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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         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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                                    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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         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.


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                  (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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                           (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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                                    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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                           (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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         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: