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.

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         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.

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                  (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.

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         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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                           (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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                           (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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         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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         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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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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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

                                     - 11 -

<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

                                     - 12 -

<PAGE>


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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