SCHEDULE 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(AMENDMENT NO. )

Filed by the Registrant: [X]
Filed by a Party other than the Registrant: [ ]

Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
LILLY INDUSTRIES, INC.
(Name Of Registrant As Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6-(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 [set forth the
amount on which the filing fee is calculated and state how it
was determined]: (4) Proposed maximum aggregate value of
transactions:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:

PRELIMINARY PROXY MATERIAL
March 1, 1996

[LILLY LOGO]

March 14, 1996

Dear Shareholder:

On behalf of the Board of Directors and management, I cordially invite
you to attend the Annual Meeting of Shareholders of Lilly Industries, Inc. to be
held on Thursday, April 18, 1996 at 10:00 A.M., local time. The meeting will be
at the Indiana Convention Center & RCA Dome, Rooms 101 and 102, 100 South
Capitol Avenue, Indianapolis, Indiana.

This letter is accompanied by a notice of meeting and proxy statement
which describe the business to be acted upon. In addition to the business items,
there will be a report on the progress of the Company and an opportunity for
questions.

It is important that your shares be represented at the meeting. Whether
or not you plan to attend in person, you are requested to vote, sign, date, and
promptly return the enclosed proxy in the envelope provided.

Sincerely,

Douglas W. Huemme
Chairman, President and
Chief Executive Officer

LILLY INDUSTRIES, INC.

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To Be Held April 18, 1996

The Annual Meeting of Shareholders of Lilly Industries, Inc., an
Indiana corporation (the "Company"), will be held at the Indiana Convention
Center & RCA Dome, 100 South Capitol Avenue, Indianapolis, Indiana in Rooms 101
and 102 on Thursday, April 18, 1996 at 10:00 A.M., local time, for the following
purposes:

1. To elect ten directors.

2. To approve a proposed amendment of the Company's Articles of
Incorporation to increase the authorized shares of Class A
Stock to 97,000,000 and increase the authorized shares of
Class B Stock to 3,000,000.

3. To transact such other business as may properly come
before the meeting.

The Board of Directors has established the close of business on
February 16, 1996 as the record date for determining shareholders entitled to
notice of and to vote at the meeting.

BY ORDER OF THE BOARD OF DIRECTORS

Roman J. Klusas, Secretary

March 14, 1996

YOUR VOTE IS IMPORTANT
Even if you plan to attend the meeting,
we urge you to mark, sign and date the enclosed
proxy and return it promptly in the enclosed envelope.

PROXY STATEMENT

The enclosed proxy is solicited by the Board of Directors of Lilly
Industries, Inc., an Indiana corporation (the "Company"), 733 South West Street,
Indianapolis, Indiana 46225, for use at the Annual Meeting of Shareholders to be
held on April 18, 1996 and at any adjournment thereof. This Proxy Statement and
the enclosed proxy were mailed on or about March 14, 1996.

All shares represented by the enclosed proxy will be voted at the
meeting in accordance with the instructions given by the shareholder. If no
instruction is given, the shares will be voted for the election of director
nominees as listed in this Proxy Statement and for adoption of the amendment of
the Articles of Incorporation as described in the Proxy Statement and, in the
absence of any recommendation, in accordance with the best judgment of the proxy
holders. A shareholder executing and delivering the enclosed proxy may revoke
it, by a written notice delivered to the Secretary of the Company or in person
at the meeting, at any time before it is exercised.

The Company will bear the cost of soliciting the proxies. In addition
to being solicited by mail, proxies may be solicited by personal interview,
telephone and telegram by directors, officers and employees of the Company. The
Company expects to reimburse brokers or other persons for their reasonable
out-of-pocket expenses in forwarding proxy material to the beneficial owners.

PROPOSAL NUMBER ONE

ELECTION OF DIRECTORS

Ten directors will be elected at the meeting. The holders of Class A
Stock will elect four directors and the holders of Class B Stock will elect six
directors. Each director will serve until the next annual meeting or until his
successor is elected and qualified. All of the nominees listed below, excluding
James M. Cornelius, are current directors whose present terms of office will
expire upon completion of the election at the meeting. Mr. Cornelius has been
nominated to replace Robert H. McKinney who is retiring from the Board of
Directors effective with the next annual meeting on April 18, 1996. Unless
authorization is withheld, the enclosed proxy will be voted in favor of electing
as directors the nominees listed below. If any nominee should be unable to
serve, the proxy will be voted for a substitute nominee selected by the Board of
Directors.

Directors will be elected by a plurality of the votes cast for nominees
by the holders of Class A Stock and Class B Stock at the Annual Meeting of
Shareholders at which a quorum is present. "Plurality" means that the director
nominees who receive the largest number of votes cast are elected as directors
up to the maximum number of directors to be chosen at the meeting. Abstentions,

broker non-votes, and instructions on the accompanying proxy card to vote
against one or more of the nominees will be considered as not voted.

H. J. (Jack) Baker, John D. Peterson, Thomas E. Reilly, Jr. and Van P.
Smith are nominees for election as directors by holders of the Class A Stock;
and James M. Cornelius, William C. Dorris, Douglas W. Huemme, Roman J. Klusas,
Harry Morrison, Ph.D. and Richard A. Steele are nominees for election as
directors by holders of the Class B Stock.

The name, principal occupation, business experience since 1991, tenure,
number and percentage of outstanding shares of the Company and its subsidiaries
beneficially owned on February 16, 1996, and age of each nominee for election as
a director are set forth below. Unless otherwise indicated, each nominee has
sole investment and voting power with respect to the shares shown as
beneficially owned by him.

Percentage of
Outstanding
Served Shares Shares
Name, Principal Continuously Beneficially Beneficially
Occupation and as a Director Owned at Owned
Prior Business Experience Since Title of Class 2/16/96 at 2/16/96 Age
- ------------------------- ------------- -------------- --------- ------------ ---

H. J. (JACK) BAKER 1985 Class A Stock 11,105 (1) * 68
Chairman of BMW Constructors, Inc.
(industrial mechanical contractor)
since prior to 1991; director of
two publicly-held corporations
(other than the Company): First
Indiana Corporation and The
Somerset Group, Inc.

JAMES M. CORNELIUS Nominee Class A Stock 4,000 * 52
Chairman of the Board of
Directors of Guidant
Corporation since 1994; Vice
President of Finance and Chief
Financial Officer of Eli Lilly
and Company from prior to 1991
to 1995; director of one
publicly-held corporation
(other than the Company):
Guidant Corporation.

WILLIAM C. DORRIS 1989 Class A Stock 26,146 (2) * 53
Vice President, Corporate Class B Stock 17,025 4.34%
Development of the Company
since July, 1994; General
Manager of the Company's
High Point Division from prior
to 1991 to 1994, of the Company's
Templeton Division from 1991 to
1994 and of the Company's
Dallas Division from 1993 to 1994.

DOUGLAS W. HUEMME 1990 Class A Stock 143,003 (3) * 54
Chairman, President and Chief Class B Stock 39,000 9.94%
Executive Officer of the Company
since July, 1991; President and
Chief Operating Officer of the
Company from prior to 1991 to
July, 1991; director of two
publicly-held corporations (other
than the Company): First Indiana
Corporation and The Somerset
Group, Inc.

ROMAN J. KLUSAS 1988 Class A Stock 28,204 (4) * 49
Vice President and Chief Class B Stock 34,819 8.88%
Financial Officer, and
Secretary of the
Company since prior to
1991.

HARRY MORRISON, Ph.D. 1995 Class A Stock 0 * 58
Dean of School of Science,
Purdue University since 1992;
Head of Chemistry Department,
Purdue University from prior
to 1991 to 1992; chemical
consultant for: Great Lakes
Chemical Corporation (1991 to
1993), American Cyanamid (1993),
Bristol Myer Squibb (1991) and
Ciba-Geigy (1991).

JOHN D. PETERSON 1964 Class A Stock 160,908 (5) * 62
Chairman of City Securities
Corporation (6) (securities
dealer) since prior to 1991;
director of two publicly-held
corporations (other than the
Company): Duke Realty
Investments, Inc., and Capital
Industries, Inc.

THOMAS E. REILLY, JR. 1981 Class A Stock 36,153 (7) * 56
Chairman and Chief Executive
Officer of Reilly Industries,
Inc. (diversified chemical
manufacturing firm) since
prior to 1991; director of
one publicly held corporation
(other than the Company):
First Chicago NBD Corp.

VAN P. SMITH 1985 Class A Stock 11,105 (8) * 67
Chairman of Ontario Corporation,
Muncie, Indiana (engaged in the
manufacture of components for
computer chip manufacturing machine
tools, sales of computer hardware
and software to third party
collection firms, and metallurgical,
chemical and environmental testing
services) since prior to 1991;
director of four publicly-held
corporations (other than the Company):
CINergy Corporation, PSI Energy, Inc.,
Meridian Mutual Insurance Company,
and Meridian Insurance Group, Inc.

RICHARD A. STEELE 1981 Class A Stock 24,824 (9) * 69
Retired President and Chief
Executive Officer of Citizens
Gas and Coke Utility (gas
distribution utility) since
prior to 1991.

All current directors and Class A Stock 483,773 (10) 2.18%
executive officers as a group, Class B Stock 136,275 (11) 34.74%
consisting of 12 persons
- -----------------------------------
<FN>

* Represents less than one percent of outstanding shares.

(1) Includes 9,452 shares of Class A Stock which Mr. Baker has the right to
acquire pursuant to currently exercisable stock options.

(2) Does not include 683 shares of Class A Stock which Mr. Dorris' wife
holds as custodian for their minor child. Mr. Dorris disclaims
beneficial ownership of those 683 shares. Includes 18,250 shares of
Class A Stock which Mr. Dorris has the right to acquire pursuant to
currently exercisable stock options.

(3) Includes 141,661 shares of Class A Stock which Mr. Huemme has the right
to acquire pursuant to currently exercisable stock options.

(4) Includes 28,151 shares of Class A Stock which Mr. Klusas has the right
to acquire pursuant to currently exercisable stock options.

(5) Includes 54,018 shares held in an investment account at City
Securities Corporation. Mr. Peterson owns more than 10% of the equity
of City Securities Corporation. Does not include 34,548 shares of
Class A Stock owned of record and beneficially by Mr. Peterson's wife.
Mr. Peterson disclaims beneficial ownership of those 34,548 shares.
Includes 14,449 shares of Class A Stock owned beneficially by Mr.
Peterson as trustee of a GST Investment Share Trust for benefit of Mr.
Peterson and 34,298 shares of Class A Stock owned beneficially by Mr.
Peterson as trustee of two GST Investment Share Trusts for benefit of
Mr. Peterson's two sisters. Includes 7,089 shares of Class A Stock
which Mr. Peterson has the right to acquire pursuant to currently
exercisable stock options.

(6) John D. Peterson is the Chairman and a shareholder of City Securities
Corporation, a securities dealer located in Indianapolis, Indiana. City
Securities Corporation was a market maker for the Company's Class A
Stock until October, 1995. Since December 1, 1994, the Company's
Employees Stock Purchase Plan purchased 12,639 shares of Class A Stock
from City Securities Corporation for an average purchase price of
$14.24 per share. The shares were purchased periodically from City
Securities Corporation for a price per share equal to the last quoted
asked price for the shares in the over-the-counter market.

(7) Does not include 4,977 shares of Class A Stock which Mr. Reilly's wife
holds as custodian for their child. Mr. Reilly disclaims beneficial
ownership of those 4,977 shares. Includes 9,452 shares of Class A
Stock which Mr. Reilly has the right to acquire pursuant to currently
exercisable stock options.

(8) Includes 2,363 shares of Class A Stock which Mr. Smith has the right to
acquire pursuant to currently exercisable stock options.

(9) Includes 4,726 shares of Class A Stock which Mr. Steele has the right
to acquire pursuant to currently exercisable stock options.

(10) Includes 6,250 shares of Class A Stock owned by Larry H. Dalton, Vice
President, Operations and Manufacturing of the Company, all of which
Mr. Dalton has the right to acquire pursuant to currently exercisable
stock options. Includes 25,788 shares of Class A Stock owned by Robert
H. McKinney, current director of the Company who will retire April 18,
1996, 2,363 shares of which Mr. McKinney has the right to acquire
pursuant to currently exercisable stock options. Includes 10,287
shares of Class A Stock owned by Kenneth L. Mills, Director of
Corporate Accounting and Assistant Secretary, all of which Mr. Mills
has the right to acquire pursuant to currently exercisable stock
options. Does not include 4,000 shares of Class A Stock owned by Jams
M. Cornelius, nominee for director of the Company.

(11) Includes 25,155 shares of Class B Stock (6.41% of total Class B Stock
outstanding) beneficially owned by Larry H. Dalton, Vice President,
Operations and Manufacturing of the Company. Includes 20,276 shares of
Class B Stock (5.17% of total Class B Stock outstanding) beneficially
owned by Kenneth L. Mills, Director of Corporate Accounting and
Assistant Secretary of the Company.
</FN>

Committees of the Board of Directors and Compensation of
Directors

Among other committees, the Board of Directors of the Company has a
Compensation Committee, a Nominating Committee, and an Audit Committee.

The Compensation Committee, which held five meetings during the Company's
fiscal year ended November 30, 1995, formulates and presents to the Board of
Directors for its consideration recommendations as to the Chairman's
compensation, determines the aggregate amount to be paid as employee bonuses by
the Company and its subsidiaries, and determines the aggregate and individual
base salaries and bonuses to be paid to officers of the Company. Van P. Smith
(Chairman), H. J. Baker, and Thomas E. Reilly, Jr. are the current members of
the Compensation Committee.

The Nominating Committee, which held one meeting during the Company's
fiscal year ended November 30, 1995, identifies and presents candidates as
potential members of the Company's Board of Directors. Robert H. McKinney
(Chairman), Van P. Smith, and

Richard A. Steele are the current members of the Nominating Committee.

The Audit Committee, which held two meetings during the Company's fiscal
year ended November 30, 1995, is responsible for recommending to the Board the
firm to select as independent auditors, for reviewing the scope and the results
of the audits made by the independent auditors, for overseeing the adequacy of
internal controls, and for reviewing and approving fees paid to the independent
auditors. Richard A. Steele (Chairman), John D. Peterson, and Thomas E. Reilly,
Jr. are the current members of the Audit Committee.

The Board of Directors held four meetings during the Company's fiscal
year ended November 30, 1995. No incumbent director attended fewer than 75% of
the aggregate of such meetings of the Board and meetings of committees of which
he was a member at the time of the meeting.

Directors who are also employees of the Company receive no director
fees. Non-employee directors received for the fiscal year ended November 30,
1995 an annual retainer of $10,000 (except for the chairman of the Audit
Committee, Policy Committee, Nominating Committee, Technical Committee, and
Compensation Committee who each received an additional annual retainer of
$1,000) and $750 for each meeting of the Board or Board committee attended prior
to April, 1995 and $1,000 for each meeting thereafter.

The Lilly Industries, Inc. 1991 Director Stock Option Plan (the
"Directors Plan") provides for the granting of non-qualified options for up to a
maximum of 23,625 shares of Class A Stock per calendar year and provides
automatically for the grant of options for 2,363 shares of Class A Stock to each
non-employee director on the date of each annual meeting of the shareholders,
beginning with the 1992 Annual Meeting. The Directors Plan is intended to be
substantially self-administering.

The Company has reserved 214,983 shares of Class A Stock for issuance
upon exercise of options to be granted under the Directors Plan. As of February
16, 1996 there were options for an aggregate of 51,986 shares of Class A Stock
outstanding.

Options for 16,538 shares, at an exercise price of $5.19 per share,
were automatically granted on October 18, 1991 (date of Board adoption). Options
for 14,178 shares, at an exercise price of $8.68 per share, were automatically
granted on April 23, 1992 (date of 1992 Annual Meeting). Options for 14,178
shares, at an exercise price of $10.83 per share, were automatically granted on
April 22, 1993 (date of 1993 Annual Meeting). Options for 14,178 shares, at an
exercise price of $17.17 per share, were automatically granted on April 21, 1994
(date of 1994 Annual Meeting). Options for 16,541 shares, at an exercise price
of $14.06 per share, were automatically granted on April 20, 1995 (date of 1995
Annual Meeting). Options granted under the Directors Plan will generally become

exercisable on the first anniversary of the date upon which they were granted.
Each option terminates five years after its grant date.

Options for 9,452 shares under the Directors Plan were exercised in
fiscal year 1995 at prices per share ranging from $5.19 to $10.83.

PROPOSAL NUMBER TWO

AMENDMENT OF THE ARTICLES OF INCORPORATION

The Board of Directors deem it advisable, and thus proposes to amend,
Articles 5 and 6 of the Company's Articles of Incorporation to increase the
authorized shares of Class A Stock from 48,500,000 shares to 97,000,000 shares
and to increase the authorized shares of Class B Stock from 1,500,000 shares to
3,000,000 shares. Thus, Articles 5 and 6 as amended would state:

ARTICLE 5
NUMBER OF AUTHORIZED SHARES OF THE CORPORATION

The Corporation has authority to issue 100,000,000 shares, all of which
are shares without par value.

ARTICLE 6
GENERAL PROVISIONS REGARDING SHARES OF THE CORPORATION

Section 6.1. Designation of Classes and Numbers of Shares of Capital
Stock. 97,000,000 shares of capital stock, without par value, shall be known as
"Class A Stock," and 3,000,000 shares of capital stock, without par value, shall
be known as "Class B Stock."

Section 6.4. Shares of Class A Stock Reserved for Exchange for Class B
Stock. 3,000,000 shares of Class A Stock, without par value, are hereby reserved
only for exchange by the Corporation, pursuant to the Obligation to Exchange
explained in Section 6.2, upon a share for share basis, for Class B Stock
standing in the names of Key Persons upon the happening of any one or more of
the Events of Exchange enumerated in Clause 6.23. However, none of such
3,000,000 shares of Class A Stock so reserved shall be issued pursuant to the
Obligation to Exchange unless the Corporation shall fail to have acquired for
its Treasury Stock Account the necessary number of shares of Class A Stock at
prices the Board deems reasonable and proper. When any of the 3,000,000 shares
of Class A Stock reserved for exchange by this Section are issued, the number of
shares of Class A Stock reserved hereunder shall automatically be increased to
3,000,000 shares so as to have at all times a total of 3,000,000 shares of Class
A Stock reserved for fulfillment of the Obligation to Exchange.

All attributes of the additional authorized but unissued shares of
Class A Stock would be the same as those of the currently outstanding shares of

Class A Stock. All attributes of the additional authorized but unissued shares
of Class B Stock would be the same as those of the currently outstanding shares
of Class B Stock. The increase in authorized shares will not affect
shareholders' equity in the Company or the capital or surplus accounts of the
Company.

On February 16, 1996, the number of outstanding shares of Class A Stock
was 22,166,360; the number of shares of Class A Stock reserved for sale under
the Company's Employees Stock Purchase Plan and 401(k) Savings Plan was
4,925,667; the number of shares of Class A Stock reserved for issuance under the
Company's Stock Option Plans was 1,823,452; the number of shares of Class A
Stock reserved for exchange for Class B Stock was 1,500,000; and the number of
shares of Class A Stock unissued, unreserved and available for issue was
13,283,333. On February 16, 1996, the number of outstanding shares of Class B
Stock was 392,264, and the number of shares of Class B Stock unissued,
unreserved and available for issue was 960,000.

The amendment increasing the number of authorized shares is being
proposed to make available additional shares of Class A Stock for general
corporate purposes, including potential issuances of shares pursuant to stock
dividends, stock splits, acquisitions, financings and the Company's shareholder
rights plan. In the judgment of the Board of Directors, the additional shares
authorized by the proposed amendment will provide flexibility in corporate
decision-making in the event shares should be needed for any such desirable
corporate purpose. The authorized but unissued shares of Class A Stock and Class
B Stock can be issued without shareholder approval subject, however, to the
requirements of the New York Stock Exchange with respect to the Class A Stock
which, among other matters, require shareholder approval for the issuance of
shares which would result in an increase of 20% or more in the number or voting
power of shares outstanding prior to the issuance.

Although the Company has no present intention to issue shares of Common
Stock in the future to make an acquisition of control of the Company more
difficult, future issuances of Common Stock could have that effect. For example
the acquisition of shares of the Company's Common Stock by a person to acquire
control of the Company might be discouraged through the public or private
issuance of additional shares of Common Stock, since such issuance would dilute
the percentage interest of the acquiring person in the equity of the Company.
Shares of Common Stock could also be issued to existing stockholders as a
dividend or privately placed with purchasers who might side with the Board in
opposing a takeover bid, thus discouraging such a bid. The Company is not aware
of any effort to accumulate its shares of Class A Stock or to acquire control of
the Company by means of a merger, tender offer solicitation in opposition to
management or otherwise.

The Company's Articles of Incorporation or Bylaws do not contain any
other provisions having an anti-takeover effect.

This proposal is not the result of a plan by the Company to adopt a series of
anti-takeover provisions and the Company has no present intention to propose
anti-takeover measures in the future. However, the Company does have a Rights
Agreement (effective January 12, 1996) pursuant to which it has distributed a
dividend of one common share purchase right for each outstanding share of Class
A Stock and Class B Stock. If and when the rights become exercisable, each right
will entitle the registered holder to purchase from the Company one share of
Common Stock at $55.00 per share. The rights are not intended to prevent a fair
and equitable takeover of the Company and will not do so. However, the rights
should discourage any effort to acquire the Company in a manner or on terms not
approved by the Board of Directors. The rights are designed to deal with the
serious problem of a potential acquirer using coercive or unfair tactics to
deprive the Company's Board of Directors of any real opportunity to determine
the future of the Company and to realize the value of a shareholder's investment
in the Company.

If the amendment increasing the authorized shares had been approved by
the Company's shareholders on February 16, 1996, there would have been
60,283,333 shares of Class A Stock and 2,460,000 shares of Class B Stock
unissued, unreserved and available for issue on that date. Subject to the
restrictions in the Company's Articles of Incorporation concerning the issuance
of Class B Stock to key persons, the Company's authorized, unissued, and
unreserved shares may be issued in such amounts, at such times for such purposes
as the Board of Directors may determine and, unless required by statute or the
Articles of Incorporation, without further shareholder action. Except to the
limited extent provided in Clause 7.31 in Section 7.3 of Article 7 of the
Articles of Incorporation, there are no preemptive rights with respect to the
Company's shares of Class A Stock or Class B Stock. Those provisions provide
certain preemptive rights to existing shareholders if the Company increases
authorized shares of Class A Stock without obtaining the approval of holders of
two-thirds of the outstanding Class A Shares, and such increase is for a reason
or reasons other than the declaration of stock dividends payable upon shares of
Class A Stock and Class B Stock. The issuance of any or all of the authorized
but unissued shares of Class A Stock would have the effect of reducing the
percentage of the Company owned by the present shareholders and could dilute the
interests of the present shareholders of the Company in the assets and net worth
of the Company. At this time, the Company has no specific plans, understandings,
or arrangements for issuing any of the additional authorized shares of Class A
Stock or Class B Stock.

The proposed amendment of the Articles of Incorporation requires the
affirmative vote of holders of two-thirds of the outstanding shares of Class A
Stock and four-fifths of the outstanding shares of Class B Stock, voting as
separate voting groups. The proposed amendment of the Articles of Incorporation
will be filed with the Indiana Secretary of State and become effective upon the
receipt of such shareholder approval.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE PROPOSAL
TO AMEND THE ARTICLES OF INCORPORATION. YOUR VOTE IS IMPORTANT.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Overview and Philosophy

The Compensation Committee of the Board of Directors of the Company is
composed entirely of non-employee directors. The Committee formulates and
presents to the Board of Directors recommendations as to the Chairman's
compensation and base salaries for all officers of the Company, the aggregate
amount to be paid as employee bonuses by the Company and the aggregate and
individual bonuses to be paid to officers of the Company. The Compensation
Committee also serves as the Stock Option Committee for the Company's 1992 Stock
Option Plan. The following report of the Compensation Committee discusses the
application of the Compensation Committee's policies to the annual and long-term
compensation of the Company's executive officers for fiscal 1995.

The objective of the Company's executive compensation program is to
enhance the Company's long-term profitability by providing compensation that
will attract and retain superior talent, reward performance and align the
interests of the executive officers with the long-term interests of the
shareholders of the Company.

Executive Officer Compensation

For fiscal 1995 compensation for the Company's executive officers
consisted of base salary, annual cash bonuses, stock options, supplemental
executive retirement plans, and various broad based employee benefits, including
pension plans and contributions under employee stock purchase and 401(k) plans.

Base salary levels for the Company's executive officers are
competitively set relative to companies in peer businesses. In determining
salaries, the Committee also takes into account individual experience and
performance.

The Company's annual bonus plan is intended to provide a direct cash
incentive to executive officers and other key employees to maximize the
Company's profitability. At the beginning of each fiscal year, financial
performance objectives are targeted for the Company and individual business
units which become the basis for determining annual bonuses. If the Company
and/or business units achieve their target performance, then participants
receive an established target bonus. The amount of bonus will increase or
decrease by specified percentage within an established range based upon actual
performance compared to target performance. In the case of the Chief Executive

Officer the performance factor most heavily weighted in determining the bonus is
earnings per share. The bonuses for 1995 were determined in December, 1995 based
upon fiscal year-end financial results.

Stock Options

Through its stock option program, the Company seeks to enable its
executive officers and other key employees to develop and maintain a long-term
ownership position in the Company's common stock, thereby creating a direct and
strong link between executive pay and shareholder return. The Committee
considers stock options to be an important portion of compensation tied to
performance and a strong incentive for increasing shareholder value over the
long term. In granting stock options, the Stock Option Committee took into
account the number of options granted in prior years, the practices of other
peer companies, reviewed surveys, and considered the executive's level of
compensation and past contributions to the Company. On January 27, 1995 the
Stock Option Committee granted the incentive stock options reflected in the
tables that follow.

Compensation Committee and
Stock Option Committee

Van P. Smith, Chairman
H. J. Baker
Thomas E. Reilly, Jr.

COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION

Douglas W. Huemme, the Company's Chairman, President and Chief Executive
Officer serves as a director of The Somerset Group, Inc. Mr. Robert H. McKinney,
a current director of the Company, is the Chairman of The Somerset Group, Inc.
Mr. Huemme became a member of the Compensation Committee of The Somerset Group,
Inc. in 1994.

COMPENSATION OF EXECUTIVE OFFICERS

Shown below is information concerning the annual and long-term
compensation for services to the Company performed during the fiscal years
indicated of those persons who were at November 30, 1995 the chief executive
officer and the other four most highly compensated executive officers.

SUMMARY COMPENSATION TABLE

Long-Term
Compensation:
Shares Underlying
Fiscal Annual Compensation Stock Options All Other
Name and Principal Position Year Salary Bonus Granted Compensation(1)
- ------------------------ ----- ------------------- ---------------- ------------

Douglas W. Huemme 1995 $372,083 $280,000 0 $17,775
Chairman, President and 1994 335,385 310,000 161,250 7,290
Chief Executive Officer 1993 293,077 280,000 0 5,983

Roman J. Klusas 1995 163,750 140,000 5,000 11,400
Vice President and Chief 1994 147,115 155,000 7,501 5,737
Financial Officer, Secretary 1993 123,846 140,000 5,000 3,738

William C. Dorris 1995 144,167 85,000 5,000 10,185
Vice President, Corporate 1994(2) 122,769 75,000 4,500 4,095
Development

Larry H. Dalton 1995(3) 120,000 85,000 4,500 11,146
Vice President, Operations
and Manufacturing

Kenneth L. Mills 1995 104,875 32,000 3,500 10,521
Director of Corporate 1994 98,385 40,000 3,000 3,441
Accounting, Assistant
Secretary 1993 92,331 37,000 2,000 3,290
- -------------------------
<FN>

(1) All Other Compensation is comprised of matching Company contributions
on behalf of the employees to the Employees Stock Purchase Plan and
the 401(k) Plan and a portion of Company payments for group term life
insurance premiums. These three types of All Other Compensation for
fiscal year 1995 are respectively detailed by employee as follows:
Douglas W. Huemme--$2,000, $9,000 and $1,800; Roman J. Klusas--
$2,000, $9,000 and $400; William C. Dorris--$585, $9,000 and $600;
Larry H. Dalton--$1,846, $9,000 and $300; and Kenneth L.
Mills--$2,000, $8,321 and $200. Additionally, for Mr. Huemme only, All
Other Compensation also includes $4,975 as reimbursement of
split-dollar life insurance premiums.

(2) Mr. Dorris was appointed as an executive officer in 1994.

(3) Mr. Dalton was appointed as an executive officer in 1995.
</FN>

STOCK OPTION GRANTS

The following table provides details regarding stock options granted to
the named executive officers in fiscal 1995. In addition there are shown the
hypothetical gains or "option spreads" that would exist for the respective
options. These gains are based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the full
option term. These amounts represent certain assumed rates of appreciation only.
Actual gains, if any, on stock option exercises and common stock holdings are
dependent on the future performance of the Company's common stock and the
overall stock market conditions. There can be no assurance that the amounts
reflected on this table will be achieved.

FISCAL 1995 STOCK OPTION GRANTS

Potential
Percent of Realizable Value
Number Total Options Assuming Annual
of Shares Granted to Rates of Stock
Underlying Employees Exercise Price Appreciation
Options in Fiscal Price Per Expiration for Option Term
Name Granted (1) 1995 Share Date 5% 10%
- ---------------- ----------- --------- --------- ---------- ------- -----

Roman J. Klusas 5,000 5.92% 12.94 01/27/01 17,877 39,499
William C. Dorris 5,000 5.92% 12.94 01/27/01 17,877 39,499
Larry H. Dalton 4,500 5.33% 12.94 01/27/01 16,089 35,549
Kenneth L. Mills 3,500 4.14% 12.94 01/27/01 12,514 27,650

<FN>
(1) Stock options granted to the named executive officers during fiscal
1995 were qualified options. One-third of these options become
exercisable on each of January 27, 1997, 1998 and 1999. The purchase
price of shares subject to these options may be paid in cash or by
exchanging shares at fair market value.
</FN>

OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table shows stock option exercises by named executive
officers during fiscal 1995, including the aggregate value realized by such
officers on the date of exercise. In addition, this table includes the number of
shares covered by both exercisable and non-exercisable stock options as of
November 30, 1995. Also reported are the values for "in-the-money" options
(options whose exercise price is lower than the market value of the shares at
fiscal year end) which represent the spread between the exercise price of any
such existing stock options and the fiscal year-end market price of the stock.

1995 STOCK OPTION EXERCISES,
OUTSTANDING GRANTS AND VALUE AS OF NOVEMBER 30, 1995

Number of
Shares Underlying Value of
Unexercised Unexercised
Value Options at In-the-Money
Realized 11/30/95 Options at
Shares at Unexer- 11/30/95 (3)
Acquired on Exercise Exer- cisable Exer- Unexer-
Name Exercise Date (1) cisable (2) cisable cisable (2)
- ---------------- ---------- -------- ------- ------- ------- --------

Douglas W. Huemme 10,776 $68,088 146,952 132,938 $532,594 $262,055
Roman J. Klusas 8,351 50,022 28,151 30,751 133,119 98,823
William C. Dorris 0 0 18,250 17,875 88,878 48,354
Larry H. Dalton 0 0 18,250 17,375 88,878 48,324
Kenneth L. Mills 0 0 10,287 11,438 48,936 26,650

<FN>

(1) Aggregate market value of shares acquired less the aggregate price
paid by executive.

(2) The shares represented could not be acquired by the respective
executive as of November 30, 1995.

(3) Amount reflecting gains on outstanding options are based on the
November 30, 1995 closing NYSE stock price which was $13.00 per share.

</FN>

SHAREHOLDER RETURN PERFORMANCE PRESENTATION

The line graph below compares annual changes in cumulative total return to
shareholders on the Company's Common Stock against the cumulative total return
as measured by the Standard & Poor's 500 Composite Index and the Standard &
Poor's Chemical Composite Index. The comparisons are for a period of five fiscal
years ended November 30, 1995.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*

[Line Graph]

Dollar Value November 30 1990 1991 1992 1993 1994 1995
Lilly Common $100 $119 $219 $344 $312 $314
S&P 500 $100 $116 $134 $143 $141 $188
S&P Chemical $100 $117 $132 $142 $157 $200

* Assumes $100 was invested on November 30, 1990 in Lilly Industries, Inc.
Common Stock and each index. Also, assumes reinvestment of all dividends.

PENSION PLANS

Retirement benefits are provided by the Company and its subsidiaries
under non-contributory pension plans, each of which is qualified under Section
401 of the Internal Revenue Code. Effective December 1, 1994, the pension plan
in which executive officers of the Company participate was amended to freeze
years of service at November 30, 1994. Monthly pension benefits under this plan
are based on years of service at November 30, 1994 and average monthly earnings
for the 60 consecutive months producing the highest average during employment.
The earnings covered by the Company's pension plans include cash salary, wages
and bonuses actually paid, plus Company contributions made on behalf of the
participants pursuant to the Employees Stock Purchase Plan of the Company and
any amounts deferred or redirected by participants under any cash or deferred
arrangement and salary reduction plans maintained by the Company under Section
401(k) and Section 125 of the Internal Revenue Code. Such compensation for
executive officers does not vary substantially from the cash compensation
reported in the summary compensation table.

The estimated annual retirement benefits presented on a straight-life
annuity basis payable at the normal retirement age of 65 under those plans to
persons in specified remuneration and years-of-service classifications are as
follows (benefits listed in the table are not subject to any further offset):

Assumed Average
Earnings During Five Years of Service at November 30, 1994
Consecutive Years
Producing Highest Average 10 20 30 40 50
- -------------------------------------------------------------------------------------------

$100,000 $12,500 $25,000 $37,500 $50,000 $62,500
125,000 15,625 31,250 46,875 62,500 78,125
150,000 18,750 37,500 56,250 75,000 93,750

The years of service credited to the following executive officers of
the Company on November 30, 1994 under the pension plan in which they
participate are as follows: Douglas W. Huemme--4.5; Roman J. Klusas--7.8;
William C. Dorris--23.8; Larry H. Dalton--9.5; and Kenneth L. Mills--17.0.

Compensation used in calculating benefits is limited to $150,000. In
addition the Employee Retirement Income Security Act of 1974 ("ERISA") limits
the annual benefits that may be paid from the Company's tax qualified plans (the
"Section 415 limit"). The Section 415 limit for 1995 is $120,000 for any one
employee.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

The Company maintains a Supplemental Executive Retirement Plan (the
"SERP") providing supplemental benefits in the event of disability, retirement,
or death for individuals or other key executives in senior management positions
(including the individuals listed in the summary compensation table).

The SERP has been designed so that, if the assumptions made as to
mortality experience, policy dividends and other factors are realized, the
Company will recover all its payments under the SERP, plus a factor for the use
of the Company's money, through insurance policies. Moreover, the Board of
Directors has retained the right to terminate, modify or reduce any benefits
payable under the SERP at any time under any circumstances.

Under the SERP, it is anticipated that a participant will receive
annual retirement benefits up to $15,000, $20,000, $25,000 or $50,000 (depending
upon the responsibilities and duties of the position held by the participant)
for a period of 15 years after retirement (the "retirement benefit"). Unless a
participant becomes disabled, the participant must remain continuously employed
by the Company in their current position or in a more senior management position
until retirement. Benefits are payable monthly.

If a participant becomes disabled prior to retiring from the Company,
it is anticipated that the participant will receive monthly disability payments
equal to the monthly retirement benefits the participant would have received
under the retirement provisions of the SERP for 15 years after the participant
is determined to be disabled. If a participant dies prior to retiring from the
Company, the participant's estate or designated beneficiary receives death
benefit payments for 15 years. If a participant who is receiving disability or
retirement benefits under the SERP dies, the participant's estate or designated
beneficiaries are entitled under the current SERP to receive the balance of the
participant's benefits monthly.

Estimated annual benefits payable upon normal retirement for each of
the most highly compensated executive officers of the Company are as follows:
Douglas W. Huemme--$50,000; Roman J. Klusas--$25,000; William C.
Dorris--$25,000; Larry H. Dalton-- $20,000; and Kenneth L. Mills--$15,000.
Estimated annual benefits payable upon normal retirement for all current
employee participants (excluding executive officers) as a group are $95,000.

EMPLOYMENT TERMINATION AGREEMENTS

Three executive officers, Roman J. Klusas, William C. Dorris, and
Kenneth L. Mills, have Termination Benefits Agreements providing for payment of
severance benefits equal to one year's salary and benefits if the Company
undergoes a change in control within the ten-year term of the Agreement
(commencing December 1, 1990) and if, within three years after such change in
control, any such executive is terminated without "cause" or resigns for "good
reason", as those terms are defined in the Agreement.

OUTSTANDING SHARES AND VOTING RIGHTS

Shareholders of record on February 16, 1996 are entitled to notice
of, and to vote at, the Annual Meeting of Shareholders, and at any adjournment
thereof. On that date 22,166,360 shares of the Company's Class A Stock and
392,264 shares of the Company's Class B Stock were outstanding, each share
(except the 7,766 shares of Class A Stock held by the Employees Stock Purchase
Plan) being entitled to one vote with respect to every matter submitted to a
vote of the shares of that class.

Nine shareholders are known by management to own beneficially more
than 5% of the outstanding shares of the Company's Class A Stock or Class B
Stock. The names and addresses of these shareholders and the number and
percentage of shares if more than 5% of the outstanding shares of Class A Stock
or Class B Stock owned beneficially by them as of February 16, 1996 are included
in the following table. Unless otherwise indicated each shareholder has sole
investment and voting power with respect to the shares indicated.

Amount and
Nature of
Name and Address of Beneficial Percent
Beneficial Owner Title of Class Ownership of Class
- ----------------------- ----------------- -------------- --------

Larry H. Dalton Class B Stock 25,155 6.41%
733 South West Street
Indianapolis, IN 46225

Ned L. Fox Class B Stock 27,283 6.96%
733 South West Street
Indianapolis, IN 46225

Bill D. Hawkins Class B Stock 21,775 5.55%
2305 Industrial Road
Dothan, AL 36303

Douglas W. Huemme Class B Stock 39,000 9.94%
733 South West Street
Indianapolis, IN 46225

Roman J. Klusas Class B Stock 34,819 8.88%
733 South West Street
Indianapolis, IN 46225

Kenneth L. Mills Class B Stock 20,276 5.17%
733 South West Street
Indianapolis, IN 46225

Gary D. Missildine Class B Stock 21,498 5.48%
1136 Fayette Street
N. Kansas City, MO 64116

Amount and
Nature of
Name and Address of Beneficial Percent
Beneficial Owner Title of Class Ownership of Class
- ------------------------- ----------------- ------------- --------

Neuberger & Berman L.P. Class A Stock 1,324,400 5.97%
605 Third Avenue
New York, NY 10158

Quest Advisory Corp. Class A Stock 1,500,467 6.77%
1414 Avenue of the
Americas
New York, NY 10019

RELATIONSHIP WITH INDEPENDENT AUDITORS

The Company has selected the firm of Ernst & Young LLP, certified
public accountants, as independent auditors to make an examination of the
accounts of the Company for its fiscal year ending November 30, 1996. Ernst &
Young LLP has served in that capacity since 1956. Representatives of Ernst &
Young LLP will be present at the Annual Meeting with the opportunity to make a
statement, if they desire to do so, and will respond to appropriate questions.

SHAREHOLDER PROPOSALS

Proposals of shareholders intended to be presented at the Annual
Meeting to be held in April, 1997 must be received by the Company at its
principal executive offices for inclusion in the proxy statement and form of
proxy relating to that meeting no later than November 18, 1996.

ANNUAL REPORT

The Annual Report for the Company's fiscal year ended November 30, 1995
was separately mailed to shareholders on February 28, 1996. The Annual Report is
not a part of the proxy soliciting material. Insofar as any of the information
in this Proxy Statement has been furnished by persons other than the Company,
the Company relies upon information furnished by others for the accuracy and
completeness thereof.

P
R
O
X
Y

LILLY INDUSTRIES, INC. CLASS A STOCK

Proxy Solicited on Behalf of the Board of Directors for Annual
Meeting April 18, 1996

The undersigned appoints H. J. (Jack) Baker and Van P. Smith, or either of them,
with full power of substitution, as proxies to vote all shares of Class A Stock
held by the undersigned at the Annual Meeting of Shareholders of Lilly
Industries, Inc. to be held at the Indiana Convention Center & RCA Dome, 100
South Capitol Avenue, Indianapolis, Indiana in Rooms 101 and 102, at 10:00 a.m.,
local time, and at any adjournment of the meeting, on the following matters:

1. Election of Directors:

H. J. (Jack) Baker, John D. Peterson, Thomas E. Reilly, Jr., Van P. Smith.

2. Proposal to amend the Articles of Incorporation as provided in the Proxy
Statement.

3. In their discretion upon such other business as may come before the meeting.

You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance
with the Board of Directors' recommendations. The Proxies cannot vote your
shares unless you sign and return this Card.

SEE REVERSE
SIDE
DETACH CARD

[X] Please mark your SHARES IN YOUR NAME REINVESTMENT SHARES
votes as in this
example.

FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Amend Articles
Directors of Incorporation
(see reverse) (see reverse)

For, except vote withheld from the following nominee(s):

- -------------------------------------------

SIGNATURE(S) ____________________________________ DATE __________________

NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.

P
R
O
X
Y

LILLY INDUSTRIES, INC. CLASS B STOCK

Proxy Solicited on Behalf of the Board of Directors for Annual
Meeting April 18, 1996

The undersigned appoints Douglas W. Huemme and Roman J. Klusas, or either of
them, with full power of substitution, as proxies to vote all shares of Class B
Stock held by the undersigned at the Annual Meeting of Shareholders of Lilly
Industries, Inc. to be held at the Indiana Convention Center & RCA Dome, 100
South Capitol Avenue, Indianapolis, Indiana in Rooms 101 and 102, at 10:00 a.m.,
local time, and at any adjournment of the meeting, on the following matters:

1. Election of Directors:

James M. Cornelius, William C. Dorris, Douglas W. Huemme, Roman J.
Klusas, Harry Morrison, Ph.D., Richard A. Steele.

2. Proposal to amend the Articles of Incorporation as provided in the
Proxy Statement.

3. In their discretion upon such other business as may come before
the meeting.

SEE REVERSE
SIDE

DETACH CARD

[X] Please mark your SHARES IN YOUR NAME REINVESTMENT SHARES
votes as in this
example.

FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Amend Articles
Directors of Incorporation
(see reverse) (see reverse)

For, except vote withheld from the following nominee(s):

- -------------------------------------------

SIGNATURE(S) ____________________________________ DATE __________________

SIGNATURE(S) _____________________________________ DATE __________________
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.