LILLY INDUSTRIES, INC.
                           CHANGE IN CONTROL AGREEMENT

                                  HUGH M. CATES


         This  CHANGE IN  CONTROL  AGREEMENT,  dated as of  September  26,  1997
evidences  an  agreement  by and  between  LILLY  INDUSTRIES,  INC.,  an Indiana
corporation  having its  principal  executive  offices at 733 South West Street,
Indianapolis,  Indiana 46225 (the  "Company"),  and HUGH M. CATES, an individual
residing at 202 Edwards Lane, Jamestown, North Carolina 27282 (the "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 the Executive and 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 the Executive
is  terminated  before such a Change in  Control,  or an  anticipated  Change in
Control,  and  the  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 amount equal to the sum of:

                           (1) two (2) times the sum of (i) plus (ii) below:

                                    (i)      the 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   the
                                             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 and
                                    the Company's  Supplemental  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  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), 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

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                                    and    under   the    Company's    Executive
                                    Replacement  Plan  during  the  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
the Executive for services rendered prior to his termination.

                  (b)  Executive   Retirement   Benefit.   If  Executive  was  a
         participant in the Company's  Executive  Retirement  Plan as of the day
         before  the Change in  Control,  the  Executive  shall be  entitled  to
         benefits  under such plan in  accordance  with and subject to its terms
         and conditions; provided, however, the Executive shall be credited with
         two (2) additional "Years of Service" as defined in such plan after the
         date of  termination of employment of the  Executive.  Such  Retirement
         Plan refers to a "Severance  Agreement"  and such shall be deemed to be
         this Change in Control Agreement.

                  (c)  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 the 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.

                  (d)   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

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         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 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;

                           (3)      the acquisition by any  individual,  entity,
                                    or group  (within  the  meaning  of  Section
                                    13(d)(3)  or  14(d)(2)  of  the   Securities
                                    Exchange  Act of 1934,  as amended from time
                                    to time) of an aggregate of more

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                                    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.

                  (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
         the Executive  which  qualifies the 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 the 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 the 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

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                                    Change  in  Control;   the   assignment   to
                                    Executive   of  any   material   duties   or
                                    responsibilities     which    are    clearly
                                    inconsistent   with   Executive's    status,
                                    position or responsibilities; or any removal
                                    of Executive  from,  or failure to reappoint
                                    or  reelect   Executive   to,  any  of  such
                                    positions,  except  in  connection  with the
                                    termination  of  Executive's  employment for
                                    Disability,   death,   Good  Cause,   or  by
                                    Executive other than for Good Reason;

                           (2)      a reduction  by 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

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                                    similar  to,  or of  substantially  the same
                                    aggregate  value to the 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)  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 4(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 the Executive
                                    that will  equal  (based on the  Executive's
                                    good    faith    representations    of   the
                                    Executive's income tax position for the year
                                    of payment hereunder)

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                                    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 the  Executive  pursuant to this
                                    Section  4(a)(1),  including  all  state and
                                    federal   income  taxes  on  the  additional
                                    income tax payments  hereunder  ("Additional
                                    Payment").

                           (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   the
                                    Executive  shall  provide in writing  within
                                    ten (10) days of Executive's receipt of such
                                    notice, a good faith  representation  of the
                                    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

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                                    the applicable  federal rate provided for in
                                    Section 7872(f)(2)(A) of the Code.

                  (b)  Release  of  Claims.  As a  condition  of  the  Executive
         receiving  from the Company the payments  and benefits  provided for in
         this  Agreement,  which  payments  and  benefits  the  Executive is not
         otherwise  entitled to receive,  the Executive  understands  and agrees
         that he will be required to execute a release of all claims against the
         Company  (arising  out  of  matters  occurring  on  or  prior  to  such
         termination) in the form attached hereto as Exhibit 1 (the  "Release").
         Executive  acknowledges  that he has been advised in writing to consult
         with an attorney  prior to  executing  the Release,  and the  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

                                                       - 9 -

<PAGE>



         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  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

                                                      - 10 -

<PAGE>



         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 the Executive prior to a Change in Control.

                  (f)  Amendment.  The Board  shall have the right to amend this
         Agreement,  for any reason,  upon twelve (12) months' written notice to
         the 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 the  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

                                                      - 11 -

<PAGE>



         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 the Executive is entitled to receive,  and
         the  Executive  will not be  entitled  to  participate  in, or  receive
         benefits from, any other severance plan or severance  policy or program
         of  the  Company,  and  the  Executive  shall  not be  entitled  to any
         severance  benefits  other than as identified in this Agreement and the
         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,  the Executive  has executed and,  pursuant to the
authorization  from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.

"EXECUTIVE"

/s/ Hugh M. Cates
-----------------------------------------------------
Hugh M. Cates

"LILLY INDUSTRIES, INC."

/s/ Douglas W. Huemme
-----------------------------------------------------
Chairman of the Board


/s/ Van P. Smith
-----------------------------------------------------
Chairman of the Compensation Committee

                                                      - 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  ______________,  (the  "Change in  Control  Agreement")
between the Company and the undersigned  (the  "Executive"),  which payments and
benefits the  Executive  was not  otherwise  entitled to receive,  the 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 the 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 the  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 the  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 the 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 the 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 the 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.



Hugh M. Cates



Date
WITNESS:




                                                     Exhibit 1