<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:
[ ] 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 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 Rules 14a-6(i)(1) 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:
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<PAGE> 2
ILLINOIS TOOL WORKS INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held Friday, May 8, 1998
To the Stockholders:
The Annual Meeting of the Stockholders of Illinois Tool Works Inc., a
Delaware corporation, will be held on Friday, May 8, 1998 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, and
(2) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors recommends a vote IN FAVOR of each of the director
nominees.
The Board of Directors set March 10, 1998 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 1997 is being mailed to stockholders with
this Notice.
By Order of the Board of
Directors
STEWART S. HUDNUT
Secretary
Glenview, Illinois
March 26, 1998
IMPORTANT -- PLEASE MAIL YOUR SIGNED PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
<PAGE> 3
ILLINOIS TOOL WORKS INC.
3600 WEST LAKE AVENUE
GLENVIEW, ILLINOIS 60025
MARCH 26, 1998
PROXY STATEMENT
For the Annual Meeting of Stockholders of Illinois Tool Works Inc.
To Be Held on May 8, 1998
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 8, 1998 and is being mailed to stockholders on or
about March 26, 1998.
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 that the Board of
Directors intends to present or knows will be presented is the election of
directors. The proxy also 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 10, 1998, the record date for the Annual Meeting, the Company
had issued and outstanding 249,760,628 shares of Common Stock, $.01 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.
Election of Directors
Ten directors of the Company are to be elected to hold office until the
next annual meeting, 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 Corporate Governance and Nominating Committee and the Board of Directors are
recommending this slate. Set forth below are the name, age, principal occupation
and other information concerning each nominee.
1
<PAGE> 4
<TABLE>
<S> <C>
MICHAEL J. BIRCK PHOTO MICHAEL J. BIRCK (59)
Founder, and President and Chief Executive Officer since
1975, of Tellabs, Inc. 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 MARVIN D. BRAILSFORD (59)
PHOTO Vice President of Kaiser-Hill Company LLC (construction
and environmental services) since 1996, founder and
President of the Brailsford Group (acquisition consulting)
from 1995 to 1996, and President of Metters Industries
(information technology) 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 PHOTO SUSAN CROWN (39)
Vice President, Henry Crown and Company since 1984, a
family owned and operated company with investments in
securities, real estate and manufacturing operations. Ms.
Crown is a director of Baxter International Inc. and
Northern Trust Corporation and its subsidiary, The
Northern Trust Company. She is also a trustee of The Yale
Corporation. She has been a director of the Company since
1994.
H. RICHARD CROWTHER H. RICHARD CROWTHER (65)
PHOTO Former Vice Chairman of the Company from 1990 through
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 PHOTO W. JAMES FARRELL (55)
Chairman since 1996 and Chief Executive Officer of the
Company since 1995. Mr. Farrell served as President from
1994 until 1996 and as Executive Vice President from 1983
to 1994. He has a total of 32 years service with the
Company. Mr. Farrell is a director of Morton
International, Inc., Premark International, Inc. and the
Quaker Oats Company, and has been a director of the
Company since 1995.
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C>
L. RICHARD FLURY L. RICHARD FLURY (50)
Executive Vice President, Amoco Corporation (energy and
chemicals) since 1996, formerly Senior Vice President for
Shared Services from 1994 through 1995 and Executive Vice
[PHOTO] President, Amoco Chemical Co., from 1991 to 1994, with a
total of 27 years service with Amoco. Mr. Flury is a
director of the Illinois Coalition, North Central College
and the Field Museum, and has been a director of the
Company since 1995.
ROBERT C. MCCORMACK ROBERT C. MCCORMACK (58)
Partner, Trident Capital LP(venture capital) since 1993;
Assistant Secretary of the Navy from 1990 to 1993; Deputy
Under Secretary of Defense from 1987 to 1990; and Managing
[PHOTO] 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 of the Company from
1978 through 1987.
PHILLIP B. ROONEY PHILLIP B. ROONEY (53)
Vice Chairman of The ServiceMaster Company (a network of
quality service companies). Former President of WMX
Technologies Inc. (waste management) from 1985 until 1997.
[PHOTO] Mr. Rooney is a director of The ServiceMaster Company,
Urban Shopping Centers Inc. and Stone Container
Corporation, and a Trustee of the Van Kampen American
Capital Open-End Funds. He has been a director of the
Company since 1990.
HAROLD B. SMITH HAROLD B. SMITH (64)
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 its subsidiary, The
[PHOTO] Northern Trust Company, and a trustee of The Northwestern
Mutual Life Insurance Company. He has been a director of
the Company since 1968.
ORMAND J. WADE ORMAND J. WADE (58)
Former Vice Chairman, Ameritech Corp. (telecommunications
products and services) from 1987 to 1993 and President and
[PHOTO] 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.
</TABLE>
3
<PAGE> 6
Board of Directors and Its Committees
The Board of Directors of the Company met five times during 1997. Each
director attended at least 80% of the meetings of the Board and of the
Committees of which he or she was a member during 1997.
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 that might significantly affect the
Company's financial status. This committee met three times during 1997 and was
composed of Ms. Crown (Chairman) and Messrs. Birck, Crowther, Flury and Wade.
The Compensation Committee is responsible for administering the Company's
compensation plans and approving compensation levels for Executive Officers.
This committee met two times during 1997 and was composed of Messrs. Rooney
(Chairman), Birck, Flury, McCormack and Wade.
The Corporate Governance and Nominating Committee receives suggestions and
evaluates and recommends to the Board candidates for directors and makes
recommendations as to Board committees and the size of the Board. This committee
also recommends policies and procedures relating to corporate governance and is
responsible for monitoring such policies and procedures. It met once during 1997
and was composed of Mr. Wade (Chairman), Ms. Crown, and Messrs. Brailsford and
Smith.
The Finance Committee is responsible for reviewing and evaluating
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 1997 and was composed of Messrs. McCormack (Chairman),
Brailsford, Crowther, Rooney and Smith.
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, 1998
by letter addressed to The Secretary, Illinois Tool Works Inc., 3600 West Lake
Avenue, Glenview, IL 60025. Such letter must set forth the name and address of
the stockholder who intends to make the nomination, a statement that the nominee
is willing to be nominated and serve as a director, and the information
regarding the nominee required to be included in a proxy statement pursuant to
the proxy rules of the Securities and Exchange Commission.
Directors' Compensation
Compensation for directors has three components, the first being paid in
cash and the remaining two being tied to the Company's Common Stock.
Each non-employee director receives a $25,000 annual retainer, together
with a fee of $1,000 for each Board of Directors' meeting and committee meeting
attended. (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 until they cease to be directors. Amounts deferred
are credited with interest at current rates.
Since 1992 the directors' compensation plan has linked a portion of
compensation directly with the interests of the stockholders through periodic
awards of restricted Common Stock. In January 1998 each non-officer director
received an award of 900 restricted shares, which vest in one-third increments
on the first three anniversaries of the award and fully vest upon death or
retirement. Under the program, each non-officer director who joins the Board
after 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
until January 2001. Shares granted to directors pursuant to this program are
included in the table under "Security Ownership."
The Company also has adopted a phantom stock plan under which each
non-officer director is granted 1,000 units of phantom stock upon becoming a
director. 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
4
<PAGE> 7
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. A director is eligible for a cash distribution from his or
her phantom stock account at retirement or upon approved resignation in the form
of a lump sum or 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 a one-year agreement with the Company providing for a
consulting fee of $85,000.
Security Ownership
The following table sets forth information regarding ownership of the
Company's Common Stock as of December 31, 1997 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)
Michael J. Birck.......................... 3,500(3) 2,024 *
Marvin D. Brailsford...................... 1,900(3) 2,019 *
Susan Crown............................... 8,700(3)(4) 2,040 *
H. Richard Crowther....................... 363,327(3)(5)(6) 2,193 *
L. Richard Flury.......................... 2,100(3) 2,040 *
Robert C. McCormack....................... 14,519,200(3)(7)(8) 2,040 5.8
Phillip B. Rooney......................... 24,641(3)(9) 2,040 *
Harold B. Smith........................... 38,840,362(8)(10) -- 15.6
Ormand J. Wade............................ 4,700(3) 2,040 *
Executive Officers
W. James Farrell.......................... 320,733(6)(11) *
Russell M. Flaum.......................... 91,883(6)(12) *
Frank S. Ptak............................. 205,690(6) *
F. Ronald Seager.......................... 195,538(6)(13) *
David B. Speer............................ 45,205(6)(14) *
Directors, Nominees and All Executive
Officers as a Group (22 Persons).......... 40,445,526(6) 16.2
Other Principal Beneficial Owners
Edward Byron Smith, Jr. .................. 15,067,868(15) 6.0
The Northern Trust Company................ 46,846,170(16) 18.8
</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. Such units are not included in the "Percent of Class"
column.
(3) Includes 900 shares of restricted stock granted on January 2, 1998 under
the Directors' Restricted Stock Plan.
5
<PAGE> 8
(4) Includes 2,000 shares owned in a trust as to which Ms. Crown shares voting
and investment power.
(5) Includes 266,041 shares held in a revocable living trust as to which Mr.
Crowther shares voting and investment power and 30,107 shares owned by his
spouse, as to which Mr. Crowther disclaims beneficial ownership.
(6) Includes shares covered by stock options exercisable within 60 days of
December 31, 1997 as follows: Mr. Crowther, 27,104; Mr. Farrell, 247,992;
Mr. Flaum, 56,600; Mr. Ptak, 132,000; Mr. Seager, 145,000; Mr. Speer,
42,200; and directors, nominees and Executive Officers as a group, 924,746.
(7) Includes 400 shares owned in a trust as to which Mr. McCormack shares
voting and investment power with The Northern Trust Company and 14,510,380
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 14,510,380
shares as to which they share voting and investment power.
(9) Includes 2,000 shares owned by Mr. Rooney's spouse, as to which he
disclaims beneficial ownership.
(10) Includes 21,443,264 shares owned in twelve trusts as to which Mr. Smith
shares voting and investment power with The Northern Trust Company and
others; 2,164,480 shares owned in eleven trusts as to which he shares
voting and investment power; 14,510,380 shares as described in Footnote 8;
and 83,012 shares owned by a charitable foundation of which he is a
director.
(11) Includes 2,450 shares held by Mr. Farrell's son and 1,700 shares owned by
his spouse, as to both of which holdings Mr. Farrell disclaims beneficial
ownership, and 43,847 shares owned in a partnership as to which Mr. Farrell
shares voting and investment power.
(12) Includes 1,473 shares allocated to Mr. Flaum's account in the Company's
Savings and Investment Plan.
(13) Includes 1,976 shares owned by Mr. Seager's spouse, as to which he
disclaims beneficial ownership.
(14) Includes 800 shares allocated to Mr. Speer's account in the Company's
Savings and Investment Plan.
(15) Includes 32,932 shares owned in two trusts as to which Edward Byron Smith,
Jr. has sole voting and investment power; 192,400 shares owned in a trust
as to which The Northern Trust Company has sole voting and investment
power; 166,666 shares owned in two trusts as to which Mr. Smith shares
voting and investment power; and 14,510,380 shares as described in Footnote
8. Also includes the following shares held for the benefit of Mr. Smith's
children: 111,160 shares owned in two trusts as to which The Northern Trust
Company has sole voting and investment power; 32,080 shares held in two
trusts as to which Mr. Smith's spouse and sister share voting and
investment power; and 8,800 shares owned in two trusts as to which Mr.
Smith's sister has sole voting and investment power.
(16) Including its holdings as trustee described in Footnotes 7, 8, 10 and 15,
The Northern Trust Company and its affiliates act as sole fiduciary or
co-fiduciary of trusts and other fiduciary accounts that own an aggregate
of 46,846,170 shares. They have sole voting power with respect to
17,792,456 shares and share voting power with respect to 16,766,852 shares.
They have sole investment power with respect to 3,544,639 shares and share
investment power with respect to 38,046,475 shares. In addition, The
Northern Trust Company holds in other accounts, but does not beneficially
own, 18,634,203 shares, resulting in aggregate holdings by The Northern
Trust Company of 65,479,373 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
6
<PAGE> 9
the Securities Act of 1933, as amended. Byron L. Smith, great grandfather of
Robert C. McCormack, Edward Byron Smith, Jr. and Harold B. Smith, 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
principal pension plan. The Northern Trust Company is a wholly owned subsidiary
of Northern Trust Corporation. Harold B. Smith and Susan Crown, directors of the
Company, are also directors of both Northern Trust Corporation and The Northern
Trust Company.
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>
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($)(1) ($)(1)(2) ($)(3) ($)(4) (#) ($) ($)
--------- ---- ------- --------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
W. James Farrell 1997 499,900 600,000 -- -- 100,000 -- 48,042(5)(6)(7)
Chairman and Chief 1996 453,754 500,000 -- -- 400,000 -- 40,808
Executive Officer 1995 317,212 370,000 -- -- 120,000 -- 38,000
Frank S. Ptak 1997 288,017 293,030 -- -- 50,000 -- 14,140(5)(6)
Vice Chairman 1996 255,261 275,000 -- -- -- -- 11,429
1995 219,397 219,670 -- -- 60,000 -- 10,252
F. Ronald Seager 1997 232,562 220,980 -- -- 30,000 -- 15,155(5)(6)
Executive 1996 218,801 204,580 -- -- -- -- 12,160
Vice President 1995 209,501 206,150 -- -- 60,000 -- 11,306
Russell M. Flaum 1997 214,955 218,500 -- -- 30,000 -- 7,552(5)(6)
Executive 1996 208,082 209,195 -- -- -- -- 6,411
Vice President 1995 199,452 195,000 -- -- 30,000 -- 6,364
David B. Speer 1997 190,924 183,300 -- -- 30,000 -- 7,262(5)(6)
Executive 1996 179,507 159,480 -- -- -- -- 5,931
Vice President 1995 159,746 113,085 -- -- 24,000 -- 5,300
</TABLE>
- ---------------
(1) Actual salary or bonus earned. Includes amounts deferred under the Company's
1993 Executive Contributory Retirement Income Plan or 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) The number of unvested restricted shares previously granted under the
Company's Stock Incentive Plan and their value as of December 31, 1997 were:
Mr. Farrell, 35,200 shares ($2,116,400); Mr. Ptak, 35,200 shares
($2,116,400); Mr. Seager, 22,000 shares ($1,322,750); and Mr. Flaum, 22,000
shares ($1,322,750).
(5) Includes Company matching contributions to the 1993 Executive Contributory
Retirement Income Plan or the Savings and Investment Plan as follows: Mr.
Farrell, $14,997; Mr. Ptak, $8,641; Mr. Seager, $6,977; Mr. Flaum, $4,800;
and Mr. Speer $5,728.
7
<PAGE> 10
(6) Includes interest credited on deferred compensation in excess of 120% of the
Applicable Federal Long Term Rate as follows: Mr. Farrell, $6,193; Mr. Ptak,
$5,500; Mr. Seager, $8,178; Mr. Flaum, $2,752; and Mr. Speer $1,535.
(7) Includes $26,852 representing imputed income on Mr. Farrell's outstanding
home loan made by the Company in 1995. The maximum amount of the loan
outstanding during 1997 was $420,000, which by March 1, 1998 had been
reduced to $290,000. The imputed rate of interest on the loan is 7.34% per
annum and the loan is repayable in annual installments through the year
2000.
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,
1998, Mr. Farrell had an outstanding loan of $94,193 payable December 31, 2000,
bearing interest at a rate of 5.91% per annum and secured by 3,200 shares of
Common Stock of the Company. The five-year term of the promissory note is
renewable, but the note is repayable 180 days following termination of
employment with the Company (or immediately if termination is for gross or
willful misconduct) and upon bankruptcy, insolvency or death of the employee or
breach of the terms of the note.
In the event of a corporate change of control, each Executive Officer's
unvested restricted stock and stock options previously granted under the Stock
Incentive Plan would immediately become fully vested. In addition, the maximum
awards under the Executive Incentive Plan for the fiscal year then in progress,
prorated for the number of days in the fiscal year that have elapsed as of the
date of the change of control, would immediately be paid in cash.
------------------------
The table below sets forth information as to options granted during 1997 to
the Executive Officers listed in the Summary Compensation Table.
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE GRANT DATE VALUE
OPTIONS TO OR BASE --------------------
GRANTED EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME (#)(1) IN 1997 ($/SH) DATE PRESENT VALUE ($)(2)
---- ---------- ---------- -------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
W. James Farrell................... 100,000 8.8% 54.62 12/12/07 1,582,000
Frank S. Ptak...................... 50,000 4.4% 54.62 12/12/07 791,000
F. Ronald Seager................... 30,000 2.7% 54.62 12/12/07 474,600
Russell M. Flaum................... 30,000 2.7% 54.62 12/12/07 474,600
David B. Speer..................... 30,000 2.7% 54.62 12/12/07 474,600
</TABLE>
- ---------------
(1) These grants become exercisable as to 25% of the shares underlying the
options on each of the first four anniversaries of the grant, and are
generally fully exercisable after the first anniversary in the event of
retirement, disability or death. A restorative option right applies to
these grants so long as the option holder is employed by the Company.
(2) The estimated fair value of each option granted is calculated using the
Black-Scholes option pricing model. The assumptions used in the model are:
risk-free interest rate (5.9%); expected stock volatility (21.7%); dividend
yield (1.29%); and expected years until exercise (5.5).
8
<PAGE> 11
The table below sets forth information as to option exercises during 1997
as well as the number and value of unexercised options as of December 31, 1997
for the Executive Officers listed in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN 1997
AND 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT YEAR END(#) AT YEAR END($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. James Farrell........... 42,000 1,594,313 247,992 480,000 8,664,101 10,910,500
Frank S. Ptak.............. 12,000 520,583 132,000 80,000 5,371,124 1,175,250
F. Ronald Seager........... 15,000 678,444 145,000 60,000 5,972,968 1,065,150
Russell M. Flaum........... 18,000 585,750 56,600 45,000 2,233,025 615,150
David B. Speer............. 5,000 186,563 42,200 46,000 1,620,800 684,150
</TABLE>
- ------------
(1) Based on the closing market price ($60.125) of the Company's Common Stock on
December 31, 1997.
RETIREMENT PLANS
The Company's principal non-contributory defined benefit pension plan
covers approximately 15,000 domestic business unit employees, including
Executive Officers. 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 on those benefits contained in the Internal Revenue Code
of 1986. Supplemental payments in excess of those limitations will be made under
a Board approved plan to participants designated by the Compensation Committee
in order to maintain their retirement benefits 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
</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, 1997 for the five most highly
compensated Executive Officers were as follows: Mr. Farrell, 32.5 years;
Mr. Ptak, 22.1 years; Mr. Seager, 17.6 years; Mr. Flaum, 11.0 years; and
Mr. Speer, 19.5 years.
(3) Compensation includes all amounts shown under the columns "Salary" and
"Bonus" in the Summary Compensation Table.
Under the Company's 1982 Executive Contributory Retirement Income Plan,
annual benefits payable beginning at the normal retirement age of 65 for 15
years are as follows: Mr. Farrell, $113,529 and Mr. Seager, $68,266.
9
<PAGE> 12
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors, composed of
independent 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 the contribution of
management 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, 1997
was a compounded annual rate of return of 23.5%. This return compares to the
Standard & Poor's 500 Index of 18.0% and the Standard & Poor's Diversified
Manufacturing Index of 20.1% for the comparable period.
Annual compensation of Executive Officers is comprised of base salary and
an incentive bonus. The Committee's compensation philosophy requires that the
incentive bonus opportunity be performance-based and represent a significant
portion of total annual compensation. This philosophy provides performance
incentives that can provide above the median total compensation. In 1997,
however, the base salary and total compensation for the CEO and other Executive
Officers were below the median of the peer group.
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.
Base Salary. In establishing the base salary of the Chief Executive Officer
(CEO) and other Executive Officers, the Committee considers compensation data
relating to comparable industrial companies ("peer group") obtained annually
from the Company's compensation consultants. 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 philosophy of the Committee is to target base salaries of the CEO
and other Executive Officers near the median of the peer group.
Bonus. 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. For the CEO and
certain Executive Officers, one-half of their maximum bonus opportunity is
directly related to the Company's net income and one-half to their individual
performance measured against predetermined management goals. For the Vice
Chairman and Executive Vice Presidents, one-eighth of their maximum bonus
opportunity is based upon the Company's net income, three-eighths is based upon
their respective operating incomes, and the remaining one-half is based on the
individual's performance measured against predetermined management goals. For
1997 the average bonus awarded to Executive Officers was approximately 97% of
the maximum award. These awards reflected the Company's sixth consecutive record
earnings performance and the accomplishment of financial and personal objectives
by the Executive Officers.
Stock Incentive. 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 an 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 are
priced at fair market value on the date of grant. 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.
10
<PAGE> 13
In 1995 the Board of Directors and the Compensation Committee, in
furtherance of their objective of aligning the interests of Executive Officers
and directors with those of the stockholders, approved stock ownership
guidelines for elected and appointed corporate officers, as well as non-officer
Board members. These guidelines call for stock ownership stated as a multiple of
officers' base salaries and of directors' annual retainers as follows: CEO, five
times; Vice Chairman and 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 attaining these ownership
levels is five years.
Executive Officers may satisfy the guidelines through open market
purchases, exercise of stock options, accumulation of Common Stock in the
Company's Savings and Investment Plan, and unexercised vested options, less the
exercise price and applicable taxes. In addition, the Executive Incentive Plan
permits Executive Officers to elect to take up to 50% of annual cash bonuses in
Common Stock. In support of the principle of stock ownership, the Board approved
a loan program to aid Executive Officers 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.
The limitations on the deductibility of compensation contained in Section
162(m) of the Internal Revenue Code have been addressed in the Stock Incentive
Plan and Executive Incentive Plan by tying awards to performance related
criteria. The Committee also attempts to maintain the deductibility of other
forms of executive compensation. The compensation of Executive Officers in 1997
that was nondeductible was not material.
Phillip B. Rooney, Chairman
Michael J. Birck, Member
L. Richard Flury, Member
Robert C. McCormack, Member
Ormand J. Wade, Member
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
that the Company's Executive Officers, directors and beneficial owners of 10% or
more of the Company's Common Stock file initial reports of ownership and of
changes in ownership with the Securities and Exchange Commission and the New
York Stock Exchange. Executive Officers, directors and 10% beneficial owners are
required by securities regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's Executive Officers and
directors, the Company believes that all filing requirements were met during
1997.
11
<PAGE> 14
Performance Graph
<TABLE>
<CAPTION>
Illinois
Measurement Period Tool S&P Diversified
(Fiscal Year Covered) Works Inc. S&P 500 Manufacturing Index
<S> <C> <C> <C>
1992 100 100 100
1993 121.10 110.08 121.40
1994 138.07 111.53 125.66
1995 188.36 153.5 176.94
1996 257.60 188.68 243.84
1997 391.37 251.63 290.38
</TABLE>
* Assumes that the value of investment in Illinois Tool Works Inc. Common Stock
and each index was $100 on December 31, 1992 and that all dividends were
reinvested. Total returns are based on market capitalization. Historic price
performance is not necessarily indicative of future price performance.
Stockholder Proposals and Nominations
Stockholder proposals intended to be presented at the 1999 Annual Meeting
must be received by the Secretary of the Company on or before November 25, 1998
and stockholder nominations of directors must be received by the Secretary prior
to December 31, 1998.
Independent Public Accountants
Arthur Andersen LLP has been the Company's independent public accounting
firm since 1951. During 1997 the Company engaged Arthur Andersen LLP to examine
and report on the Company's annual financial statements, to review its unaudited
quarterly financial statements, and to 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 for 1998. Representatives of Arthur Andersen LLP will be
present at the Annual Meeting to respond to questions and to make any comments
they deem appropriate.
12
<PAGE> 15
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 1997 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 26, 1998
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 1997 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.
13
<PAGE> 16
#ITW LOGO
#RECYCLE LOGO#
THIS STATEMENT HAS BEEN PRINTED ON RECYCLED PAPER.
<PAGE> 17
ILLINOIS TOOL WORKS INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
[ ]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For All
For Abstain Except
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
Vote Withheld for the Norminee(s)
____________________________________
2. 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 REC-
OMENDS A VOTE FOR ITEM 1, 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. Executor, administrators, trustees, officers, etc. should give full
title as such.
Dated ________________________________, 1998
Signature_____________________________
Signature_____________________________
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
ANNUAL MEETING MAY 8, 1998 PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY
</TABLE>
<PAGE> 18
ILLINOIS TOOL WORKS INC.
3600 WEST LAKE AVENUE, GLENVIEW, ILLINOIS 60025
ANNUAL MEETING OF STOCKHOLDERS MAY 8, 1998
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 8, 1998 with authority to vote
as directed by this Proxy at the meeting, and any adjournments of the meeting,
all shares of common stock of the Company registered in the name of the
undersigned.
IMPORTANT-THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
- --------------------------------------------------------------------------------
[ITW LOGO]
ILLINOIS TOOL WORKS INC.
ANNUAL MEETING OF STOCKHOLDERS
FRIDAY, MAY 8, 1998
3:00 P.M. CENTRAL TIME
THE NORTHERN TRUST COMPANY (6TH FLOOR)
50 SOUTH LASALLE STREET
CHICAGO, ILLINOIS
