<PAGE>
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:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ILLINOIS TOOL WORKS INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(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 transaction:
-------------------------------------------------------------------------
(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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
ILLINOIS TOOL WORKS INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held Friday, May 3, 1996
To the Stockholders:
The Annual Meeting of the Stockholders of Illinois Tool Works Inc., a
Delaware corporation, will be held on Friday, May 3, 1996 at 3:00 p.m.,
Central Time, at The Northern Trust Company (6th Floor), 50 South LaSalle
Street, Chicago, Illinois, for the following purposes:
(1) To elect thirteen directors of the Company,
(2) To approve the Company's 1996 Stock Incentive Plan,
(3) To approve certain provisions of the Company's Executive Incentive
Plan, and
(4) To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors recommends a vote FOR the nominated directors, FOR
the approval of the stock incentive plan, and FOR the approval of certain
provisions of the executive incentive plan.
The Board of Directors set March 5, 1996 as the record date for the
determination of stockholders entitled to vote at the Annual Meeting of
Stockholders. Only stockholders of record at the close of business on that
date will be entitled to receive notice of and to vote at the meeting. The
transfer books of the Company will not be closed.
Even if you expect to attend the meeting, you are requested to sign the
enclosed proxy and return it promptly in the accompanying envelope.
The Company's Annual Report for 1995 is being mailed to stockholders with
this Notice.
By Order of the Board of
Directors
Stewart S. Hudnut
Secretary
Glenview, Illinois
April 1, 1996
IMPORTANT -- PLEASE MAIL YOUR SIGNED PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
ILLINOIS TOOL WORKS INC.
3600 WEST LAKE AVENUE
GLENVIEW, ILLINOIS 60025
APRIL 1, 1996
PROXY STATEMENT
For the Annual Meeting of Stockholders of Illinois Tool Works Inc.
To Be Held on May 3, 1996
This proxy statement is furnished in connection with the solicitation of
proxies to be voted at the Annual Meeting of Stockholders of Illinois Tool
Works Inc. to be held on Friday, May 3, 1996 and is being mailed to
stockholders on or about April 1, 1996.
The enclosed proxy is solicited by the Board of Directors of the Company and
will be voted at the Annual Meeting and any adjournment of the meeting. The
proxy may be revoked at any time before it is exercised by delivering a
written revocation to the Secretary of the Company. The only business which
the Board of Directors intends to present or knows will be presented is the
election of directors, the approval of the 1996 stock incentive plan, and the
approval of certain provisions of the Company's executive incentive plan.
However, the proxy confers discretionary authority upon the persons named
therein, or their substitutes, to vote on any other business that may properly
come before the meeting.
As of March 5, 1996, the record date for the Annual Meeting, the Company had
issued and outstanding 122,395,312 shares of Common Stock, without par value.
Each share entitles its owner to one vote. A majority of the issued and
outstanding shares constitutes a quorum at the meeting. Abstentions and broker
non-votes are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. Other than the election of directors,
which requires a plurality vote, each matter submitted to stockholders
requires the favorable vote of a majority of the votes present in person or
represented by proxy. Votes withheld for director elections are excluded from
the vote for directors. On other proposals, abstentions are counted as votes
against in tabulations of the votes cast, but broker non-votes are not counted
for purposes of determining if a proposal has been approved.
Election of Directors
Thirteen directors of the Company are to be elected to hold office until the
next annual meeting or until their successors are duly elected and qualified
or until their earlier resignation or removal. Unless otherwise directed,
proxies will be voted at the meeting for the election of the persons listed
below, or in the event of an unforeseen contingency, for different persons as
substitutes. The Nominating Committee and the Board of Directors as a whole
are recommending this slate, and note with particular regret the retirements
from the Board of Silas S. Cathcart, the Company's former Chairman, and John
D. Nichols, the current Chairman, after 32 years and 15 years, respectively,
of distinguished service on the Board. Set forth below are the name, age,
principal occupation and other information concerning each nominee.
Julius W. Becton, Jr. (69)
Former President, Prairie View A&M University from 1989 through 1994. Mr.
Becton served as Director of the Federal Emergency Management Agency from
1985 to 1989 after 40 years of commissioned service in the U.S. Army, during
which he attained the rank of Lieutenant General. He is a director of The
Wackenhut Corporation and has been a director of the Company since 1992.
1
<PAGE>
Susan Crown (37)
Vice President, Henry Crown and Company since 1984. Henry Crown and Company
is a family owned and operated company with investments in securities, real
estate, resort properties and manufacturing operations. Ms. Crown is a
director of Baxter International Inc. She is also a trustee and executive
committee member of Rush-Presbyterian-St. Luke's Medical Center in Chicago
and a trustee of The Yale Corporation. She has been a director of the Company
since 1994.
H. Richard Crowther (63)
Former Vice Chairman of the Company from 1990 through March 31, 1995. Prior
to becoming Vice Chairman, Mr. Crowther was Executive Vice President from
1983 through 1989 and has a total of 36 years service with the Company. He is
a director of Applied Power Inc. and has been a director of the Company since
1995.
W. James Farrell (53)
President of the Company since December 1994 and Chief Executive Officer
since September 1995. Mr. Farrell served as Executive Vice President from
1983 to December 1994 and has a total of 30 years service with the Company.
Mr. Farrell is a director of Hon Industries Inc. and has been a director of
the Company since 1995.
L. Richard Flury (48)
Executive Vice President, Amoco Corporation (energy and chemicals) since
January 1996; formerly Senior Vice President for Shared Services from June
1994 through December 1995 and Executive Vice President, Amoco Chemical Co.,
from January 1991 to June 1994, with a total of 26 years service with Amoco.
Mr. Flury is a director of the Illinois Coalition, North Central College, the
Field Museum and Amoco Foundation, and has been a director of the Company
since 1995.
Richard M. Jones (69)
Former Chairman and Chief Executive Officer, Guaranty Federal Savings Bank
from 1989 through 1991. Mr. Jones was President of Sears, Roebuck and Co.
(diversified merchandise, insurance, real estate and financial services) from
1986 to 1988 and Chief Financial Officer from 1980 to 1988. Mr. Jones is a
director of Applied Power Inc., Baker, Fentress & Co., Guaranty Federal
Savings Bank and MCI Communications Corp., and has been a director of the
Company since 1988.
George D. Kennedy (69)
Former Chairman, Mallinckrodt Group Inc. (animal and human health) from 1991
to 1994 and Chairman and Chief Executive Officer from 1986 to 1991. Mr.
Kennedy is a director of American National Can Corporation, Brunswick
Corporation, Kemper National Insurance Company, Scotsman Industries, Inc. and
Stone Container Corporation, and has been a director of the Company since
1988.
Richard H. Leet (69)
Former Vice Chairman, Amoco Corporation (energy and chemicals) from March
1991 to October 1991 and Executive Vice President from 1983 through February
1991. Mr. Leet is a director of Great Lakes Chemical Corporation, Landauer
Inc. and Vulcan Materials Corp., was formerly President of the Boy Scouts of
America, and has been a director of the Company since 1988.
Robert C. McCormack (56)
Partner, Trident Capital L.P. (venture capital) since January 1993; Assistant
Secretary of the Navy from 1990 to 1993; Deputy Under Secretary of Defense
from 1987 to 1990; and Managing Director, Morgan Stanley & Co. Incorporated
(investment banking) from 1985 to 1987. Mr. McCormack is a director of DeVry,
Inc. and has been a director of the Company since 1993. He was previously a
director from 1978 through 1987.
Phillip B. Rooney (51)
President and Chief Operating Officer, WMX Technologies Inc. (environmental
services) since 1985; and Chairman and Chief Executive Officer, Wheelabrator
Technologies Inc. (environmental services) since 1990. Mr. Rooney is a
director of Caremark International Inc., The ServiceMaster Company, Urban
2
<PAGE>
Shopping Centers Inc., Waste Management International plc, Wheelabrator
Technologies Inc. and WMX Technologies, Inc., and has been a director of the
Company since 1990.
Harold B. Smith (62)
Chairman of the Executive Committee of the Company since 1982. Mr. Smith is a
director of W.W. Grainger Inc. and Northern Trust Corporation and a Trustee
of The Northwestern Mutual Life Insurance Company. He has been a director of
the Company since 1968.
Ormand J. Wade (56)
Former Vice Chairman, Ameritech Corp. (telecommunications products and
services) from 1987 to 1993 and President and Chief Executive Officer,
Illinois Bell Telephone Company, from 1982 through 1986. Mr. Wade is a
director of Andrew Corporation and Westell Inc. and has been a director of
the Company since 1985.
Calvin A. H. Waller (58)
Senior Vice President, Kaiser-Hill LLC (construction and environmental
services) since August 1994. Former President and Chief Executive Officer of
RKK, Ltd. (environmental technology) from 1993 to 1994 and Chief Operating
Officer from November 1991 to May 1993. After 32 years of military service,
Mr. Waller retired from the U.S. Army in October 1991 with the rank of
Lieutenant General, having served as, among other positions, Deputy
Commander-in-Chief of Operations Desert Shield and Desert Storm. Mr. Waller
is a director of Interpoint Corp. and RADICA Games, Ltd. of Hong Kong and has
been a director of the Company since 1995.
Board of Directors and Its Committees
The Board of Directors of the Company met five times during 1995. Each
director attended 100% of the meetings of the Board and of the Committees of
which he or she is a member.
The Audit Committee is responsible for reviewing and reporting to the full
Board concerning the engagement of independent public accountants, internal
audit systems, and any other matters which might significantly affect the
Company's financial status. This Committee met three times during 1995 and is
composed of Mr. Kennedy (Chairman), Messrs. Becton, Crowther, Jones, Waller
and Ms. Crown.
The Compensation Committee is responsible for administering the Company's
compensation plans and approving compensation levels for Executive Officers.
This Committee met four times during 1995 and is composed of Mr. Leet
(Chairman) and Messrs. Flury, McCormack, Rooney and Wade.
The Finance Committee is responsible for reviewing management's proposals
with respect to the Company's debt and equity financing, dividend policy and
payments, acquisitions and divestitures above $20,000,000, investments, real
estate, and other financing and investment matters. This Committee was formed
in mid-1995 by the Board, met once during the year, and is composed of Mr.
Jones (Chairman) and Messrs. Cathcart, Crowther, Kennedy, Rooney and Wade.
The Nominating Committee receives suggestions and evaluates and recommends
to the Board candidates for directors. This Committee also evaluates and makes
recommendations as to Board committees and the size of the Board. The
Committee met twice in 1995 and is composed of Mr. Cathcart (Chairman),
Messrs. Becton, Leet, McCormack, Smith and Ms. Crown.
Stockholders wishing to nominate persons to the Board of Directors for
election at the next Annual Meeting should do so no later than December 31,
1996 by letter addressed to The Secretary, Illinois Tool Works Inc., 3600 West
Lake Avenue, Glenview, IL 60025. Such notice shall contain: (a) the name and
address of the stockholder who intends to make the nomination; (b) the name,
age and business and residence addresses of each person to be nominated; (c)
the principal occupation or employment of each nominee; (d) a statement that
the nominee is willing to be nominated and serve as a director; and (e) such
other information regarding each nominee as would be required to be included
in a proxy statement filed pursuant to the proxy rules of the Securities and
Exchange Commission had the Board of Directors nominated such person.
3
<PAGE>
Directors' Compensation
Compensation for non-employee directors has three components, the first
being paid in cash and the remaining two being tied to the Company's common
stock.
First, a $25,000 annual retainer is paid, together with an attendance fee of
$1,000 for each Board of Directors' meeting and committee meeting. (Committee
Chairmen receive an additional $600 for each meeting chaired.) The Company's
deferred fee plan permits non-employee directors to defer receipt of all or
any part of their fees. Amounts deferred are credited with interest at current
rates and are paid after an individual ceases to be a director.
Second, since 1992 the directors' compensation plan has linked a portion of
their compensation directly with the interest of the stockholders. In 1995
incumbent non-officer directors received 900 shares of the Company's Common
Stock pursuant to a restricted stock grant program. One-third of these shares
vested on January 2, 1996 and the remaining two-thirds will vest equally on
the first business day of 1997 and 1998, except that all shares vest on the
date of death or retirement. The 300 shares that vested on January 2, 1996
were worth $17,663 on such date. Under the program a non-officer director who
joins the Board between January 3, 1995 and January 2, 1998 will receive on
the first business day of January following election a grant of 300 shares for
each full year of service remaining during such period. The shares granted to
the directors pursuant to this program are included in the table under
"Security Ownership," as are shares under the 1992 program.
Third, the Company adopted in 1995 a phantom stock plan for non-officer
directors which grants to each such director 1,000 units of phantom stock.
Each unit is equal in value to the market value of one share of the Company's
common stock. The phantom stock account is credited with additional units in
an amount equivalent to dividends on the Company's Common Stock and is
adjusted for any stock dividends, stock splits, combinations or similar
changes. (Certain long-term directors with short remaining service periods
until retirement received a higher number.) The phantom stock units granted to
eligible directors pursuant to this plan are included in the table under
Security Ownership. A director is eligible for a cash distribution from his or
her phantom stock account at retirement or approved resignation in the form of
a lump sum or up to ten annual installments as elected by the director at the
time of grant. In addition, the value of each director's phantom stock account
will be distributed immediately to the director in the event of a corporate
change of control, as defined in "Proposal to Approve 1996 Stock Incentive
Plan."
In 1995 the Company discontinued its directors' retirement plan for
incumbent and future non-officer directors. Each of the eight surviving non-
officer directors who retired prior to 1995 will continue to receive an annual
payment during his lifetime equal to one-half of the annual retainer paid at
retirement so long as such director serves the Company in an advisory capacity
and refrains from any activity adverse to the best interests of the Company.
Harold B. Smith has entered into a one-year agreement with the Company
providing for a consulting fee of $85,000. After his retirement from the
Company on March 31, 1995, H. Richard Crowther served on a transitional basis
until June 30, 1995 at a retainer of $5,000 per month.
4
<PAGE>
Security Ownership
The following table sets forth information regarding ownership of the
Company's Common Stock as of December 31, 1995 by each director and nominee
for director; by each of the named executive officers; by directors, nominees
and executive officers as a group; and by other persons who, to the knowledge
of the Company, own of record or beneficially more than 5% of the outstanding
Common Stock of the Company.
<TABLE>
<CAPTION>
DIRECTORS'
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF PHANTOM STOCK PERCENT OF
OR GROUP BENEFICIAL OWNERSHIP(/1/) UNITS(/2/) CLASS
- ------------------------ ------------------------- ------------- ----------
<S> <C> <C> <C>
Directors and Nominees
(Other than Executive
Officers)
Julius W. Becton, Jr... 1,300 1,713 *
Silas S. Cathcart...... 159,974(/3/) 1,713 *
Susan Crown............ 3,900(/4/) 1,000 *
H. Richard Crowther.... 232,986(/5/)(/6/)(/7/) 1,075 *
L. Richard Flury....... 600(/7/) 1,000 *
Richard M. Jones....... 5,500 1,713 *
George D. Kennedy...... 1,760 1,713 *
Richard H. Leet........ 4,500 1,713 *
Robert C. McCormack.... 7,260,050(/8/)(/9/) 1,000 6.1
Phillip B. Rooney...... 5,500 1,000 *
Harold B. Smith........ 19,678,858(/9/)(/1//0/) -- 16.7
Ormand J. Wade......... 1,900 1,000 *
Calvin A. H. Waller.... 600(/7/) 1,000 *
Executive Officers
W. James Farrell....... 105,432(/6/)(/1//1/) *
Russell M. Flaum....... 42,957(/6/)(/1//2/) *
John D. Nichols........ 439,157(/6/)(/1//3/) *
Frank S. Ptak.......... 80,952(/6/) *
F. Ronald Seager....... 85,100(/6/)(/1//4/) *
Directors, Nominees and
All Executive Officers
as a Group (25
Persons)............... 20,993,615(/6/) 15,640 17.5
Other Principal
Beneficial Owners
Edward Byron Smith,
Jr.................... 7,572,506(/1//5/) 6.3
The Northern Trust
Company............... 23,701,591(/1//6/) 19.8
</TABLE>
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* Less than 1% of Class
(1) Unless otherwise noted, ownership is direct.
(2) Represents units of phantom stock granted under the phantom stock plan
for non-officer directors. Each unit is equal in value to one share of
Common Stock. The units are not transferable and have no voting rights.
(3) Includes 12,920 shares owned by Mr. Cathcart's wife, as to which he
disclaims beneficial ownership; 11,664 shares owned by a trust as to
which Mr. Cathcart has sole voting and investment power; 560 shares owned
by a trust as to which he shares voting and investment power; and 5,000
shares owned by a charitable organization of which he is president and a
director.
(4) Includes 1,000 shares owned in a trust as to which Ms. Crown shares
voting and investment power.
(5) Includes 152,176 shares held in a revocable living trust as to which Mr.
Crowther shares voting and investment power.
(6) Includes shares covered by stock options exercisable within 60 days of
December 31, 1995 as follows: Mr. Crowther, 75,620; Mr. Farrell 59,996;
Mr. Flaum, 22,300; Mr. Nichols, 25,000; Mr. Ptak, 42,000; Mr. Seager,
55,000; and directors, nominees and executive officers as a group,
396,466.
5
<PAGE>
(7) Includes 600 shares of restricted stock granted on January 2, 1996 under
the Directors' Restricted Stock Plan.
(8) Includes 3,760 shares held in a revocable living trust as to which Mr.
McCormack has sole voting and investment power, 200 shares owned in a
trust as to which he shares voting and investment power with The Northern
Trust Company, and 7,255,890 shares as described in Footnote 9.
(9) Robert C. McCormack, Edward Byron Smith, Jr., Harold B. Smith and The
Northern Trust Company are trustees of twelve trusts owning 7,255,890
shares as to which they share voting and investment power.
(10) Includes 175,088 shares held in a revocable living trust as to which
Harold B. Smith has sole voting and investment power; 10,944,128 shares
owned in twelve trusts as to which he shares voting and investment power
with The Northern Trust Company and others; 1,082,240 shares owned in
eleven trusts as to which he shares voting and investment power;
7,255,890 shares as described in Footnote 9; and 43,056 shares owned by a
charitable foundation of which he is a director.
(11) Includes 1,506 shares held by Mr. Farrell as custodian for his minor
child and 1,000 shares owned by his wife, as to both of which Mr. Farrell
disclaims beneficial ownership.
(12) Includes 657 shares allocated to Mr. Flaum's account in the Company's
Savings and Investment Plan.
(13) Includes 322,038 shares held in a family partnership of which Mr. Nichols
is general partner and shares voting and investment power; 5,600 shares
owned in a revocable living trust as to which Mr. Nichols has sole voting
and investment power; 7,200 shares owned by Mr. Nichols' wife, as to
which Mr. Nichols disclaims beneficial ownership; 6,148 shares held by
Mrs. Nichols as custodian for their children, as to which Mr. Nichols
disclaims beneficial ownership; 3,741 shares allocated to his account in
the Company's Savings and Investment Plan; and 69,430 shares owned by a
charitable foundation of which he is a co-trustee.
(14) Includes 10,876 shares held in a revocable living trust as to which Mr.
Seager has sole voting and investment power and 1,138 shares owned by his
wife, as to which Mr. Seager disclaims beneficial ownership.
(15) Includes 10,874 shares owned in a trust as to which Edward Byron Smith,
Jr. has sole voting and investment power; 96,200 shares owned in a trust
as to which The Northern Trust Company has sole voting and investment
power; 116,800 shares owned in three trusts as to which Mr. Smith shares
voting and investment power; and 7,255,890 shares as described in
Footnote 9. Also includes the following shares held for the benefit of
Mr. Smith's children: 59,990 shares owned in two trusts as to which The
Northern Trust Company has sole voting and investment power; 6,720 shares
held in a trust as to which Mr. Smith and his wife share voting and
investment power; 9,320 shares held in a trust as to which Mr. Smith's
wife and sisters share voting and investment power; and 4,400 shares
owned in two trusts as to which Mr. Smith's sisters share voting and
investment power.
(16) Including its holdings as trustee described in Footnotes 8, 9, 10 and 15,
The Northern Trust Company and its affiliates act as sole fiduciary or
co-fiduciary of trusts and other fiduciary accounts which own an
aggregate of 23,701,591 shares. They have sole voting power with respect
to 4,382,707 shares and share voting power with respect to 18,821,882
shares. They have sole investment power with respect to 1,629,910 shares
and share investment power with respect to 19,400,590 shares. In
addition, The Northern Trust Company holds in other accounts, but does
not beneficially own, 7,298,079 shares, resulting in aggregate holdings
by The Northern Trust Company of 30,999,670 shares (25.9%).
Because of their holdings individually and as trustees, the holdings of
their immediate families and/or their positions with the Company, Robert C.
McCormack, Edward Byron Smith Jr. and Harold B. Smith may be deemed to be
"controlling persons" of the Company within the meaning of the Securities Act
of 1933, as amended. Robert C. McCormack, Edward Byron Smith, Jr. and Harold
B. Smith have a common great grandfather, Byron L. Smith.
The Company maintains normal commercial banking relationships with The
Northern Trust Company, which also acts as the trustee under the Company's
pension plan. The Northern Trust Company is a wholly owned subsidiary of
Northern Trust Corporation. Harold B. Smith, a director of the Company, is
also a director of Northern Trust Corporation.
6
<PAGE>
The Northern Trust Company's address is 50 South LaSalle Street, Chicago, IL
60675 and the address of each of the other beneficial owners of more than 5%
of the Company's Common Stock is c/o The Secretary, Illinois Tool Works Inc.,
3600 West Lake Avenue, Glenview, IL 60025.
Executive Compensation
The table below summarizes the compensation of the Chief Executive Officer
and the other four most highly compensated Executive Officers. On September 1,
1995 Mr. Farrell became Chief Executive Officer, succeeding Mr. Nichols who
continued to serve as Chairman and as an Executive Officer.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------- --------------------- ---------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($)(/1/) ($)(/1/)(/2/) ($)(/3/) ($)(/4/) ($) ($) ($)
------------------ ---- -------- ------------- ------------ ---------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John D. Nichols 1995 747,942 1,000,000 -- -- 80,000 1,413,025(/5/) 42,560(/7/)(/8/)
Chairman and Chief 1994 652,067 750,000 -- -- -- 1,145,276(/5/) 27,014
Executive Officer 1993 600,000 567,600 -- -- 50,000 950,111(/5/) 18,269
W. James Farrell 1995 317,212 370,000 -- -- 60,000 -- 38,000(/7/)(/8/)(/9/)
President and Chief 1994 250,850 291,200 -- 1,400,000 -- -- 9,236
Executive Officer 1993 242,000 228,000 -- -- 36,996 -- 7,332
Frank S. Ptak 1995 219,397 219,670 -- -- 30,000 -- 10,252(/7/)(/8/)
Executive 1994 192,165 195,000 -- 1,400,000 -- -- 7,320
Vice President 1993 180,000 177,000 -- -- 30,000 139,758(/6/) 5,507
F. Ronald Seager 1995 209,501 206,150 -- -- 30,000 -- 11,306(/7/)(/8/)
Executive 1994 199,606 182,608 -- 875,000 -- -- 7,733
Vice President 1993 189,479 166,000 -- -- 30,000 124,593(/6/) 5,814
Russell M. Flaum 1995 199,452 195,000 -- -- 15,000 -- 6,364(/7/)(/8/)
Executive 1994 179,660 176,540 -- 875,000 -- -- 5,074
Vice President 1993 169,534 151,400 -- -- 15,000 -- 5,119
</TABLE>
- --------
(1) Actual salary or bonus earned, including any amounts deferred under the
Company's 1993 Executive Contributory Retirement Income Plan or the
Savings and Investment Plan or both.
(2) Amounts awarded under the Executive Incentive Plan are calculated on the
base salary of record as of December 31 for the respective years and paid
in the subsequent year.
(3) Perquisites and other personal benefits, securities and property in the
aggregate do not exceed the threshold reporting level of the lesser of
$50,000 or 10% of total salary and bonus reported for the named Executive
Officer.
(4) Represents the value on the grant date (December 8, 1994) of restricted
stock grants authorized under the 1979 Stock Incentive Plan. The number of
shares granted and their value as of December 31, 1995 for each of the
officers were: Mr. Farrell, 32,000 shares ($1,888,000); Mr. Ptak, 32,000
shares ($1,888,000); Mr. Seager, 20,000 shares ($1,180,000); and Mr.
Flaum, 20,000 shares ($1,180,000). These individuals may exercise full
voting rights as to the restricted stock and are entitled to receive all
dividends and other distributions paid on the restricted stock from the
date of grant until forfeited or sold. Messrs. Farrell's and Ptak's shares
each vest in the following manner: 3,200 on December 31, 1995; 4,800 on
December 31, 1996; 6,400 on December 31, 1997; 6,400 on December 31, 1998;
6,400 on December 31, 1999; 3,200 on December 31, 2000; and 1,600 on
December 31, 2001. Messrs. Seager's and Flaum's shares each vest in the
following manner: 2,000 on December 31, 1995; 3,000 on December 31, 1996;
4,000 on December 31, 1997; 4,000 on December 31, 1998; 4,000 on December
31, 1999; 2,000 on December 31, 2000; and 1,000 on December 31, 2001.
Unvested shares will be forfeited if the executive leaves the Company for
any reason other than retirement, death or disability.
(5) For 1995, the market value of 20,000 phantom stock units, the vesting of
which was approved by the Compensation Committee on February 16, 1996 to
be effective March 31, 1996, was $1,180,000 as of
7
<PAGE>
December 31, 1995; and interest and dividends credited on 284,000 shares in
Mr. Nichols' Phantom Stock Account totaled $233,025. For 1994, the market
value as of the date of vesting (March 31, 1995) for 20,000 phantom shares
was $977,500 and interest and dividends credited on 264,000 shares in his
account totaled $167,776. For 1993, the market value as of the date of
vesting (March 31, 1994) for 20,000 phantom shares was $810,000 and
interest and dividends credited on 244,000 shares in his account totaled
$140,111. Units have been adjusted where appropriate to reflect the 2-for-1
stock split effective June 1993.
(6) Cash and market value of Common Stock paid in 1993 for performance share
appreciation units granted under the Company's 1979 Stock Incentive Plan
for a three-year performance period ended December 31, 1992.
(7) Includes company matching contributions to the Executive Officers'
accounts in the 1993 Executive Contributory Retirement Income Plan. For
1995 the amounts are: Mr. Nichols, $22,438; Mr. Farrell, $9,516; Mr. Ptak,
$6,582; and Mr. Seager, $6,306. The Company matching contribution to Mr.
Flaum's Savings and Investment Plan account was $4,603.
(8) Includes interest credited on deferred compensation in excess of 120% of
the Applicable Federal Long Term Rate. For 1995 the amounts are: Mr.
Nichols, $20,122; Mr. Farrell, $3,161; Mr. Ptak, $3,670; Mr. Seager,
$5,000; and Mr. Flaum, $1,761.
(9) Includes $25,323 representing imputed income for 1995 on Mr. Farrell's
outstanding home loan balance.
As of April 1, 1996, W. James Farrell, the Company's Chief Executive
Officer, was indebted to the Company in the amount of $420,000 (formerly
$460,000) arising out of a second mortgage on a home loan made by the Company
in lieu of Mr. Farrell's selling shares of common stock of the Company. The
imputed rate of interest on the loan is 7.34% per annum and the loan is
repayable in five annual installments.
In addition, the Company has a loan program for executive officers to assist
them in complying with the Company's stock ownership guidelines. As of
February 29, 1996, Mr. Farrell had a loan outstanding for $83,975 payable
December 31, 2000, bearing interest at a rate of 5.91% per annum and secured
by 3,200 shares of common stock of the Company. The five-year term of the
promissory note is renewable, but the note is repayable 180 days following
termination of employment with the Company (or immediately if termination is
for gross or willful misconduct) and upon bankruptcy, insolvency or death of
the employee or breach of the terms of the note or the pledge agreement.
----------------
The table below sets forth information as to options granted during 1995 to
the Executive Officers listed in the Summary Compensation Table.
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(/1/)
---------------------------------------- -------------------------------
% OF
NUMBER OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE
OPTIONS TO OR BASE
GRANTED EMPLOYEES PRICE EXPIRATION
NAME (#)(/2/) IN 1995 ($/SH) DATE 0% ($) 5% ($) 10% ($)
- ---- ---------- --------- -------- ---------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John D. Nichols......... 80,000 10.3% 60.25 05/03/99(/3/) 0 871,999(/3/) 1,849,947(/3/)
W. James Farrell........ 60,000 7.7% 60.25 12/08/05 0 2,273,454 5,761,379
Frank S. Ptak........... 30,000 3.8% 60.25 12/08/05 0 1,136,727 2,880,689
F. Ronald Seager........ 30,000 3.8% 60.25 12/08/05 0 1,136,727 2,880,689
Russell M. Flaum........ 15,000 1.9% 60.25 12/08/05 0 568,364 1,440,345
</TABLE>
- --------
(1) The dollar amounts under these columns are the result of calculations at
0% and at the 5% and 10% rates set by the Securities and Exchange
Commission. They are therefore not intended to forecast possible future
appreciation, if any, of the Company's Common Stock price and reflect
neither the income tax liability of the individual recipients nor the time
value of money. The Company did not use
8
<PAGE>
an alternative formula for a grant date valuation as the Company is not
aware of any formula which will determine with reasonable accuracy a
present value based on future unknown or volatile factors.
(2) These grants become exercisable as to 25% of the shares underlying the
options on each of the first four anniversaries of the grant, and are
generally fully exercisable after the first anniversary in the event of
retirement, disability or death. A restorative option right as described
under the section "Proposal to Approve 1996 Stock Incentive Plan" applies
to these grants so long as the option holder is employed by the Company.
(3) Based on Mr. Nichols' planned retirement on May 3, 1996 and the program's
current three year exercise period after retirement.
----------------
The table below sets forth information as to option exercises during 1995 as
well as the number and value of unexercised options as of December 31, 1995
for the Executive Officers listed in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN 1995
AND 1995 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT YEAR END (#) AT YEAR END ($)(/1/)
ON EXERCISE REALIZED ------------------------- -------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John D. Nichols......... -- -- 25,000 105,000 565,625 565,625
W. James Farrell........ -- -- 59,996 75,000 1,768,787 339,375
Frank S. Ptak........... 4,000 198,250 42,000 45,000 1,265,250 339,375
F. Ronald Seager........ -- -- 55,000 45,000 1,736,250 339,375
Russell M. Flaum........ -- -- 22,300 22,500 646,088 169,688
</TABLE>
- --------
(1) Based on the year-end closing market price of the Company's Common Stock
($59.00).
RETIREMENT PLANS
The Company's principal non-contributory defined benefit pension plan covers
employees of participating business units. Executive Officers participate in
this plan on the same basis as do approximately 10,000 other eligible
employees. Benefit amounts are based on years of service and average monthly
compensation for the five highest consecutive years out of the last ten years
of employment. The following table illustrates the maximum estimated annual
benefits to be paid upon normal retirement at age 65 to individuals in
specified compensation and years of service classifications. The table does
not reflect the limitations contained in the Internal Revenue Code of 1986 on
benefit accruals under the Pension Plan. Under a plan adopted by the Board of
Directors, supplemental payments in excess of those limitations will be made
to participants designated by the Compensation Committee in order to maintain
benefits upon retirement at the levels provided under the Pension Plan's
formula.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL NORMAL RETIREMENT BENEFITS(/1/)
--------------------------------------------------------------
YEARS OF SERVICE AT NORMAL RETIREMENT(/2/)
COMPENSATION(/3/) 10 15 20 25 30 35 40
----------------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 250,000.............. $ 41,250 $ 61,875 $ 82,500 $103,125 $123,750 $133,125 $142,500
500,000.............. 82,500 123,750 165,000 206,250 247,500 266,250 285,000
750,000.............. 123,750 185,625 247,500 309,375 371,250 399,375 427,500
1,000,000.............. 165,000 247,500 330,000 412,500 495,000 532,500 570,000
1,250,000.............. 206,250 309,375 412,500 515,625 618,750 665,625 712,500
1,500,000.............. 247,500 371,250 495,000 618,750 742,500 798,750 855,000
1,750,000.............. 288,750 433,125 577,500 721,875 866,250 931,875 997,500
</TABLE>
- --------
(1) Amounts shown exceed actual amounts by .65% of Social Security covered
compensation for each year of service up to 30 years.
(2) Years of service as of December 31, 1995 for the five most highly
compensated Executive Officers were as follows: Mr. Nichols, 26.2 years;
Mr. Farrell, 30.5 years; Mr. Ptak, 20.1 years; Mr. Flaum, 20.2 years;
9
<PAGE>
and Mr. Seager, 15.5 years. The years of service for Mr. Nichols reflect the
Company's agreement to provide him pension benefits to which he otherwise
would be entitled if his service with certain previous employers had been
with the Company.
(3) Compensation includes all amounts shown under the columns "Salary" and
"Bonus" in the Summary Compensation Table.
The Company's 1982 Executive Contributory Retirement Income Plan provided
certain executives designated by the Compensation Committee the opportunity to
supplement their retirement benefits in exchange for salary reductions during
the four-year period 1983 through 1986. Under the plan the Company agreed to
pay benefits upon retirement, death or disability, with the actual benefit
amounts dependent upon the amount of the deferral, the amount of the Company's
contribution, and the age of the participant at entry into the plan. Three of
the five named Executive Officers included in the Summary Compensation Table
were eligible and elected to have their salaries reduced by 10%. During the
period of salary reduction the executives could not contribute to and did not
receive the Company's matching contribution in the Savings and Investment Plan.
The Company purchased insurance on the lives of the participants to fund the
benefits, with the 10% of salary retained by the Company and the 3% of base
compensation that the Company would have contributed to match participant
contributions to the Savings and Investment Plan applied to the premium for the
insurance. Under the 1982 Plan, annual benefits payable beginning at the normal
retirement age of 65 for 15 years were fixed following the deferral period and
are as follows: Mr. Nichols, $107,658; Mr. Farrell, $113,529; and Mr. Seager,
$68,266.
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors, composed of non-
employee directors, administers the Company's compensation plans, including the
Executive Incentive Plan and the Stock Incentive Plan, and approves
compensation levels for Executive Officers. In administering and making
decisions regarding these plans, the Committee considers management's
contribution to the Company's long-term growth. Among performance
considerations is the Company's total shareholder return (measured by capital
appreciation and reinvested dividends), which for the ten-year period ending
December 31, 1995 was a compounded annual rate of return of 22.7%. This return
compares to the Standard & Poor's 500 Index of 14.8% and the Standard & Poor's
Diversified Manufacturing Index of 16.3% for the comparable period.
Annual compensation of Executive Officers is comprised of base salary and an
incentive bonus. The Company's compensation philosophy requires that the
incentive bonus opportunity be performance-based and represent a significant
portion of total annual compensation. The Company has retained the services of
Hewitt Associates and The Hay Group, compensation consulting firms, to assist
the Committee in the performance of its various compensation duties. Hewitt
Associates has been retained in this capacity since 1985 and The Hay Group
since 1987.
In establishing the base salary for the Chief Executive Officer (CEO) and
other Executive Officers, the Committee considers published compensation
information obtained annually from independent consultants relating to
industrial companies of comparable size ("peer group"). The companies used for
compensation purposes are not necessarily the same as those included in the S&P
Diversified Manufacturing Index used in the Performance Graph to evaluate
stockholder return. In making periodic adjustments to base salary, the
Committee considers the Executive Officer's past performance and future
potential, the net income of the Company, and the operating income of the
respective operating units. The compensation policy of the Committee is to
target base salaries of Executive Officers near the median of the peer group.
This policy provides performance incentives that can provide above average
total compensation. For 1995, the Chairman's base salary and total compensation
were at the median of the peer group, while the base salaries and total
compensation of the President and other Executive Officers were below the
median of the peer group.
Annual cash bonuses are paid pursuant to the Executive Incentive Plan based
on predetermined objectives. Under this plan, maximum bonus opportunities for
Executive Officers range from 40% to 100% of base salary, unless the Committee
in its discretion increases such maximum. One-half of the CEO's and
10
<PAGE>
certain Executive Officers' maximum bonus opportunity is directly related to
the Company's net income and one-half to the individual's performance measured
against predetermined management goals. (With respect to the Executive Vice
Presidents' maximum bonus opportunity, one-eighth is based upon the Company's
net income and three-eighths is based upon their respective group operating
incomes. The remaining one-half bonus opportunity is based on the individual's
performance measured against predetermined management goals.) The resultant
average percent bonus awarded to Executive Officers for performance relative
to the Company and personal objectives during 1995 was approximately 98% of
the maximum award. These awards reflected the Company's fourth straight all-
time high earnings performance and the accomplishment of organizational and
personal objectives by the Executive Officers.
The CEO and other Executive Officers participate in the Stock Incentive Plan
with stock option awards generally made on a biennial basis. The magnitude of
award is based on the Committee's evaluation of the Executive Officer's
performance and his ability to influence the Company's long-term growth and
profitability. All options have been granted at market price. The ultimate
value of a stock option bears a direct relationship to the increase in market
price of the Company's Common Stock. Thus, the Stock Incentive Plan is an
effective incentive for key employees to create value for the stockholders.
The Committee therefore views stock options as an important component of its
long-term, performance-based compensation philosophy.
During 1995 the Board of Directors and the Compensation Committee,
furthering their objective of linking executive and director stock ownership
with that of the stockholders, approved the establishment of stock ownership
guidelines for elected and appointed corporate officers, as well as non-
officer Board members. These guidelines, stated as a multiple of officers'
base salaries and of directors' annual retainer, are as follows: CEO, five
times; Executive Vice Presidents, three times; Senior Vice Presidents, two
times; Vice Presidents, one times; and non-officer directors, four times. The
recommended accumulation period for reaching the above guidelines for both
Executive Officers and directors is five years.
In addition to open market purchases, Executive Officers may utilize other
transactions to accumulate ownership of the Company's shares, such as
exercised stock options; stock owned in the Company's 401(k) savings plan; and
stock incentives valued as if vested, less the exercise price and applicable
taxes (in the case of stock options). The Board also approved a plan that
allows an Executive Officer to exchange up to 50% of the cash award in the
Executive Incentive Plan for the Company's Common Stock. In support of the
principle of stock ownership, the Board approved a loan program to aid
executives in meeting these guidelines. Similar to Executive Officers,
director stock ownership requirements may be satisfied by open market
purchases, vested restricted stock, and stock equivalents included in the 1996
directors' phantom stock plan.
In 1991 the Compensation Committee extended the Chairman's phantom stock
plan for five additional years, through 1995. The phantom stock plan was
initially approved by the Board in 1986 and was a long-term program that
provided the opportunity to vest up to 100,000 phantom stock units. Each unit
was equal to one share of the Company's Common Stock. In vesting awards, the
Committee considered the Chairman's contribution to the Company's continuing
performance. Among factors considered were the Company's earnings per share,
continued market share growth, the success of the Company's acquisition
programs, enhanced stockholder value over the past decade, creation of a
strong management team and the development and implementation of a succession
plan. Based upon its evaluation of the Chairman's performance, the Committee
determined annually the number of phantom stock units (not to exceed 20,000)
to vest. Vested units were credited to the Chairman's phantom stock account.
Distribution of the vested phantom stock units will occur upon the Chairman's
retirement and may be paid in either a lump sum payment or in installments not
to exceed 10 years, as determined by the Committee. The Committee awarded
20,000 phantom stock units for 1995 reflecting the Chairman's significant
contributions to the Company's continuing impressive performance. The
Chairman's phantom stock account is credited with dividends and interest
equivalent to the Company's Common Stock dividends and federal short-term
interest rates.
In 1989 the Board of Directors approved a special incentive compensation
program for certain senior operating managers under the Stock Incentive Plan,
providing designated managers the opportunity to realize
11
<PAGE>
market price appreciation on performance share units. Awards were based on the
attainment of various performance targets established for each participant for
a three-year period (1990-1992). Market value appreciation was the difference
between the discounted 50% of the market price of the Company's Common Stock on
the date of the grant and the closing market price on the date of the award.
Compensation deduction limitations, which became effective under Section 162
of the Internal Revenue Code in 1994, have been addressed by the Committee
through the proposals on the 1996 Stock Incentive Plan and Executive Incentive
Plan described below.
Richard H. Leet, Chairman
L. Richard Flury, Member
Robert C. McCormack, Member
Phillip B. Rooney, Member
Ormand J. Wade, Member
Performance Graph
NOTE: The Stock Price Performance shown on the graph below is not necessarily
indicative of future price performance.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG ILLINOIS TOOL WORKS INC., S&P 500
AND S&P DIVERSIFIED MANUFACTURING INDEX
<CAPTION>
Measurement Period ILLINOIS TOOL S&P S&P DIVERSIFIED
(Fiscal Year Covered) WORKS INC. 500 MANUFACTURING INDEX
- ------------------- ------------- ---- -------------------
<S> <C> <C> <C>
Measurement Pt-1990 $100 $100 $100
1991 $133.9 $130.5 $122.6
1992 $139.0 $130.4 $132.9
1993 $168.3 $154.6 $161.3
1994 $191.9 $156.6 $167.0
1995 $261.8 $214.9 $236.1
</TABLE>
* Assumes that the value of investment in Illinois Tool
Works Inc. Common Stock and each index was $100 on
December 31, 1990 and that all dividends were reinvested.
Total returns are based on market capitalization.
12
<PAGE>
Proposal to Approve 1996 Stock Incentive Plan
The Board of Directors has adopted the 1996 Stock Incentive Plan (the
"Plan") as an amendment and restatement of the 1979 Stock Incentive Plan
approved by stockholders (the "1979 Plan"). The Board believes that the Plan
will promote the interests of the Company and its stockholders by encouraging
management to have a greater financial investment in the Company through
ownership of its Common Stock. The terms of the Plan will apply to incentives
granted under the 1979 Plan, including those pertaining to a corporate change
of control and termination of employment as described below, unless the
Committee determines otherwise. The following is a summary of the major
provisions of the Plan.
General. The Plan authorizes the grant of incentives in the form of stock
options, stock awards, performance units and stock appreciation rights. The
Compensation Committee administers the Plan, approves key employees for
participation, and determines the timing and amount of awards. Key employees
are approved by the Committee on the basis of their ability to contribute
significantly to the growth and profitability of the Company. The number of
key employees who will participate in the future, and the amounts of any
awards, cannot now be determined.
Stock Options. Options granted under the Plan, which may include incentive
stock options satisfying Internal Revenue Code requirements, must have an
exercise price of not less than the fair market value of the Common Stock (the
average of the high and low trading prices) on the date of grant and typically
expire ten years from grant. In addition, an employee may be required to
complete a specified period of employment following the grant date before the
option may be exercised. Options for more than 500,000 shares of Common Stock
may not be granted in any calendar year to any employee. The exercise price of
an option may be paid in cash, through the surrender or withholding of shares
of Common Stock having a fair market value equal to the exercise price, or
through a combination of the foregoing. If the exercise price is paid by the
surrender of previously acquired shares of Common Stock, the employee will
automatically be granted a restorative option to purchase additional shares of
Common Stock equal to the number of shares surrendered. The exercise price of
the restorative option will be 100% of the fair market value of Common Stock
on the date of grant of the restorative option and all other terms will be
identical to those of the exercised option.
Stock Awards. Awards of Common Stock may be made on terms and conditions
fixed by the Committee, including restrictions as to vesting or
transferability of the award. If the Committee intends a restricted share
grant to qualify as performance-based compensation under Internal Revenue Code
Section 162(m), such restricted shares will vest on the attainment of
performance goals, as referred to under "Performance Units" below, and will be
based on one or more of the criteria identified in the section "Proposal to
Approve Certain Provisions of the Executive Incentive Plan" incorporated
herein by reference. Stock awards for more than 500,000 shares of Common Stock
may not be granted in any calendar year to any employee.
Performance Units. The Committee may grant performance units which are
earned to the extent performance goals are attained. The Committee will
establish in writing the target cash value or number of shares of Common Stock
for each performance unit grant, the duration of the performance period and
the specific performance goals. If the Committee intends for performance units
to qualify as performance-based compensation under Code Section 162(m), the
participant's performance goals will be based on one or more of the criteria
identified in the section "Proposal to Approve Certain Provisions of the
Executive Incentive Plan". Following the performance period, the Committee
will determine the extent to which performance goals have been met and compute
the payment to be received by each key employee. For performance units
intended to qualify as performance-based compensation under Code Section
162(m), the maximum amount payable in cash to a participant in any calendar
year is a total of $5,000,000, and the maximum shares of Common Stock that may
be issued to a participant in any calendar year is 500,000.
Stock Appreciation Rights. Stock appreciation rights may be granted in
connection with an option or may be granted independently. Stock appreciation
rights for more than 500,000 shares of Common Stock may not be granted in any
calendar year to any employee. The holder of a stock appreciation right
receives upon exercise or, if applicable, on the date the related option is
surrendered, cash or shares of Common Stock equal
13
<PAGE>
in value to the lesser of the fair market value of the Common Stock on the
grant date or the excess of the fair market value on the exercise date over
the fair market value on the grant date, multiplied by the number of shares
covered by the right.
Termination of Employment. All unvested stock options, stock awards and
stock appreciation rights are forfeited immediately upon termination of
employment, except that such incentives will fully vest in the event of
termination by reason of death, disability or retirement (unless the holder
competes with the Company or engages in conduct that adversely affects the
Company) or as the Committee may otherwise determine. Upon retirement or
disability, any options and stock appreciation rights remain exercisable for
the shorter of five years or the remaining term of the options or rights. In
the event of death while employed or following retirement or disability, any
options or stock appreciation rights remain exercisable for the shorter of two
years or the remaining term of the options or rights. For other terminations
of employment, vested options and rights remain exercisable for the shorter of
three months (or two years after death during such three-month period) or the
remaining term of the options or rights.
Corporate Change. In the event of a "corporate change," all incentives will
immediately vest, and a prorated portion of the maximum value of all
performance units will be immediately paid out in cash. A "corporate change"
may be (i) a dissolution of the Company, (ii) a merger, consolidation or
reorganization after which the stockholders immediately prior to the effective
date thereof hold less than 70% of the outstanding common stock of the
surviving entity, (iii) a sale of all or substantially all of the assets of
the Company, (iv) certain persons or entities acquire more than 30% of the
outstanding Common Stock, or (v) there is more than 50% turnover in the
membership of the Board of Directors under circumstances not approved by the
then current Board.
Nontransferability. No incentive may be assigned or subjected to any
encumbrance, pledge or charge, except that, under such rules as the Committee
may establish, a holder may transfer an incentive to members of the holder's
immediate family, to trusts for the benefit of such family members, or to
partnerships in which such family members are the only partners.
Limitation on Number of Shares. The shares of Common Stock that may be
issued pursuant to incentives under the Plan, including Common Stock
authorized but not issued under the 1979 Plan, may not exceed 10,000,000,
representing about 8.2% of the 122,395,312 shares of Common Stock outstanding
on March 5, 1996. Approximately 2,498,318 shares are subject to options
previously granted and outstanding under the 1979 Plan, leaving 7,501,682
shares or about 6.1% of the outstanding Common Stock at March 5, 1996
available for grants under the Plan. No further grants will be made under the
1979 Plan. If any outstanding award granted under the Plan terminates or
lapses, the shares reserved for those awards will be available for subsequent
grants. In the event of any change in the outstanding shares of Common Stock
by reason of a stock dividend or split, recapitalization, merger or similar
corporate event, the number of shares reserved for issuance, the aggregate
number of shares of Common Stock subject to each outstanding incentive, and
the fair market value applicable to each incentive, shall be appropriately
adjusted by the Committee. Any Common Stock surrendered or withheld in payment
of the exercise price of an option, or in satisfaction of any tax liabilities
resulting from an incentive, will be added to the aggregate shares of Common
Stock available for issuance.
Amendment or Discontinuance. The Plan may be amended or discontinued by the
Board, provided that stockholder approval is required for any amendment that
would (i) increase the number of shares of Common Stock that may be issued
under the Plan, (ii) amend the corporate change provision, (iii) allow a non-
key employee to be granted an incentive, (iv) permit shares to be valued at,
or the exercise price of options to be, less than fair market value, (v)
change the method of establishing the amount the Company distributes upon
exercise of a stock appreciation right, (vi) change the terms of the Plan
applicable to performance unit grants, or (vii) change the maximum number of
shares that may be awarded to any participant in any year pursuant to options,
stock awards or stock appreciation rights.
Term. The Plan will continue until terminated by the Board or until no
shares of stock remain available for issuance, whichever occurs first.
14
<PAGE>
Federal Income Tax Consequences Generally. Under present law, upon exercise
of an option the holder recognizes ordinary income, and the Company is
entitled to a deduction, equal to the amount by which the fair market value of
the shares acquired upon exercise exceeds the exercise price. However, an
incentive stock option will not result in taxable income to the recipient or a
tax deduction to the Company at the time of exercise if, at all times during
the period beginning on the grant date and ending on the day three months
before the exercise date, the holder was an employee of the Company and
certain other requirements are satisfied.
Stock awards are taxable as ordinary income to the holder and deductible by
the Company in the year paid in an amount equal to the fair market value of
the shares received. If the shares are subject to restrictions involving both
forfeitability and nontransferability, the recipient's taxable income and the
Company's deduction may be deferred and measured by the fair market value of
the shares at the time that the first of the two restrictions lapses.
Performance units and stock appreciation rights result in ordinary income to
the holder and a tax deduction for the Company at the time of payment of the
performance units or exercise of the stock appreciation rights. The amount of
such income and deduction equals the value of any cash or shares of Common
Stock received.
Withholding of Taxes. The Company may withhold, or allow an incentive holder
to remit to the Company, any Federal, state or local taxes applicable to any
incentive. To satisfy such tax liability, the holder of an incentive may elect
to surrender previously acquired shares of Common Stock or to have the Company
withhold shares that would otherwise have been issued to the holder under the
incentive.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
1996 STOCK INCENTIVE PLAN, WHICH IS PRESENTED AS ITEM 2.
Proposal To Approve Certain Provisions of the Executive Incentive Plan
Compensation in excess of $1 million per year paid to the CEO or any of the
four other highest paid Executive Officers is not deductible by the Company
unless such compensation is based on objective goals, the criteria for which
have been approved by stockholders. The stockholders must also have approved
the eligibility requirements for and maximum amount of such compensation.
Accordingly, the Board of Directors recommends that the Compensation
Committee be authorized to base performance objectives under the Company's
Executive Incentive Plan (the "Plan") on one or more of the following factors:
generation of free cash, earnings per share, revenues, market share, stock
price, cash flow, retained earnings, results of customer satisfaction surveys,
aggregate product price and other product price measures, safety record,
acquisition activity, management succession planning, improved asset
management, improved gross margins, increased inventory turns, product
development and liability, research and development integration, proprietary
protections, legal effectiveness, handling SEC or environmental issues,
manufacturing efficiencies, system review and improvement, service reliability
and cost management, operating expense ratios, total stockholder return,
return on sales, return on equity, return on capital, return on assets, return
on investment, net income, operating income, and one or more of these criteria
relative to the performance of other corporations.
The Company designates key employees for participation in the Plan, with the
participation of any executive subject to Compensation Committee approval.
Awards will be based on the extent to which the performance objectives have
been attained and will be paid following release of the Company's audited
financial statements for the applicable fiscal year. The maximum award
qualifying under Code Section 162(m) payable to a participant for any calendar
year is $5,000,000.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
CERTAIN PROVISIONS OF THE EXECUTIVE INCENTIVE PLAN, WHICH IS PRESENTED AS ITEM
3.
15
<PAGE>
Stockholder Proposals and Nominations
Stockholder proposals intended to be presented at the 1997 Annual Meeting
must be received by the Secretary of the Company on or before December 2,
1996, and stockholder nominations of directors must be received by the
Secretary prior to December 31, 1996.
Independent Public Accountants
Arthur Andersen LLP has been the Company's independent public accounting
firm since 1951. During 1995 the Company engaged Arthur Andersen LLP to
examine the Company's annual financial statements, review its unaudited
quarterly financial statements and assist in the preparation of required
financial reports with the Securities and Exchange Commission and related
matters. The Board of Directors has engaged Arthur Andersen LLP to act in
similar capacities as the Company's independent public accountants for 1996.
Representatives of Arthur Andersen LLP will be present at the Annual Meeting
to respond to any questions and to make any comments they deem appropriate.
General
The cost of preparing and mailing this proxy statement and the solicitation
of proxies will be paid by the Company. Solicitations will be made by mail but
in some cases may also be made by telephone or personal call of officers,
directors or regular employees of the Company who will not be specially
compensated for such solicitation. The Company will also pay the cost of
supplying necessary additional copies of the solicitation material and the
Company's Annual Report for 1995 to beneficial owners of shares held of record
by brokers, dealers, banks and voting trustees, and their nominees. Upon
request, the Company will also pay reasonable expenses of record holders for
mailing such materials to the beneficial owners.
By Order of the Board of
Directors
Stewart S. Hudnut
Secretary
Glenview, Illinois
April 1, 1996
UPON WRITTEN REQUEST, THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON
WHOSE PROXY IS SOLICITED AND TO EACH PERSON REPRESENTING THAT AS OF THE RECORD
DATE FOR THE MEETING HE OR SHE WAS A BENEFICIAL OWNER OF SHARES ENTITLED TO BE
VOTED AT THE MEETING, A COPY OF THE COMPANY'S 1995 ANNUAL REPORT (FORM 10-K)
TO THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE SCHEDULES THERETO.
THE REQUEST SHOULD BE DIRECTED TO STEWART S. HUDNUT, SECRETARY, AT THE ADDRESS
SET FORTH ON THE FIRST PAGE OF THIS PROXY STATEMENT.
16
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ITW LOGO
RECYCLED LOGO
THIS STATEMENT HAS BEEN PRINTED ON RECYCLED PAPER.
<PAGE>
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PROXY PROXY
ILLINOIS TOOL WORKS INC.
3600 WEST LAKE AVENUE, GLENVIEW, ILLINOIS 60025
ANNUAL MEETING OF STOCKHOLDERS MAY 3, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of Illinois Tool Works Inc. hereby appoints Richard
H. Leet, Harold B. Smith and Ormand J. Wade, or any of them, with full power of
substitution, to act as proxies at the Annual Meeting of Stockholders of the
Company to be held in Chicago, Illinois on May 3, 1996 with authority to vote
as directed by this Proxy at the Meeting, and any adjournments of the meeting,
all shares of stock of the Company registered in the name of the undersigned.
IMPORTANT - THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
<PAGE>
ILLINOIS TOOL WORKS INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
1.ELECTION OF DIRECTORS
Nominees: J. W. Becton, Jr., S. Crown, H. R. Crowther, W. J. Farrell, R. H.
Flury, R. M. Jones, G. D. Kennedy, R. H. Leet, R. C. McCormack, P. B. Rooney,
H. B. Smith, O. J. Wade, C. A. H. Waller
For All
For Withheld Except
0 0 0
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Nominee Exception
2. APPROVAL OF STOCK INCENTIVE PLAN
For Against Abstain
0 0 0
3. APPROVAL OF CERTAIN PROVISIONS OF EXECUTIVE INCENTIVE PLAN
For Against Abstain
0 0 0
4. In their discretion, upon such other matters as may properly come before the
meeting.
- --------------------------------------------------------------------------------
THE PROXY WILL BE VOTED AS DIRECTED. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE NOMINATED DIRECTORS, FOR APPROVAL OF THE STOCK INCENTIVE PLAN, AND FOR
APPROVAL OF CERTAIN PROVISIONS OF THE EXECUTIVE INCENTIVE PLAN, WHICH IS THE
MANNER IN WHICH THIS PROXY WILL BE VOTED IF NO DIRECTION IS MADE. THIS PROXY IS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
Please sign exactly as your name or names appear. If jointly held, each owner
must sign. Executors, administrators, trustees, officers, etc. should give full
title as such.
Dated 1996
-----------------------------
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY
ANNUAL MEETING MAY 3, 1996
<PAGE>
APPENDIX A
ILLINOIS TOOL WORKS INC.
1996 STOCK INCENTIVE PLAN
Adopted by the Board of Directors on
February 16, 1996
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<C> <S> <C>
Section 1. Purpose.................................. 1
Section 2. Definitions.............................. 1
Section 3. Administration........................... 3
Section 4. Common Stock Subject to Plan............. 3
Section 5. Options.................................. 3
Section 6. Stock Awards............................. 4
Section 7. Performance Units........................ 4
Section 8. Stock Appreciation Rights................ 5
Section 9. Termination of Employment................ 6
Section 10. Adjustment Provisions.................... 7
Section 11. Term..................................... 7
Section 12. Corporate Change......................... 7
Section 13. General Provisions....................... 7
Section 14. Amendment or Discontinuance of the Plan.. 8
</TABLE>
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<PAGE>
ILLINOIS TOOL WORKS INC.
1996 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the Plan is to encourage Key Employees to have a greater
financial investment in the Company through ownership of its Common Stock. The
Plan is an amendment and restatement of the 1979 Stock Incentive Plan (the "1979
Plan"). The terms of the Plan will apply to all outstanding Incentives granted
under the 1979 Plan, including those pertaining to a Corporate Change and
termination of employment as described below, unless the Committee determines
otherwise. No additional Incentives will be granted under the 1979 Plan.
SECTION 2. DEFINITIONS.
Board: The Board of Directors of the Company.
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation Committee of the Board or such other committee
as shall be appointed by the Board to administer the Plan pursuant to Section 3.
Common Stock: The Common Stock, without par value, of the Company or such
other class of shares or other securities as may be applicable pursuant to the
provisions of Section 10.
Company: Illinois Tool Works Inc., a Delaware corporation, and any
successor thereto.
Corporate Change: Any of the following: (i) the dissolution of the
Company; (ii) the merger, consolidation, or reorganization of the Company with
any other corporation after which the holders of Common Stock immediately prior
to the effective date thereof hold less than 70% of the outstanding common stock
of the surviving or resulting entity; (iii) the sale of all or substantially all
of the assets of the Company to any person or entity other than a wholly owned
subsidiary; (iv) any person or group of persons acting in concert, other than
descendants of Byron L. Smith and trusts for the benefit of such descendants, or
entity becomes the beneficial owner, directly or indirectly, of more than 30% of
the outstanding Common Stock; or (v) the individuals who, as of the close of the
most recent annual meeting of the Company's stockholders, are members of the
Board (the "Existing Directors") cease for any reason to constitute more than
50% of the Board; provided, however, that if the election, or nomination for
election, by the Company's stockholders of any new director was approved by a
vote of at least 50% of the Existing Directors, such new director shall be
considered an Existing Director; provided further, however, that no individual
shall be considered an Existing Director if such individual initially assumed
office as a result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 under the Securities Exchange Act of 1934) or other
actual or threatened solicitation of proxies by or on behalf of anyone other
than the Board (a "Proxy Contest"), including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy Contest.
<PAGE>
Covered Employee: A Key Employee who is or is expected to be a "covered
employee" within the meaning of Code Section 162(m) and the related regulations
for the year in which an Incentive is taxable to such employee and for whom the
Committee intends that such Incentive qualify as performance-based compensation
under Code Section 162(m).
Disabled: Eligible for Social Security disability benefits or disability
benefits under the Company's long-term disability plan. A Key Employee shall
not be considered Disabled unless the Committee determines that the Disability
arose prior to such employee's termination date.
Fair Market Value: The average of the highest and lowest price at which
Common Stock was traded on the relevant date, as reported in the "NYSE-Composite
Transactions" section of the Midwest Edition of the Wall Street Journal, or, if
no sales of Common Stock were reported for that date, on the most recent
preceding date on which Common Stock was traded.
Incentive Stock Option: As defined in Code Section 422.
Incentives: Options (including Incentive Stock Options), Stock Awards,
Performance Units and Stock Appreciation Rights.
Key Employee: An employee of the Company approved by the Committee for
participation in the Plan on the basis of his or her ability to contribute
significantly to the growth and profitability of the Company.
Option: An option to purchase shares of Common Stock granted to a Key
Employee pursuant to Section 5.
Performance Unit: A unit representing a cash sum or one or more shares of
Common Stock that is granted to a Key Employee pursuant to Section 7.
Plan: The Illinois Tool Works Inc. 1996 Stock Incentive Plan, as amended
from time to time.
Restricted Shares: Shares of Common Stock issued subject to restrictions
pursuant to Section 6(b).
Retirement: Termination of employment while eligible for retirement as
defined by the Company's tax-qualified defined benefit retirement plan.
Stock Appreciation Right or Right: An award granted to a Key Employee
pursuant to Section 8.
Stock Award: An award of Common Stock granted to a Key Employee pursuant
to Section 6.
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<PAGE>
Stock Ownership Guidelines: The stock ownership guidelines adopted by the
Board, as amended from time to time.
SECTION 3. ADMINISTRATION.
(a) Committee. The Plan shall be administered by the Committee. To the
extent required to comply with Rule 16b-3 under the Securities Exchange Act of
1934, each member of the Committee shall qualify as a "disinterested person" as
defined therein. To the extent required to comply with Code Section 162(m) and
the related regulations, each member of the Committee shall qualify as an
"outside director" as defined therein.
(b) Authority of the Committee. The Committee shall have the authority to
approve Key Employees for participation; to construe and interpret the Plan; to
establish, amend or waive rules and regulations for its administration; and to
accelerate the exercisability of any Incentive or the termination of any
restriction under any Incentive. Incentives may be subject to such provisions
as the Committee shall deem advisable, and may be amended by the Committee from
time to time; provided that no such amendment may adversely affect the rights of
the holder of an Incentive without such holder's consent, and no amendment, as
it applies to any Covered Employee, shall be made that would cause an Incentive
granted to such Covered Employee to fail to satisfy the performance-based
compensation exemption under Code Section 162(m) and the related regulations.
SECTION 4. COMMON STOCK SUBJECT TO PLAN.
Subject to Section 10, the aggregate shares of Common Stock that may be
issued under the Plan, including Common Stock authorized but not issued or
reserved for issuance under the 1979 Plan, shall not exceed 10,000,000. In the
event of a lapse, expiration, termination, forfeiture or cancellation of any
Incentive granted under the Plan or the 1979 Plan without the issuance of shares
or payment of cash, the Common Stock subject to or reserved for such Incentive
may be used again for a new Incentive hereunder; provided that in no event may
the number of shares of Common Stock issued hereunder exceed the total number of
shares reserved for issuance. Any shares of Common Stock withheld or
surrendered to pay withholding taxes pursuant to Section 13(e) or withheld or
surrendered in full or partial payment of the exercise price of an Option
pursuant to Section 5(e) shall be added to the aggregate shares of Common Stock
available for issuance.
SECTION 5. OPTIONS.
(a) Price. The exercise price per share of an Option shall be not less
than the Fair Market Value on the grant date.
(b) Limitations. The exercise price of Incentive Stock Options exercisable
for the first time by a Key Employee during any calendar year shall not exceed
$100,000. Options for more than 500,000 shares of Common Stock may not be
granted in any calendar year to any Key Employee. No Incentive Stock Options
may be granted after April 30, 2006.
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<PAGE>
(c) Required Period of Employment. The Committee may condition the
exercisability of any Option on the completion of a minimum period of
employment.
(d) Duration. Each Option shall expire at such time as the Committee may
determine at the time of grant, provided that Incentive Stock Options must
expire not later than ten years from the grant date.
(e) Payment. The exercise price of an Option shall be paid in full at the
time of exercise in cash, through the surrender or withholding of Common Stock
having a Fair Market Value equal to the exercise price or by a combination of
the foregoing.
(f) Grant of Restorative Options. The Committee shall grant to any Key
Employee a Restorative Option to purchase additional shares of Common Stock
equal to the number of shares delivered by the Key Employee in payment of the
exercise price of an Option. The terms of a restorative Option shall be
identical to the terms of the exercised Option, except that the exercise price
shall be not less than the Fair Market Value on the grant date.
SECTION 6. STOCK AWARDS.
(a) Grant of Stock Awards. Stock Awards may be made on terms and
conditions fixed by the Committee. Stock Awards may be in the form of
Restricted Shares authorized pursuant to Section 6(b). Officers who are covered
by the Stock Ownership Guidelines may elect to receive up to 50% of their
Executive Incentive Plan awards in shares of Common Stock. The recipient of
Common Stock pursuant to a Stock Award shall be a stockholder of the Company
with respect thereto, fully entitled to receive dividends, vote and exercise all
other rights of a stockholder except to the extent otherwise provided in the
Stock Award. Stock Awards (including Restricted Share awards) for more than
500,000 shares of Common Stock may not be granted in any calendar year to any
Key Employee.
(b) Restricted Shares. Restricted Shares may not be sold by the holder, or
subject to execution, attachment or similar process, until the lapse of the
applicable restriction period or satisfaction of other conditions specified by
the Committee. If the Committee intends the Restricted Shares granted to any
Covered Employee to satisfy the performance-based compensation exemption under
Code Section 162(m) ("Qualifying Restricted Shares"), the extent to which the
Qualifying Restricted Shares will vest shall be based on the attainment of
performance goals established in writing prior to commencement of the
performance period by the Committee from the list in Section 7(a). The level of
attainment of such performance goals and the corresponding number of vested
Qualifying Restricted Shares shall be certified by the Committee in writing
pursuant to Code Section 162(m) and the related regulations.
SECTION 7. PERFORMANCE UNITS.
(a) Value of Performance Units. Prior to the commencement of the
performance period, the Committee shall establish in writing an initial target
value or number of shares of
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<PAGE>
Common Stock for the Performance Units to be granted to a Key Employee, the
duration of the performance period, and the specific performance goals to be
attained, including performance levels at which various percentages of
Performance Units will be earned and, for Covered Employees, the minimum level
of attainment to be met to earn any portion of the Performance Units. If the
Committee intends the Performance Units granted to any Covered Employee to
satisfy the performance-based compensation exemption under Code Section 162(m)
("Qualifying Performance Units"), the performance goals shall be based on one or
more of the following objective criteria: generation of free cash, earnings per
share, revenues, market share, stock price, cash flow, retained earnings,
results of customer satisfaction surveys, aggregate product price and other
product price measures, safety record, acquisition activity, management
succession planning, improved asset management, improved gross margins,
increased inventory turns, product development and liability, research and
development integration, proprietary protections, legal effectiveness, handling
SEC or environmental issues, manufacturing efficiencies, system review and
improvement, service reliability and cost management, operating expense ratios,
total stockholder return, return on sales, return on equity, return on capital,
return on assets, return on investment, net income, operating income, and the
attainment of one or more performance goals relative to the performance of other
corporations.
(b) Payment of Performance Units. After the end of a performance period,
the Committee shall certify in writing the extent to which performance goals
have been met and shall compute the payout to be received by each Key Employee.
With respect to Qualifying Performance Units, for any calendar year, the maximum
amount payable in cash to any Covered Employee shall be $5,000,000, and the
aggregate shares of Common Stock that may be issued to any Covered Employee is
500,000. The Committee may not adjust upward the amount payable to any Covered
Employee with respect to Qualifying Performance Units.
SECTION 8. STOCK APPRECIATION RIGHTS.
(a) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted in connection with an Option (at the time of the grant or at any time
thereafter) or may be granted independently. Stock Appreciation Rights for more
than 500,000 shares of Common Stock may not be granted to any Key Employee in
any calendar year.
(b) Value of Stock Appreciation Rights. The holder of a Stock Appreciation
Right granted in connection with an Option, upon surrender of the Option, will
receive cash or shares of Common Stock equal in value to the lesser of (i) the
excess of the Fair Market Value on the exercise date over the Option's exercise
price or (ii) the exercise price of the Option that is surrendered, multiplied
by the number of shares covered by such Option. The holder of a Stock
Appreciation Right granted independent of an Option, upon exercise, will receive
cash or shares of Common Stock equal in value to the lesser of (i) the excess of
the Fair Market Value on the exercise date over the Fair Market Value on the
grant date or (ii) the Fair Market Value on the grant date, multiplied by the
number of shares covered by the Right.
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<PAGE>
SECTION 9. TERMINATION OF EMPLOYMENT.
(a) Forfeiture of Incentives Upon Termination of Employment. All unvested
Incentives shall be forfeited upon termination of employment unless the terms of
the Incentive or Section 9(b) provide otherwise. The Committee, in its sole
discretion, may waive this automatic forfeiture provision at any time for any
Incentive.
(b) Termination Due to Retirement, Disability or Death. Upon death while
employed or termination by reason of Retirement or Disability, all unvested
Incentives shall become fully vested and, if applicable, payable to the Key
Employee or to the Key Employee's estate in the event of death to the extent
provided in Section 9(c)(ii). Notwithstanding the foregoing, the Committee may
deem an Incentive to be immediately forfeited if, following termination by
reason of Retirement or Disability, the holder competes with the Company or
engages in conduct that, in the opinion of the Committee, adversely affects the
Company.
(c) Treatment of Incentives Following Termination.
(i) Options and Stock Appreciation Rights.
(A) Termination Due to Retirement, Disability or Death. Upon
termination of employment by reason of Retirement or Disability,
Options shall be exercisable not later than the earlier of five years
after the termination date or the expiration of the term of the
Options. Options held by a Key Employee who dies while employed by
the Company or after terminating by reason of Retirement or Disability
shall be exercisable by the Key Employee's estate not later than the
earliest of two years after the date of death, five years after the
date of termination due to Retirement or Disability or the expiration
of the term of the Options.
(B) Termination for Other Reasons. Upon termination of employment for
any reason other than death, Retirement or Disability, Options vested
prior to such termination may be exercised by a Key Employee during
the three-month period commencing on the date of termination, but not
later than the expiration of the term of the Options. If a Key
Employee dies during such post-employment period, such Key Employee's
estate may exercise the Options (to the extent such Options were
vested and exercisable prior to death), but not later than the earlier
of two years after the date of death or the expiration of the term of
the Options.
(C) Stock Appreciation Rights. Sections 9(c)(i)(A) and (B) shall
apply in the same manner to Stock Appreciation Rights.
(ii) Performance Units. If a Key Employee dies while employed,
terminates by reason of Retirement or Disability, or otherwise terminates
without forfeiting unvested Incentives pursuant to Section 9(a), the Key
Employee or such Key Employee's estate in the event of death shall receive
a prorated payment of the Performance Units based on the number of full
months of service during the applicable performance period, adjusted based
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<PAGE>
on the achievement of performance goals during the performance period.
Payment shall be made at the time payments would have been made had the Key
Employee not died or terminated.
SECTION 10. ADJUSTMENT PROVISIONS.
In the event of a stock split, stock dividend, recapitalization,
reclassification or combination of shares, merger, sale of assets or similar
event, the Committee shall adjust equitably (a) the number and class of shares
or other securities that are reserved for issuance under the Plan, (b) the
number and class of shares or other securities that have not been issued under
outstanding Incentives, and (c) the appropriate Fair Market Value and other
price determinations applicable to Incentives.
SECTION 11. TERM.
The Plan shall be deemed adopted and shall become effective on the date it
is approved by the stockholders of the Company and shall continue until
terminated by the Board or no Common Stock remains available for issuance under
Section 4, whichever occurs first.
SECTION 12. CORPORATE CHANGE.
In the event of a Corporate Change, all Incentives shall vest in each Key
Employee, and the maximum value of all Performance Units shall be immediately
payable in cash, prorated for the number of days in the applicable performance
period that have elapsed as of the date of the Corporate Change.
SECTION 13. GENERAL PROVISIONS.
(a) Employment. Nothing in the Plan or in any related instrument shall
confer upon any employee any right to continue in the employ of the Company or
shall affect the right of the Company to terminate the employment of any
employee with or without cause.
(b) Legality of Issuance of Shares. No Common Stock shall be issued
pursuant to an Incentive unless and until all legal requirements applicable to
such issuance have been satisfied.
(c) Ownership of Common Stock Allocated to Plan. No employee (individually
or as a member of a group), and no beneficiary or other person claiming under or
through such employee, shall have any right, title or interest in or to any
Common Stock allocated or reserved for purposes of the Plan or subject to any
Incentive except as to shares of Common Stock, if any, as shall have been issued
to such employee.
(d) Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Illinois.
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<PAGE>
(e) Withholding of Taxes. The Company may withhold, or allow an Incentive
holder to remit to the Company, any Federal, state or local taxes applicable to
any grant, exercise, vesting, distribution or other event giving rise to income
tax liability with respect to an Incentive. An Incentive holder may elect to
surrender previously acquired Common Stock or to have the Company withhold
Common Stock that would otherwise have been issued pursuant to the exercise of
an Option or in connection with any other Incentive, the number of shares of
such withheld or surrendered Common Stock to be sufficient to satisfy all or a
portion of the income tax liability that arises upon the exercise, vesting,
distribution or other event giving rise to income tax liability with respect to
an Incentive.
(f) Non-transferability; Exceptions. Except as provided in this Section
13(f), no Incentive may be assigned or subjected to any encumbrance, pledge or
charge of any nature. Under such rules and procedures as the Committee may
establish, the holder of an Incentive may transfer such Incentive to members of
the holder's immediate family (i.e., children, grandchildren and spouse) or to
one or more trusts for the benefit of such family members or to partnerships in
which such family members are the only partners, provided that (i) the
agreement, if any, with respect to such Incentives, expressly so permits or is
amended to so permit, (ii) the holder does not receive any consideration for
such transfer, and (iii) the holder provides such documentation or information
concerning any such transfer or transferee as the Committee may reasonably
request. Any Incentives held by any transferees shall be subject to the same
terms and conditions that applied immediately prior to their transfer. The
Committee may also amend the agreements applicable to any outstanding Incentives
to permit such transfers. Any Incentive not granted pursuant to any agreement
expressly permitting its transfer or amended expressly to permit its transfer
shall not be transferable. Such transfer rights shall in no event apply to any
Incentive Stock Option.
SECTION 14. AMENDMENT OR DISCONTINUANCE OF THE PLAN.
(a) Amendment or Discontinuance. The Plan may be amended or discontinued
by the Board from time to time, provided that without the approval of
stockholders, no amendment shall be made which (i) amends Section 4 to increase
the aggregate Common Stock that may be issued pursuant to Incentives, (ii)
amends the provisions of Section 12, (iii) permits any person who is not a Key
Employee to be granted an Incentive, (iv) permits Common Stock to be valued at,
or permits the exercise price of Options at the grant date, to be less than Fair
Market Value, (v) amends the provisions of Section 8 to change the method of
establishing the amount the Company shall distribute upon exercise of a Stock
Appreciation Right, (vi) amends the provisions of Section 7(b) to increase the
value which may be specified for Performance Units or amends any other provision
of the Plan, the amendment of which would require stockholder approval in order
to continue to satisfy the performance-based compensation exemption under Code
Section 162(m) and the related regulations with respect to any Incentive awarded
to any Covered Employee, (vii) changes the maximum number of shares of Common
Stock that may be awarded to any employee in any year pursuant to Options, Stock
Awards or Stock Appreciation Rights, or (viii) amends this Section 14.
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<PAGE>
(b) Effect of Amendment or Discontinuance on Incentives. No amendment or
discontinuance of the Plan by the Board or the stockholders of the Company shall
adversely affect any Incentive theretofore granted without the consent of the
holder.
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<PAGE>
APPENDIX B
ILLINOIS TOOL WORKS INC.
EXECUTIVE INCENTIVE PLAN
Adopted by the Board of Directors on
February 16, 1996
<PAGE>
ILLINOIS TOOL WORKS INC.
EXECUTIVE INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the Plan is to provide key employees with a meaningful
annual incentive opportunity geared to the achievement of specific corporate,
operating group or individual performance goals.
SECTION 2. DEFINITIONS..
Board: The Board of Directors of the Company.
Code: The Internal Revenue Code of 1986, as amended.
Committee: The Compensation Committee of the Board or such other committee
appointed by the Board to administer the Plan. To the extent required to comply
with Code Section 162(m) and related regulations, each Committee member shall
qualify as an "outside director" as defined therein.
Company: Illinois Tool Works Inc., a Delaware corporation, and any
successor thereto.
Corporate Change: Any of the following: (i) the dissolution of the
Company; (ii) the merger, consolidation, or reorganization of the Company with
any other corporation after which the holders of the Company's common stock
immediately prior to the effective date thereof hold less than 70% of the
outstanding common stock of the surviving or resulting entity; (iii) the sale of
all or substantially all of the assets of the Company to any person or entity
other than a wholly owned subsidiary; (iv) any person or group of persons acting
in concert, other than descendants of Byron L. Smith and trusts for the benefit
of such descendants, or entity becoming the beneficial owner, directly or
indirectly, of more than 30% of the Company's outstanding common stock; or (v)
the individuals who, as of the close of the most recent annual meeting of the
Company's stockholders, are members of the Board (the "Existing Directors")
ceasing for any reason to constitute more than 50% of the Board; provided,
however, that if the election, or nomination for election, by the Company's
stockholders of any new director was approved by a vote of at least 50% of the
Existing Directors, such new director shall be considered an Existing Director;
provided further, however, that no individual shall be considered an Existing
Director if such individual initially assumed office as a result of either an
actual or threatened "Election Contest" (as described in Rule 14a-11 under the
Securities Exchange Act of 1934) or other actual or threatened solicitation of
proxies by or on behalf of anyone other than the Board (a "Proxy Contest"),
including by reason of any agreement intended to avoid or settle any Election
Contest or Proxy Contest.
Disabled: Eligible for Social Security disability benefits or disability
benefits under the Company's long-term disability plan. An employee shall not
be considered Disabled unless the Committee determines that the Disability arose
prior to termination of employment.
<PAGE>
O Factor: Performance goals and objectives for individual key employees
determined pursuant to Section 4.
O Factor Award: An award to be paid to a Participant pursuant to
Section 6.
P Factor: Performance goals and objectives for the Company as a whole or
any of its business units determined pursuant to Section 5.
P Factor Award: An award to be paid to a Participant pursuant to
Section 6.
Participant: A key employee of the Company approved by the Committee to
participate in the Plan.
Plan: The Illinois Tool Works Inc. Executive Incentive Plan, as amended
from time to time.
Qualifying O Factor: An objective performance goal based on one or more of
the following: generation of free cash, earnings per share, revenues, market
share, stock price, cash flow, retained earnings, results of customer
satisfaction surveys, aggregate product price and other product price measures,
safety record, acquisition activity, management succession planning, improved
asset management, improved gross margins, increased inventory turns, product
development and liability, research and development integration, proprietary
protections, legal effectiveness, handling SEC or environmental issues,
manufacturing efficiencies, system review and improvement, service reliability
and cost management, and one or more of these criteria relative to the
performance of other corporations.
Qualifying O Factor Award: An O Factor Award intended to qualify as
performance based compensation under Code Section 162(m).
Qualifying P Factor: An objective performance goal based on one or more of
the following: operating expense ratios, total stockholder return, return on
sales, return on equity, return on capital, return on assets, return on
investment, net income, operating income, and one or more of these criteria
relative to the performance of other corporations.
Qualifying P Factor Award: An P Factor Award intended to qualify as
performance based compensation under Code Section 162(m).
Retirement: Voluntary termination of employment while eligible for
retirement as defined by the Company's tax-qualified defined benefit retirement
plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered by the Committee in accordance with rules
that it may establish from time to time. The determination of the Committee as
to any disputed question arising under the Plan shall be conclusive upon all
persons.
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SECTION 4. O FACTOR AWARDS.
On or before March 31 of each fiscal year, the Committee may establish in
writing O Factors (including Qualifying O Factors) for each Participant and a
formula to determine the percentage of the maximum Qualifying or non-Qualifying
O Factor Award payable to the Participant based upon the degree of attainment of
the O Factors. O Factors shall measure a Participant's management effectiveness
for the applicable fiscal year.
SECTION 5. P FACTOR AWARDS.
On or before March 31 of each fiscal year, the Committee may establish in
writing P Factors (including Qualifying P Factors) for each Participant and a
formula to determine the percentage of the maximum Qualifying or non-Qualifying
P Factor Award payable to the Participant based upon the degree of attainment of
the P Factors. P Factors shall measure business performance for the applicable
fiscal year.
SECTION 6. ADJUSTMENTS AND AWARD PAYMENTS.
(a) Adjustments. Qualifying O or P Factors may not be adjusted after they
have been established for any fiscal year by the Committee. The Committee may
adjust any other O or P Factor, provided that no adjustment may be based upon
the failure, or the expected failure, to attain or exceed a Qualifying O or P
Factor. A non-Qualifying O or P Factor or related Award may not be dependent on
any Qualifying O or P Factor or related Award.
(b) Payment of O or P Factor Awards. An O or P Factor Award is payable in
cash to a Participant based upon the degree of achievement of the related O or P
Factors during the applicable fiscal year, as certified in writing by the
Committee following the release of the Company's audited financial statements
for the applicable fiscal year. With the approval of the Committee, a
Participant who is covered by the stock ownership guidelines adopted by the
Board, as amended from time to time, may elect to receive up to 50% of an Award
in Common Stock under the Company's 1996 Stock Incentive Plan, and a Participant
also may defer payment of an Award under rules established by the Committee.
Any O or P Factor Award may be adjusted by the Committee; provided, that the
Committee may not adjust upward any Qualifying O or P Factor Award. The maximum
individual Qualifying O Factor Award or Qualifying P Factor Award payable to any
Participant is $2,500,000 for any calendar year.
SECTION 7. TERMINATION OF EMPLOYMENT OR PARTICIPATION.
(a) Termination of Employment Due to Death, Disability or Retirement. If a
Participant's employment is terminated by reason of death, Disability or
Retirement, the Participant, or the Participant's estate, shall receive an O
Factor Award and/or a P Factor Award, determined as if the Participant had
remained employed for the entire fiscal year, prorated for the number of days
during the fiscal year that have elapsed as of the Participant's termination,
and subject to the first sentence of Section 6(b).
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(b) Termination of Employment for Other Reasons. If a Participant's
employment is terminated for a reason not specified in Section 7(a), the
Participant's rights to any O and P Factor Awards for such fiscal year will be
forfeited. However, the Committee may pay prorated O and P Factor Awards for the
portion of the fiscal year that the Participant was employed by the Company,
except in the event of termination for cause as determined by the Committee.
(c) Termination of Participation. The Committee may terminate any
Participant's rights to an O or P Factor Award at any time prior to the
applicable payment date; provided, that the Committee may not, within the 90-day
period prior to the date of a Corporate Change or at any time on or after such
date, terminate or adjust any Participant's participation with respect to the
current fiscal year.
SECTION 8. CORPORATE CHANGE.
In the event of a Corporate Change, the maximum O Factor and P Factor
Awards for the fiscal year then in progress, prorated for the number of days in
the fiscal year that have elapsed as of the date of the Corporate Change, shall
be paid immediately in cash. Any adjustment or termination of a Participant's
participation in the Plan that occurs at any time on or after the 90th day
preceding a Corporate Change shall be of no effect.
SECTION 9. GENERAL PROVISIONS.
(a) Withholding Taxes. The Company shall have the right to deduct any
Federal, state or local taxes applicable to payments under the Plan.
(b) Nontransferability. No right or interest of any Participant in this
Plan shall be assignable or transferable, or subject to any lien, directly, by
operation of law or otherwise, including execution, levy, garnishment,
attachment, pledge or bankruptcy.
(c) Amendment or Termination. Except as provided in Sections 7(c) and 8,
the Board may terminate or amend the Plan at any time provided, that, without
the approval of stockholders, no amendment may be made which (i) increases the
maximum Qualifying O or P Factor Award, (ii) modifies the Plan's eligibility
requirements, (iii) changes the criteria upon which Qualifying O Factors or
Qualifying P Factors may be based, or (iv) changes this Section 9(c).
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