<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 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] No fee required
[ ] Fee computed on table below per Exchange Act Rule 14a6(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.:
- - --------------------------------------------------------------------------------
(3) Filing party:
- - --------------------------------------------------------------------------------
(4) Date filed:
- - --------------------------------------------------------------------------------
<PAGE> 2
DRAFT #6 - March 10, 1997
ILLINOIS TOOL WORKS INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held Friday, May 9, 1997
To the Stockholders:
The Annual Meeting of the Stockholders of Illinois Tool Works Inc., a
Delaware corporation, will be held on Friday, May 9, 1997 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 ten directors of the Company,
(2) To amend Article Fourth of the Company's Restated Certificate
of Incorporation to increase the number of authorized shares
and par value of the Common Stock,
(3) To act on a stockholder proposal concerning splitting the
positions of CEO and Chairman, 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
and FOR the amendment of the Company's charter but AGAINST proposal 3.
The Board of Directors set March 11, 1997 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 1996 is being mailed to stockholders
with this Notice.
By Order of the Board of Directors
STEWART S. HUDNUT
Secretary
Glenview, Illinois
March 25, 1997
IMPORTANT -- PLEASE MAIL YOUR SIGNED PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
1
<PAGE> 3
ILLINOIS TOOL WORKS INC.
3600 WEST LAKE AVENUE
GLENVIEW, ILLINOIS 60025
MARCH 25, 1997
PROXY STATEMENT
For The Annual Meeting of Stockholders of Illinois Tool Works Inc.
To Be Held on May 9, 1997
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 9, 1997 and is being mailed to stockholders
on or about March 25, 1997.
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 (1) the election of directors, (2) the amendment of Article Fourth
of the Company's' Restated Certificate of Incorporation to increase the number
of authorized shares of Common Stock from 150,000,000 to 350,000,000 and to
increase the par value per share of Common Stock from none to $.01, and (3) the
stockholder proposal. 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 11, 1997, the record date for the Annual Meeting, the
Company had issued and outstanding 124,531,549 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. The election
of directors requires a plurality vote. The amendment of the Company's
Restated Certificate of Incorporation requires the favorable vote of a majority
of the holders of the outstanding Common Stock. Every other 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
Ten 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 regret the retirements as
directors of Messrs. Becton, Jones, Kennedy and Leet, each of whom has brought
his own separate set of skills to his service on this Board but have now
reached the mandatory retirement age. Set forth below are
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<PAGE> 4
the name, age, principal occupation and other information concerning each
nominee.
Michael J. Birck (58)
Founder of Tellabs, Inc., President and Chief Executive Officer since
1975. Tellabs designs, manufactures, markets and services voice and
data equipment. Mr. Birck is a director of USF&G Corporation and
Molex, Inc. He has been a director of the Company since 1996.
Marvin D. Brailsford (58)
Vice President of Kaiser-Hill LLC (construction and environmental
services) since August 1996, founder and President of the Brailsford
Group from 1995 to 1996, and President of Metters Industries from 1992
to 1995. He retired from the United States Army in 1992 with the rank
of Lieutenant General after 33 years of service. He has been a
director of the Company since 1996.
Susan Crown (38)
Vice President, Henry Crown and Company since 1984, 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 (64)
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 had a total of 36 years service
with the Company before his retirement. He is a director of Applied
Power Inc. and has been a director of the Company since 1995.
W. James Farrell (54)
Chairman and Chief Executive Officer since May 1996. Mr. Farrell
served as Executive Vice President from 1983 to 1994, became
President of the Company in December 1994 and Chief Executive Officer
in September 1995 and has a total of 31 years service with the
Company. Mr. Farrell is a director of Hon Industries Inc., Morton
International, Inc. and Premark International, Inc. and has been a
director of the Company since 1995.
L. Richard Flury (49)
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 1991 to June 1994, with a total of 27 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.
Robert C. McCormack (57)
Partner, Trident Capital L.P.(venture capital) since 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.
3
<PAGE> 5
Phillip B. Rooney (52)
Chairman, F.N.B.C. of LaGrange, Inc. (multi-bank holding company)
since February 1997. Former President of WMX Technologies Inc.(waste
management) from 1985 until 1997. Mr. Rooney is a director of The
ServiceMaster Company and Urban Shopping Centers Inc. and has been a
director of the Company since 1990.
Harold B. Smith (63)
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 (57)
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.
Board of Directors and Its Committees
The Board of Directors of the Company met five times during 1996.
Each director except Mr. Birck attended at least 75% of the meetings of the
Board and of the Committees of which he or she was a member during 1996.
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 1996 and
was composed of Mr. Kennedy (Chairman), Messrs. Becton, Crowther, Jones, 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 three times during 1996 and was 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 met once during the year and was composed of Mr. Jones (Chairman)
and Messrs. Crowther, Kennedy, Rooney and Wade.
The Corporate Governance & 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. This Committee may recommend policies and procedures
relating to corporate governance and is responsible for the monitoring of such
policies and procedures when established. This Committee met three times
during the year and was composed of Mr. McCormack (Chairman), Messrs. Becton,
Birck, Leet, 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,
1997 by letter addressed to The Secretary, Illinois Tool Works Inc., 3600 West
Lake Avenue, Glenview, IL 60025. Such letter must set forth: (a) the name and
address of the Stockholder who intends to make the nomination; (b) the name,
age and business and
4
<PAGE> 6
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.
Directors' Compensation
Compensation for non-employee directors has three components, the
first being paid in cash and the remaining two being tied to the price of 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 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 interests of the stockholders.
In 1992 incumbent non-officer directors received 300 shares of the Company's
Common Stock and in 1995 they received 900 such shares pursuant to a restricted
stock grant program. One-third of these latter shares vested on January 2,
1996, one-third vested on January 2, 1997 and the remaining one-third will vest
on the first business day of 1998, except that all shares vest upon the death
or retirement of the director. Under the program a non-officer director who
joins the Board between January 3, 1995 and January 2, 1998 receives 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 in 1995 are included in the table under
"Security Ownership," as are shares granted in 1992.
Third, in 1995 the Company adopted a phantom stock plan for
non-officer directors which grants to each such director 1,000 units of phantom
stock. (Certain long-term directors with short remaining service periods until
retirement received a higher number.) 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. 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.
Harold B. Smith has entered into a one-year agreement with the Company
providing for a consulting fee of $85,000.
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<PAGE> 7
Security Ownership
The following table sets forth information regarding ownership of the Company's
Common Stock as of December 31, 1996 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'
Amount and Nature of Phantom Stock Percent of
Name of Beneficial Owner 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 1,731 *
Michael J. Birck 300(3) 1,003 *
Marvin D. Brailsford 300(3) 1,000 *
Susan Crown 3,900(4) 1,010 *
H. Richard Crowther 196,517(5)(6) 1,086 *
L. Richard Flury 600 1,010 *
Richard M. Jones 5,500 1,731 *
George D. Kennedy 1,760 1,731 *
Richard H. Leet 4,500 1,731 *
Robert C. McCormack 7,259,150(7)(8) 1,010
Phillip B. Rooney 5,816 1,010 *
Harold B. Smith 19,546,756(8)(9) -
Ormand J. Wade 1,900 1,010 *
Executive Officers
W. James Farrell 122,462(6)(10) *
Russell M. Flaum 49,169(6)(11) *
Frank S. Ptak 93,838(6) *
F. Ronald Seager 92,417(6)(12) *
Hugh J. Zentmyer 16,742(6)(13) *
Directors, Nominees and All Executive
Officers as a Group (26 Persons) 20,303,735(6)
Other Principal Beneficial Owners
Edward Byron Smith, Jr. 7,257,996(14)
The Northern Trust Company (15)
</TABLE>
- - -----------
*Less than 1% of Class
(1) Unless otherwise noted, ownership is direct.
(2) Represents units of phantom stock and dividend equivalents earned 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) Represents 300 shares of restricted stock granted on January 2, 1997
under the Directors' Restricted Stock Plan.
(4) Includes 1,000 shares owned in a trust as to which Ms. Crown shares
voting and investment power.
(5) Includes 160,987 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, 1996 as follows: Mr. Crowther, 30,620; Mr. Farrell,
82,496; Mr. Flaum, 29,800; Mr. Ptak, 57,000; Mr. Seager, 65,000; Mr.
Zentmyer, 16,000; and directors, nominees and executive officers as a
group, 413,491.
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<PAGE> 8
(7) 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 0,000,000 shares as described in Footnote
8.
(8) Robert C. McCormack, Edward Byron Smith, Jr., Harold B. Smith and The
Northern Trust Company are trustees of twelve trusts owning 7,255,190
shares as to which they share voting and investment power.
(9) Includes 197,338 shares held in a revocable living trust as to which
Harold B. Smith has sole voting and investment power; 10,825,732
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; 7,255,190 shares as described in Footnote 8; and
42,256 shares owned by a charitable foundation of which he is a director.
(10) Includes 1,225 shares held by Mr. Farrell as custodian for his minor
child and 850 shares owned by his wife, as to both of which Mr.
Farrell disclaims beneficial ownership; 10,691 shares held in a revocable
living trust; and 24,000 shares owned in a partnership as to which Mr.
Farrell shares voting and investment powers with his wife.
(11) Includes 702 shares allocated to Mr. Flaum's account in the Company's
Savings and Investment Plan.
(12) Includes 10,876 shares held in a revocable living trust as to which
Mr. Seager has sole voting and investment power and 1,038 shares owned
by his wife, as to which Mr. Seager disclaims beneficial ownership.
(13) Includes 209 shares held in a revocable living trust and 533 shares
allocated to Mr. Zentmyer's account in the Company's Savings and
Investment Plan.
(14) Includes 10,874 shares owned in a trust as to which Edward Byron Smith,
Jr. has sole voting and investment power; 96,206 shares owned in a
trust as to which The Northern Trust Company has sole voting and
investment power; 105,992 shares owned in three trusts as to which Mr.
Smith shares voting and investment power; and 7,255,190 shares as
described in Footnote 8. Also includes the following shares held for
the benefit of Mr. Smith's children: 58,580 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 sister share voting and
investment power; and 4,400 shares owned in two trusts as to which Mr.
Smith's sister shares voting and investment power.
(15) Including its holdings as trustee described in Footnotes 7, 8, 9 and 14,
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 23,570,704 shares. They have sole voting power with
respect to 8,962,471 shares and share voting power with respect to
8,367,252 shares. They have sole investment power with respect to
1,700,207 shares and share investment power with respect to 19,065,931
shares. In addition, The Northern Trust Company holds in other
accounts, but does not beneficially own, 0,000,000 shares, resulting
in aggregate holdings by The Northern Trust Company of 00,000,000
shares (00.0%).
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, who founded the
Company in 1912.
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.
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<PAGE> 9
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------- --------------
Annual Compensation Awards Payouts
---------------------- ------------------------- --------------
Securities
Name and Other Annual Restricted Underlying LTIP All Other
Principal Salary Bonus Compensation Stock Options Payouts Compensation
Position Year ($) (1) ($) (1) (2) ($) (3) Awards ($) (4) (#) ($) ($)
- - ------------------------------------------------------------- ------------------------- -------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. James Farrell 1996 453,754 500,000 - - 200,000 (5) - 40,808 (6)(7)(8)
Chairman and Chief 1995 317,212 370,000 - - 60,000 - 38,000
Executive Officer 1994 250,850 291,200 - 1,400,000 - - 9,236
Frank S. Ptak 1996 255,261 275,000 - - - - 11,429 (6)(7)
Vice Chairman & 1995 219,397 219,670 - - 30,000 - 10,252
Executive Vice
President 1994 192,165 195,000 - 1,400,000 - - 7,320
F. Ronald Seager 1996 218,801 204,580 - - - - 12,160 (6)(7)
Executive 1995 209,501 206,150 - - 30,000 - 11,306
Vice President 1994 199,606 182,608 - 875,000 - - 7,733
Russell M. Flaum 1996 208,082 209,195 - - - - 6,411 (6)(7)
Executive 1995 199,452 195,000 - - 15,000 - 6,364
Vice President 1994 179,660 176,540 - 875,000 - - 5,074
Hugh J. Zentmyer 1996 184,000 179,358 - - - - 7,461 (6)(7)
Executive 1995 170,110 120,435 - - 12,000 - 6,990
Vice President 1994 139,925 67,968 - - 8,000 - 4,849
</TABLE>
8
<PAGE> 10
(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 or 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, 1996 for each of the
officers were: Mr. Farrell, 32,000 shares ($2,556,000); Mr. Ptak, 32,000
shares ($2,556,000); Mr. Seager, 20,000 shares ($1,597,500); and Mr.
Flaum, 20,000 shares ($1,597,500). 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) On December 30, 1996 Mr. Farrell transferred 24,000 unvested
restricted shares to the JM Investment Partners, L.P., a family
partnership comprised of W. James Farrell and Maxine P. Farrell.
(6) Includes company matching contributions to the Executive Officers'
accounts in the 1993 Executive Contributory Retirement Income Plan.
For 1996 the amounts are: Mr. Farrell, $13,613; Mr. Ptak, $7,658;
Mr. Seager, $6,564; and Mr. Zentmyer, $5,535. The Company matching
contribution to Mr. Flaum's Savings and Investment Plan account was
$4,500.
(7) Includes interest credited on deferred compensation in excess of 120%
of the Applicable Federal Long Term Rate. For 1996 the amounts are:
Mr. Farrell, $4,074; Mr. Ptak, $3,771; Mr. Seager, $5,596; Mr. Flaum,
$1,911; and Mr. Zentmyer $1,926.
(8) Includes $23,121 representing imputed income for 1996 on Mr. Farrell's
outstanding home loan balance.
<PAGE> 11
As of March 1, 1997, W. James Farrell, the Company's Chief Executive
Officer, was indebted to the Company in the Amount of $355,000 (formerly
$420,000) arising out of a second mortgage on a home loan made in 1995 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 28, 1997, Mr. Farrell had a loan outstanding for $88,938 payable
December 31, 2000, bearing interest at a rate of 5.91% per annum and secured by
3,200 shares of common stock of the Company. The five-year term of the
promissory note is renewable, but the note is repayable 180 days following
termination of employment with the Company (or immediately if termination is
for gross or willful misconduct) and upon bankruptcy, insolvency or death of
the employee or breach of the terms of the note or the pledge agreement.
----------------
The table below sets forth information as to options granted during
1996 to the Executive Officers listed in the Summary Compensation Table.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term (1)
- - -------------------------------------------------------------------- -------------------------------------
% of
Number of Total
Securities Options
Underlying Granted to Exercise or Expira-
Options Employees Base Price tion
Name Granted (#) in 1996 ($/Sh) Date 0% ($) 5% ($) 10% ($)
- - -------------------------------------------------------------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
W. J. Farrell 200,000(2)(3) 95% 66.75 05/03/06 0 8,395,743 21,276,462
Frank S. Ptak ---
F. Ronald Seager ---
Russell M. Flaum ---
Hugh J. Zentmyer ---
</TABLE>
(1) The dollar amounts under these columns are the result of calculations at
0% and at the 5% and 10% rates set by the Securities and Exchange
Commission. They are therefore not intended to forecast possible future
appreciation, if any, of the Company's Common Stock price and do not
reflect any income tax liability of the individual recipients nor the time
value of money. The Company did not use an alternative formula for a grant
date valuation as the Company is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors.
(2) These grants become exercisable as to 20% of the shares underlying the
options on each of the first five anniversaries of the grant, and are
generally fully exercisable after the first anniversary in the event of
disability or death. A restorative option right applies to these grants.
(3) On December 30, 1996, Mr. Farrell transferred 151,223 of these options to
the JM Investment Partners, L.P. composed of W. J. Farrell and Maxine
P. Farrell.
----------------
9
<PAGE> 12
The table below sets forth information as to option exercises during
1996 as well as the number and value of unexercised options as of December 31,
1996 for the Executive Officers listed in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN 1996
AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year End (#) at Year End ($)(1)
Shares ------------- -------------
Acquired Value Exer- Unexer- Exer- Unexer-
Name on Exercise (#) Realized ($) cisable cisable cisable cisable
- - -------------------- --------------- -------- ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
W. James Farrell (2) - - 82,496 252,500 4,251,203 3,834,375
Frank S. Ptak - - 57,000 30,000 2,615,438 767,406
F. Ronald Seager 5,000 257,000 65,000 30,000 3,039,063 767,406
Russell M. Flaum - - 29,800 15,000 1,337,069 383,906
Hugh J. Zentmyer - - 16,000 14,000 646,625 376,625
</TABLE>
(1) Based on the year-end closing market price of the Company's Common Stock
($79.875).
(2) Includes 151,223 May 3, 1996 options which were transferred to the J M
Investment Partners, L.P. on December 30, 1996. This is a family
partnership comprised of W. James Farrell and Maxine P. Farrell.
10
<PAGE> 13
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, 1996 for the five most highly
compensated Executive Officers were as follows: Mr. Farrell, 31.5 years;
Mr. Ptak, 21.1 years; Mr. Flaum, 21.2 years; Mr. Seager, 16.6 years; and
Mr. Zentmyer, 28.6 years.
(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. Two 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. Farrell, $113,529 and Mr. Seager,
$68,266.
11
<PAGE> 14
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, 1996 was a compounded annual rate of return of 21.5%. This return
compares to the Standard & Poor's 500 Index of 15.2% and the Standard & Poor's
Diversified Manufacturing Index of 16.7% 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 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 1996, however, the base salary and total compensation
for the CEO 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 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 1996 was
approximately 96% of the maximum award. These awards reflected the Company's
fifth straight all-time high earnings performance and the accomplishment of
financial and personal objectives by the Executive Officers.
A stock incentive plan is provided as a component of the Committee's
long-term, performance-based compensation philosophy. The CEO and other
Executive Officers participate in this 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.
12
<PAGE> 15
In 1995 the Board of Directors and the Compensation Committee
furthered their objective of aligning the interests of Executive Officers and
directors with those of the stockholders by approving 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 time; 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
directors' phantom stock plan.
Compensation deduction limitations under Section 162 of the Internal
Revenue Code have been addressed by the Committee through the limits inserted
in the 1996 Stock Incentive Plan and Executive Incentive Plan.
Richard H. Leet, Chairman
L. Richard Flury, Member
Robert C. McCormack, Member
Phillip B. Rooney, Member
Ormand J. Wade, Member
Performance Graph
<TABLE>
<CAPTION>
2-TRAC - ZACKS TOTAL RETUREN ANNUAL COMPARISON - PAGE 1
============================================================================================
PREPARED FOR : ILLINOIS TOOL W
PREPARED ON : FEBRUARY 5, 1997
5 YEAR CUMULATIVE TOTAL RETURN SUMMARY
============================================================================================
STARTING
BASIS
DESCRIPTION 1991 1992 1993 1994 1995 1996
- - -------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ILLINOIS TOOL W (%) 3.81 21.10 14.01 36.42 36.76
ILLINOIS TOOL W ($) $100.00 $103.81 $125.72 $143.33 $195.54 $267.42
S & P 500 (%) 7.62 10.08 1.32 37.58 22.96
S & P 500 ($) $100.00 $107.62 $118.46 $120.03 $165.13 $203.05
S & P MANUFACTURING - DIVERSIFIED (%) 8.39 21.40 3.51 40.81 37.81
S & P MANUFACTURING - DIVERSIFIED ($) $100.00 $108.39 $131.58 $136.21 $191.79 $264.30
</TABLE>
NOTE: Data complete through last fiscal year.
NOTE: Corporate Performance Graph with peer group uses peer group only
performance (excludes your company)
NOTE: Peer group indices use beginning of period market capitalization
weighting.
* Assumes that the value of investment in Illinois Tool Works Inc. Common
Stock and each index was $100 on December 31, 1991 and that all
dividends were reinvested. Total returns are based on market
capitalization.
13
<PAGE> 16
Proposal 2
Proposal to Amend Article Fourth of the Restated Certificate of Incorporation
General
On February 14, 1997, the Board of Directors of the Company authorized
a two-for-one split of the Common Stock, to be effected in the form of a stock
dividend of one share for each share outstanding on the record date, subject to
stockholder approval of an increase in the number of authorized shares of
Common Stock. Without an increase, there would be an insufficient number of
shares to effect the stock split. Accordingly, the Board of Directors
recommends that action be taken by stockholders to amend the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock from 150,000,000 to 350,000,000 shares. In addition, the Board of
Directors determined that the Company would benefit financially from an
increase in the par value of the Common Stock from no par value to $.01 par
value per share and authorized such change, also subject to stockholder
approval.
The amendment to the first paragraph of Article Fourth of the Restated
Certificate of Incorporation adopted by the Board of Directors, which
stockholders are being asked to approve, reads as follows:
"FOURTH.
(1) Authorized Shares. The total number of shares of stock of all
classes which the corporation shall have authority to issue is three
hundred fifty million three hundred thousand (350,300,000), of which
three hundred thousand (300,000) shall be shares of Preferred Stock,
without par value, and three hundred fifty million (350,000,000) shall
be shares of Common Stock, par value $.01 per share. Each share of
the Company's Common Stock with no par value represented by a stock
certificate issued prior to the effective date shall be deemed
converted into one share of the Company's Common Stock, par value $.01
per share."
The two changes effected by the amendment to the first paragraph of
Article Fourth of the Restated Certificate of Incorporation, an increase in the
number of authorized shares and an increase in the par value, are discussed in
greater detail below.
Increase in Number of Authorized Shares of Common Stock
As of March 11, 1997, there were no shares of Preferred Stock issued
and outstanding. As of the same date, there were 124,531,549 shares of Common
Stock issued and outstanding (exclusive of Treasury shares) and
shares of Common Stock reserved for issuance in connection with the Directors'
Restricted Stock Plan and the Company's Stock Incentive Plan. Thus, as of
March 11, 1997, the maximum number of unreserved shares of Common Stock that
could be issued (including Treasury shares) was , a number
insufficient to effect the two-for-one stock split, payable in the form of a
stock dividend.
Approval of the proposed amendment, after giving effect to the stock
split, would result in there being 249,063,098 shares of Common Stock
outstanding (based on the number of outstanding shares on March 11, 1997), and
100,936,902 shares of Common Stock remaining for future issuance. The
holders of the Company's Common Stock have no preemptive rights to subscribe
for or to acquire any additional issues of Common Stock or securities
convertible into or entitling the holder to purchase shares of Common Stock.
The additional shares of Common Stock sought by the amendment will be
available for issuance without further action by stockholders unless such
action is required by applicable law or the rules of any stock exchange on
which the Company's securities may then be listed.
14
<PAGE> 17
The New York Stock Exchange currently requires specific stockholder approval as
a prerequisite to listing shares in several instances, including an acquisition
transaction in which the issuance of shares could result in an increase of 20%
or more in the number of shares of Common Stock outstanding.
The Company intends to apply for the listing on the New York Stock
Exchange and the Chicago Stock Exchange of the additional shares of Common
Stock to be issued in connection with the stock split payable in the form of a
stock dividend.
The Board of Directors is of the opinion that the proposed increase in
the number of authorized shares of Common Stock is in the best interests of the
Company and its stockholders. The Board anticipates that the increase in the
number of outstanding shares of Common Stock as a result of the stock split,
payable in the form of a stock dividend, may place the market price of the
Company's Common Stock in a range more attractive to investors and may result
in a broader market for the stock. In addition, the Board of Directors
believes that the Company should have sufficient authorized but unissued shares
for issuance in connection with future employee benefit programs, mergers,
acquisitions, and other corporate purposes. In many such situations prompt
action may be required which would not permit seeking stockholder approval in a
timely fashion to authorize additional shares for the specific transaction.
Although the additional shares of Common Stock would provide future
flexibility, the Company has no present plans for their use.
The reasons for seeking an increase in the number of authorized
shares of Common Stock are not intended for anti-takeover purposes.
Nevertheless, securities rules require disclosure of charter and by-law
provisions that could have an anti-takeover effect. The Company's Restated
Certificate of Incorporation contains the following provisions: (1) the Board
of Directors has the authority to issue one or more series of preferred stock
up to a maximum of 300,000 shares; (2) stockholders may not take action by
written consent; (3) a special meeting of stockholders may only be called by
the chairman, the president, or a majority of the Board of Directors; and (4)
certain business combinations require approval by a two-thirds vote of the
stockholders. These provisions could permit the Board of Directors to place
stock in friendly hands, delay or deter or otherwise make more difficult a
takeover of the Company. While permitted under Delaware law, the Company's
charter and by-laws do not provide stockholders with cumulative voting.
To effect the two-for-one stock split, payable in the form of a stock
dividend, the number of authorized shares of Common Stock must be increased.
In the opinion of the Board of Directors, such an increase is in the best
interests of stockholders.
Increase in the Par Value of the Shares of Common Stock
As part of the amendment to Article Fourth of the Restated Certificate
of Incorporation, the Board of Directors also authorized an increase in the par
value of the Common Stock from no par value to $.01 par value per share,
subject to stockholder approval. Under the laws of the State of Delaware, the
state in which the Company is incorporated, a corporation may have par or no
par value stock. The fees charged by the State of Delaware when a corporation
increases the number of authorized shares are higher if the corporation has no
par value stock than if the corporation has par value stock. Therefore, each
time the Company increases the number of authorized shares of Common Stock, the
Company incurs unnecessarily high fees. In addition, some states impose
qualification or licensing fees on foreign corporations to transact business in
such states based upon the authorized capital stock of a corporation. In
certain states, the rates at which qualification or licensing fees are assessed
differ, depending upon whether the shares of the corporation are with or
without par value, with nominal par value shares being assessed at a lower rate
than no par value shares. The Company anticipates that a change from no par
value to $.01 par value Common Stock will save the Company costs and thus
benefit the stockholders.
The increase in par value of the Company's Common Stock from no par
value to $.01 par value per share, as proposed by the amendment to Article
Fourth of the Company's Restated Certificate of Incorporation, will have no
effect on any of the rights and privileges now
15
<PAGE> 18
possessed by holders of Common Stock.
If the proposal to amend Article Fourth of the Restated Certificate of
Incorporation is adopted, an amount equal to the aggregate par value of the
shares of Common Stock issued in the stock split, payable in the form of a one-
for-one stock dividend, would be transferred from surplus (referred to as
"Income reinvested in the business" in the Company's financial statements) to
stated capital (designated as the Company's Common Stock account in the
financial statements).
If adopted, the amendment to Article Fourth of the Restated
Certificate of Incorporation will be effective at the close of business on the
date of filing the amendments to the Certificate of Incorporation with the
Delaware Secretary of State. The Company anticipates that the filing will
occur on May 12, 1997. Stockholders of record at the close of business on
the filing date would receive an additional stock certificate, par value $.01
per share, representing one additional share of Common Stock for each share
held. Stockholders would retain certificates issued prior to such date, and
those certificates would continue to represent the same number of shares, but
would be deemed to have a par value of $.01 per share. Certificates should not
be returned to the Company or its transfer agent. The Company anticipates that
certificates representing additional shares to be issued to entitled
stockholders would be mailed on or about May 27, 1997.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENT
TO ARTICLE FOURTH OF THE RESTATED CERTIFICATE OF INCORPORATION WHEREBY THE
NUMBER OF AUTHORIZED SHARES AND THE PAR VALUE OF THE COMMON STOCK WOULD BE
INCREASED.
Proposal 3
A proposed stockholder resolution concerning splitting the offices of
Chairman of the Board and Chief Executive Officer.
The United Paperworkers International Union, record owner of 101
shares of the Company's common stock out of 124,531,549 outstanding, has
given the Company notice that it intends to sponsor the following proposal for
action at the meeting:
Shareholder Proposal
RESOLVED, that the shareholders of Illinois Tool Works (the "Company")
hereby direct the Board of Directors to amend the corporate bylaws to provide
that the positions of Chairman of the Board and Chief Executive Officer shall
not be held by the same individual, and that the Chairman shall be selected
from among the outside, non-employee directors.
Supporting Statement
We believe that shareholders are best served by a Board of Directors
whose chairman is chosen from among the independent, outside directors. Such a
person brings objectivity and a unique perspective to the position.
Currently, the bylaws provide that the Chairman shall be the Chief
Executive Officer of the corporation. The CEO, however, is an employee of the
Company who reports to the Board, and therefore is Chairman of the very same
Board to which he is supposed to be accountable.
The Board's functions include evaluating the performance of management
and setting executive compensation, including that of the CEO. Where the
Chairman and the CEO are the same person, however, we believe the Board's
ability to effectively evaluate and oversee management is compromised. How can
one person who serves as both Chairman and CEO evaluate his own performance?
16
<PAGE> 19
Indeed from September 1995 until May 1996, our Board of Directors
designated different persons to be Chairman and CEO, even though this required
the Board to amend the corporate bylaws during that time period. This occurred
when the Board permitted the Company's former CEO to continue as Chairman for
eight months after the selection of the new CEO.
Clearly this demonstrates the Board's belief that separating the
positions of Chairman and CEO is a workable practice. We believe it would be
an even better practice for the Chairman to be selected from among the outside,
independent directors.
Certainly shareholders have no role to play in the day-to-day
operation of our Company. We rely on management to operate the Company, and we
expect the directors to oversee management. This system of checks and balances
can be compromised, however, when the same person is both CEO and Chairman of
the Board.
The Company's Position
The Board of Directors recommends that shareholders vote Against this proposal.
Effective Board oversight of management - the purpose of the proposal
- - - already exists at Illinois Tool Works Inc. A substantial majority of the
Company's directors are and for many years have been independent, outside, non-
employee directors. The Compensation Committee, which is responsible for
evaluating the performance of senior management, including the Chairman and
CEO, is composed entirely of independent directors thereby assuring objectivity
of performance evaluations and compensation decisions. The Committee's report,
including the bases upon which the Chairman and CEO's performance is evaluated,
appears elsewhere in this proxy statement.
Adoption of this proposal would limit the Board's flexibility and
ability to select the best person to serve as chairman. At times, such as in
connection with succession planning or in anticipating and responding to a
crisis, it may be appropriate to separate the positions. But the Board must be
free to make the best choice for the Company at a given point in time based
upon the needs of the Company and the people available to meet those needs.
No meaningful measure of independence would be provided by adoption of
this proposal. The interests of the Company and its shareholders currently are
best served by the experienced, consistent direction and ability for decisive
action afforded by a full-time chairman and CEO who is subject to oversight by
the Company's independent directors. Both the Performance Graph and the
Compensation Committee Report, as well as the Annual Report being circulated to
the stockholders, demonstrate the strong record over the last five and ten year
periods that the Company has compiled under its present form of corporate
governance.
THE BOARD OF DIRECTORS OPPOSES PROPOSAL 2 AND RECOMMENDS A VOTE
AGAINST IT.
Proxies solicited by the Board of Directors will be so voted unless
stockholders direct otherwise on the proxy card.
Stockholder Proposals and Nominations
Stockholder proposals intended to be presented at the 1998 Annual
Meeting must be received by the Secretary of the Company on or before November
25, 1997 and stockholder nominations of directors must be received by the
Secretary prior to December 31, 1997.
17
<PAGE> 20
Independent Public Accountants
Arthur Andersen LLP has been the Company's independent public
accounting firm since 1951. During 1996 the Company engaged Arthur Andersen
LLP to examine the Company's annual financial statements, review ITW 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 1997.
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 1996 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
March 25, 1997
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 1996 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.
18
<PAGE> 21
1
ILLINOIS TOOL WORKS INC.
3600 WEST LAKE AVENUE, GLENVIEW, ILLINOIS 60025
ANNUAL MEETING OF STOCKHOLDERS MAY 9, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned stockholder of Illinois Tool Works Inc. hereby appoints Susan
Crown, 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 9, 1997 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> 22
2
ILLINOIS TOOL WORKS INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
1. ELECTION OF DIRECTORS
Nominees: M.J. Birck, M.D. Brailsford, S. Crown, H.R. Crowther, W.
J. Farrell, L.R. Flury, R.C. McCormack, P.B. Rooney, H.B. Smith,
O.J. Wade
2. APPROVAL OF PROPOSAL TO AMEND ARTICLE FOURTH OF THE RESTATED
CERTIFICATE OF INCORPORATION
3. TO ACT ON A STOCKHOLDER PROPOSAL CONCERNING SPLITTING THE POSITIONS OF
CEO AND CHAIRMAN
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 PROPOSAL TO AMEND ARTICLE
FOURTH OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION, AND TO
DISAPPROVE THE STOCKHOLDER PROPOSAL, 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 1997
---------------------
---------------------------------------------
Signature
---------------------------------------------
Signature
ANNUAL MEETING MAY 9, 1997 PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY
