractual life of outstanding options were $12.25 - $21.63 and 6.8 years,
respectively. At November 30, 1999 and 1998, the number of options exercisable
was 342,000 and 340,000 respectively, and the weighted-average exercise price of
those options was $13.32 and $13.49, respectively.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123) permits companies to continue to apply APB Opinion 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its plans. The Company has elected to follow APB 25 and
related Interpretations. Under APB 25, because the exercise price of the
Company's employee stock options is not less than fair market price of the share
at the date of grant, no compensation expense is recognized in the financial
statements.
Pro forma information regarding net income and net income per share is required
by SFAS 123 and has been determined as if the Company accounted for its employee
stock options using the fair value method of that statement.
The fair value of options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1999, 1998 and 1997, respectively: risk-free interest rate of
6.2%, 4.7%, and 5.8%; dividend yields of 1.9% for all years; volatility factors
of the expected market price of the Company's Class A stock of .29, .27 and .30;
and a weighted average expected life of options of 7 years, 5 years and 4 years.
For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the option's vesting period. Pro forma amounts may not
be representative of the expected effects on pro forma net income or net income
per share in future years. The Company's pro forma information follows (in
thousands, except per share amounts):
1999 1998 1997
- --------------------------------------------------------------------------------
Net income:
As reported $ 33,321 $ 31,579 $ 28,095
Pro forma 32,235 30,924 27,608
Net income per share:
As reported $ 1.43 $ 1.35 $ 1.20
Pro forma 1.38 1.32 1.18
Weighted average fair value of
options granted during the year $ 6.37 $ 5.76 $ 4.93
7. Net Income Per Share
Basic and diluted net income per share are computed by dividing net income as
reported by the average number of shares outstanding as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic
Weighted-average common shares outstanding 23,205 23,160 22,940
===========================
Diluted
Weighted-average common shares outstanding 23,205 23,160 22,940
Dilutive effect of stock options 115 240 460
---------------------------
Average common shares outstanding assuming dilution 23,320 23,400 23,400
===========================
</TABLE>
<PAGE>
8. Benefit Plans
The Company maintains defined benefit retirement plans that cover substantially
all employees. The change in benefit obligation, change in plan assets, funded
status and amounts recognized in the consolidated balance sheets at November 30
for the Company's defined benefit plans were as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of the year $ 76,458 $ 82,542
Service cost 400 457
Interest cost 5,020 5,380
Amendments and termination -- 22
Actuarial gain (1,461) (8,085)
Benefits paid (4,434) (3,858)
----------------------
Benefit obligation at end of year $ 75,983 $ 76,458
======================
Change in plan assets:
Fair value of plan assets at beginning of year $ 96,571 $ 88,594
Actual return on plan assets 7,061 11,830
Employer contribution 20 5
Benefits paid (4,434) (3,858)
----------------------
Fair value of plan assets at end of year $ 99,218 $ 96,571
======================
Funded status:
Funded status $ 23,235 $ 20,113
Unrecognized net actuarial gain (13,730) (15,317)
Unrecognized prior service cost 4,329 4,813
Unrecognized transition asset (731) (933)
----------------------
Net amount recognized $ 13,103 $ 8,676
======================
Amounts recognized in the consolidated balance sheet consisted of:
Prepaid benefit cost $ 13,103 $ 8,676
----------------------
Net amount recognized $ 13,103 $ 8,676
======================
Components of net periodic benefit cost:
Service cost $ 400 $ 457
Interest cost 5,020 5,380
Expected return on plan assets (9,684) (8,876)
Amortization of prior service cost 484 --
Amortization of transition asset (202) (202)
Recognized net actuarial gain (424) --
----------------------
Net periodic benefit $ (4,406) $ (3,241)
======================
Weighted-average assumptions as of year end:
Discount rate 6.75% 6.75%
Expected return on plan assets 10.25% 10.25%
Rate of compensation increase 4.00% 4.00%
</TABLE>
Certain employees from one of the Company's German subsidiaries participate in a
frozen defined benefit retirement plan. The liability related to this plan
totaled $4,000,000 and $4,400,000 and the expense related to this plan was
$440,000 and $402,000 at November 30, 1999 and 1998, respectively.
Accumulated benefits for supplemental executive retirement plans totaled
approximately $9,595,000 and $8,765,000 at November 30, 1999 and 1998,
respectively. Expense related to this plan amounted to $1,431,000 and $1,321,000
for the years ended November 30, 1999 and 1998, respectively.
The Company also has a defined contribution retirement plan to which the Company
contributed and charged to expense approximately $4,692,000, and $4,113,000 for
the years ended November 30, 1999 and 1998, respectively.
9. Segment Information
Lilly formulates, manufactures and markets industrial coatings and specialty
chemicals primarily to original equipment manufacturers on a worldwide basis.
The Company operates within three business segments which serve three end-use
markets: wood coatings; metal coatings; and composites and glass coatings.
Products sold to these markets have similar economic characteristics, production
processes, distribution methods and regulatory environments. Based on these
similarities, the Company's products are aggregated into one reportable segment,
Industrial Coatings and Specialty Chemicals, for purposes of this disclosure.
The accounting policies of the reportable segment are the same as those
described in the summary of significant accounting policies.
Net sales of Industrial Coatings and Specialty Chemical products by end-use
market are as follows (in thousands):
1999 1998 1997
- --------------------------------------------------------------------------------
Wood Coatings $297,741 $269,585 $262,816
Metal Coatings 284,463 274,951 268,826
Composites and Glass Coatings 73,997 74,466 69,654
--------------------------------------
$656,201 $619,002 $601,296
======================================
The Company maintains operations in the United States, Australia, Canada, China,
Germany, Ireland, Malaysia, Mexico, Singapore, Taiwan and the United Kingdom. A
summary of geographic data for the years ended November 30 is as follows (in
thousands):
1999 1998 1997
- --------------------------------------------------------------------------------
Net sales to unaffiliated customers:
United States $ 504,875 $ 488,703 $ 491,973
Outside U.S., excluding U.S. exports 151,326 130,299 109,323
------------------------------------
Consolidated $ 656,201 $ 619,002 $ 601,296
====================================
Operating income:
United States $ 48,473 $ 50,942 $ 51,150
Outside U.S. 24,427 21,089 18,984
------------------------------------
Consolidated $ 72,900 $ 72,031 $ 70,134
====================================
Total assets:
United States $ 446,259 $ 430,081 $ 453,456
Outside U.S. 101,618 87,165 49,007
Eliminations (deductions) 2,549 (761) (668)
------------------------------------
Consolidated $ 550,426 $ 516,485 $ 501,795
====================================
10. Quarterly Results of Operations (Unaudited)
Quarterly results of operations are summarized as follows (in thousands, except
per share data):
Quarter Ended
1999 February 28 May 31 August 31 November 30
- --------------------------------------------------------------------------------
Net sales $146,139 $171,375 $169,452 $169,235
Gross profit 56,056 67,118 64,229 67,512
Net income 5,584 9,627 8,677 9,433
Net income per share
Basic .24 .41 .38 .41
Diluted .24 .41 .37 .41
Quarter Ended
1998 February 28 May 31 August 31 November 30
- --------------------------------------------------------------------------------
Net sales $143,334 $159,198 $159,345 $157,125
Gross profit 53,431 61,794 61,752 62,384
Net income 5,140 8,715 8,674 9,050
Net income per share
Basic .22 .38 .37 .39
Diluted .22 .37 .37 .39
<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Lilly Industries, Inc.
We have audited the accompanying consolidated balance sheets of Lilly
Industries, Inc. and subsidiaries as of November 30, 1999 and 1998, and the
related consolidated statements of income, cash flows and shareholders' equity
for each of the three years in the period ended November 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lilly Industries,
Inc. and subsidiaries at November 30, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended November 30, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
January 14, 2000
Indianapolis, Indiana
Responsibility for Financial Statements
The management of Lilly Industries, Inc. is responsible for the preparation of
the financial statements in the Annual Report and for the integrity and
objectivity of the information presented. The financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States and necessarily include amounts which are estimates and judgments.
The fairness of the presentation in these statements of the Company's financial
position, results of operations, cash flows and shareholders' equity is reported
on by the independent auditors.
To assist in carrying out the above responsibility, the Company has internal
systems which provide for selection of personnel, segregation of duties and the
maintenance of accounting policies, systems, procedures and related controls.
Although no cost-effective system can insure the elimination of errors, the
Company's systems have been designed to provide reasonable but not absolute
assurances that assets are safeguarded, that policies and procedures are
followed, and that the financial records are adequate to permit the production
of reliable financial statements. The Audit Committee of the Board of Directors,
which is composed of directors who are not employees of the Company or its
subsidiaries, meets regularly with Company officers and independent auditors in
connection with the adequacy and integrity of the Company's financial reporting
and internal controls.
/s/ John C. Elbin /s/ Kenneth L. Mills
John C. Elbin Kenneth L. Mills
Vice President, Chief Financial Officer Corporate Controller and
and Secretary Assistant Secretary
<PAGE>
Investor Information
Form 10-K
A copy of the Form 10-K, which is filed with the Securities and Exchange
Commission, will be sent free to any shareholder upon written request. Contact
Kenneth L. Mills, Corporate Controller and Assistant Secretary, at Lilly
Industries, Inc. 200 W. 103rd Street Indianapolis, IN 46290; or E-mail:
[email protected].
Registrar and Transfer Agent
Communications concerning shareholder records, including address changes, stock
transfers, cash dividends or other service needs should be directed to National
City Bank, Attn: Corporate Trust Operations, P. O. Box 92301, Cleveland, Ohio
44193-0900, (800) 622-6757.
Dividend Reinvestment Plan
A dividend reinvestment and voluntary stock purchase plan for Lilly Industries,
Inc. shareholders permits purchase of the Company's Class A stock without
payment of brokerage commission or service charge. Participants in this plan may
have cash dividends on their shares automatically reinvested and, if they
choose, invest by making optional cash payments. Additional information on the
plan is available by writing or calling: National City Bank, Attn: Corporate
Trust Operations, P. O. Box 92301, Cleveland, Ohio, 44193-0900 (800) 622-6757.
Analyst Contacts
Security analyst inquiries are welcomed. Please call: John C. Elbin, Vice
President, Chief Financial Officer, and Secretary (317) 814-8700.
Annual Meeting
The meeting notice and proxy materials were mailed to shareholders with their
copies of this annual report. Lilly urges all shareholders to vote their proxies
and thus participate in the decisions that will be made at the annual meeting.
The meeting will be held on March 31, 2000 at 10:00 A.M., EST, at the Company's
corporate offices located at 200 W. 103rd Street, Indianapolis, Indiana. (317)
814-8700.
Stock Trading and Dividend Information
The Company's Class A stock is traded on the New York Stock Exchange under the
symbol LI. Dividends are traditionally paid on the 1st business day of January,
April, July and October to shareholders of record approximately three weeks
prior. The following table sets forth the dividends paid per share of stock and
the high and low prices in each of the quarters in the past two years ended
November 30.
Dividends Price Range
Fiscal 1999 Per Share High Low
- --------------------------------------------------------------------------------
1st quarter ended February 28 $ .08 20 1/8 16 1/4
2nd quarter ended May 31 .08 19 3/8 14
3rd quarter ended August 31 .08 19 3/4 15 5/8
4th quarter ended November 30 .08 16 1/4 13 1/8
------
$ .32
======
Dividends Price Range
Fiscal 1998 Per Share High Low
- --------------------------------------------------------------------------------
1st quarter ended February 28 $ .08 20 5/8 17 7/8
2nd quarter ended May 31 .08 22 3/4 17 3/4
3rd quarter ended August 31 .08 24 5/8 18 1/2
4th quarter ended November 30 .08 19 7/8 14 3/8
------
$ .32
======
At November 30, 1999 there were approximately 2,500 registered shareholders of
Class A stock and 62 registered shareholders of Class B stock, which is reserved
for employees of the Company.
<PAGE>
Locations
International
Australia
283 Alfred Street
North Sydney, NSW 2060
Australia
Canada
1915 Second Street West
Cornwall, Ontario K6H 5T1
Canada
65 Duke Street
London, Ontario N6J 2X3
Canada
China
Lot 3 Xintang
District Administration
Dalinshan, Dongguan
Guangdon
China 511774
England
152 Milton Park
Abingdon
Oxfordshire OX14 4SD
England
Germany
D-8649 Wallenfels
Postfach 1126
Germany
Friedensstrasse 40
D-52249 Eschweiler
Germany
Ireland
Willowfield Road
Ballinamore
Co. Leitrim
Ireland
Malaysia
Lot No. 4963, Jalan Teratai
5H Miles
Meru Industrial Zone
41050 Klang
Selangor Darul Ehsan
Malaysia
Mexico
Ave. Central No. 223
Los Lermas, Guadalupe
N.L. Mexico 67190
Singapore
09-09 International Building
360 Orchard Road
Singapore
Taiwan, R.O.C.
No. 1 Kung Yeh First Road
Zenwu Village
Kaohsiung Hsien Taiwan, R.O.C.
<PAGE>
United States
Arkansas
1900 E. 145th Street
Little Rock, AR 72206
California
210 East Alondra Blvd.
Gardena, CA 90248
901 West Union Street
Montebello, CA 90640
Connecticut
145 Dividend Road
Rocky Hill, CT 06067
Florida
2355 S.W. 66th Terrace
Davie, FL 33317
Illinois
5400 23rd Avenue
Moline, IL 61265
Indiana
28335 Clay Street
Elkhart, IN 46517
546 W. Abbott Street
Indianapolis, IN 46225
Kentucky
347 Central Avenue
Bowling Green, KY 42101
Michigan
411 Darling Street, N.
Fremont, MI 49412
4999 36th Street, SE
Grand Rapids, MI 49512
Missouri
1136 Fayette
N. Kansas City, MO 64116
New Jersey
1991 Nolte Drive
Paulsboro, NJ 08066
North Carolina
10300 Claude Freeman Drive
Charlotte, NC 28262
2147 Brevard Road
High Point, NC 27263
1717 English Road
High Point, NC 27262
Texas
2518 Chalk Hill Road
Dallas, TX 75212
Washington
13535 Monster Road
Seattle, WA 98178
<PAGE>
Corporate Offices
200 W. 103rd Street
Indianapolis, Indiana 46290
Corporate Technology CenterOfficers
521 W. McCarty Street
Indianapolis, Indiana 46225
Officers and Directors
Douglas W. Huemme, 58
Chairman and
Chief Executive Officer
Robert A. Taylor, 45
President and
Chief Operating Officer
Hugh M. Cates, 56
Vice President and General Manager,
Wood Coatings
Larry H. Dalton, 52
Vice President,
Manufacturing and Engineering
Alain DeBlandre, 43
Vice President and
Managing Director - Europe
William C. Dorris, 56
Vice President,
Corporate Development
John C. Elbin, 46
Vice President,
Chief Financial Officer and Secretary
Ned L. Fox, 58
Vice President,
Supply Chain Management
A. Barry Melnkovic, 42
Vice President, Human Resources
John D. Million, 57
Vice President and Managing Director, Asia-Pacific
Kenneth L. Mills, 51
Corporate Controller and
Assistant Secretary
Gary D. Missildine, 58
Vice President and General Manager,
Industrial Coatings
Virgil E. Underwood, 48
Vice President and General Manager,
Coil Coatings
Keith C. Vander Hyde, Jr., 41
Vice President and General Manager,
Specialty
Jay M. Wiegner, 56
Vice President and General Manager,
Composites and Glass Coatings
<PAGE>
Directors
James M. Cornelius,
Chairman, Guidant Corporation
William C. Dorris,
Vice President,
Corporate Development
John C. Elbin,
Vice President, Chief Financial Officer
and Secretary
Paul K. Gaston,
Former Chairman,
Guardsman Products, Inc.
Douglas W. Huemme,
Chairman and
Chief Executive Officer
Harry Morrison, Ph.D.,
Dean, School of Science
Purdue University
Norma J. Oman,
President and
Chief Executive Officer
Meridian Insurance Group, Inc.
John D. Peterson,
Chairman, City Securities Corporation
Thomas E. Reilly, Jr.,
Chairman and
Chief Executive Officer
Reilly Industries, Inc.
Robert A. Taylor,
President and
Chief Operating Officer
Exhibit 21
<TABLE>
<CAPTION>
SUBSIDIARIES OF LILLY INDUSTRIES, INC. AS OF FEBRUARY 14, 2000
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
<S> <C> <C>
1. Lilly Industries (USA), Inc. Indiana
2. Lilly Industries (Asia), Limited Hong Kong
3. Lilly Industries (Australia) Pty Ltd. Australia
(Subsidiary of Lilly Industries (USA), Inc.)
4. Lilly Industries (Cornwall) Limited Ontario, Canada
(Subsidiary of Lilly Industries (USA), Inc.)
5. Lilly Industries (Ireland) Limited Ireland
6. Lilly Industries (Malaysia) Sdn.Bhd. Malaysia
7. Lilly Industries de Mexico, S.A. de C.V. Mexico
8. Lilly Industries, Inc.(Canada) Ontario, Canada
9. Lilly Industries (Far East), Ltd. Taiwan
10. Lilly Industries (Thailand), Limited Thailand
11. London Laboratories GmbH Germany
(Subsidiary of Lilly Industries (USA), Inc.)
12. Merckens Lackchemie GmbH and Company KG Germany
(Subsidiary of London Laboratories, GmbH)
13. Dongguan Lilly Paint Industries, Ltd. Peoples Republic of China
(Subsidiary of Lilly Industries (Asia), Limited)
14. G.C.I. Insurance Company, Limited Bermuda
(Subsidiary of Lilly Industries (USA), Inc.)
15. Lilly Industries (UK), LTD United Kingdom
(Subsidiary of Lilly Industries (USA), Inc.)
16. Pinturas Dygo, S.A. de C.V. Mexico
(Subsidiary of Lilly Industries de Mexico,
S.A. de C.V.)
17. Lilly Technologies, Inc. Delaware
18. Lilly Industries, LLC. Indiana
19. Lilly Industries International, LTD Barbados
20. Lilly Industries (Shanghai) Limited Peoples Republic of China
</TABLE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Lilly Industries, Inc. of our report dated January 14, 1999, included in the
1999 Annual Report to Shareholders of Lilly Industries, Inc.
Our audits also included the financial statement schedule of Lilly Industries,
Inc. listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We further consent to the incorporation by reference in Registration Statements
(Form S-8 Nos. 2-59159, 2-76317, 33-52954, 33-52956 pertaining to the Lilly
Employees' Stock Purchase Plan, the Lilly Industries, Inc. Stock Option Plan,
the Lilly Industries, Inc. 1991 Director Stock Option Plan, and the Lilly
Industries, Inc. Employee 401(k) Savings Plan, respectively, and 33-52958 and
333-32205 pertaining to the Lilly Industries, Inc. 1992 Stock Option plan) of
our report dated January 14, 1999, with respect to the consolidated financial
statements incorporated herein by reference, and our report included in the
preceding paragraph with respect to the financial statement schedule included in
this Annual Report (Form 10-K) of Lilly Industries, Inc.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000059479
<NAME> Lilly Industries, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-1-1998
<PERIOD-END> NOV-30-1999
<EXCHANGE-RATE> 1.000
<CASH> 5,714
<SECURITIES> 0
<RECEIVABLES> 93,144
<ALLOWANCES> 1,775
<INVENTORY> 58,500
<CURRENT-ASSETS> 161,857
<PP&E> 199,714
<DEPRECIATION> 67,778
<TOTAL-ASSETS> 550,426
<CURRENT-LIABILITIES> 113,137
<BONDS> 0
0
0
<COMMON> 99,672
<OTHER-SE> 92,499
<TOTAL-LIABILITY-AND-EQUITY> 550,426
<SALES> 656,201
<TOTAL-REVENUES> 656,201
<CGS> 401,286
<TOTAL-COSTS> 583,301
<OTHER-EXPENSES> 633
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,791
<INCOME-PRETAX> 56,476
<INCOME-TAX> 23,155
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,321
<EPS-BASIC> 1.44
<EPS-DILUTED> 1.43
</TABLE>
