-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QhMcgTY2uXHK8PYXLQBtc5iN1lrpDBlQcm6ILcMuxSeoEBc2BFAs9JIdF4WJEYOW JHFQCAtk4ho9X7r/6U2BgQ== 0000049826-96-000011.txt : 19960816 0000049826-96-000011.hdr.sgml : 19960816 ACCESSION NUMBER: 0000049826-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ILLINOIS TOOL WORKS INC CENTRAL INDEX KEY: 0000049826 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 361258310 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04797 FILM NUMBER: 96612739 BUSINESS ADDRESS: STREET 1: 3600 W LAKE AVE CITY: GLENVIEW STATE: IL ZIP: 60025-5811 BUSINESS PHONE: 8477247500 MAIL ADDRESS: STREET 1: 3600 WEST LAKE AVENUE CITY: GLENVIEW STATE: IL ZIP: 60025-5811 10-Q 1 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 06/30/96 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 ________________________________________________ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to _____________________ ________________________ Commission file number 1-4797 _____________________________ ILLINOIS TOOL WORKS INC. ________________________________________________________________________________ (Exact name of registrant as specified in its charter) Delaware 36-1258310 _______________________________________________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3600 West Lake Avenue, Glenview, IL 60025-5811 _______________________________________________________________________________ (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (847) 724-7500 __________________________ Former address: ________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ___ ___ The number of shares of registrant's common stock, without par value, outstanding at July 31, 1996: 123,785,225. Part I - Financial Information Item 1 ILLINOIS TOOL WORKS INC. and SUBSIDIARIES FINANCIAL STATEMENTS The unaudited financial statements included herein have been prepared by Illinois Tool Works Inc. and Subsidiaries (the "Company"). In the opinion of management, the interim financial statements reflect all adjustments of a normal recurring nature necessary for a fair statement of the results for interim periods. It is suggested that these financial statements be read in conjunction with the financial statements and comments on financial statements included in the Company's Annual Report on Form 10-K/A. Certain reclassifications of prior years' data have been made to conform with current year reporting. ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF INCOME (UNAUDITED) (In Thousands Except for Per Share Amounts) Three Months Ended Six Months Ended June 30 June 30 ---------------------- ---------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Operating Revenues $1,324,800 $1,095,658 $2,461,722 $2,034,203 Cost of revenues 871,156 707,104 1,626,695 1,325,772 Selling, administrative, and research and develop- ment expenses 229,429 204,819 440,500 390,140 Amortization of goodwill and other intangible assets 7,481 6,023 14,613 12,156 Amortization of retiree health care 1,742 1,742 3,484 3,484 ---------- ---------- ---------- ---------- Operating Income 214,992 175,970 376,430 302,651 Interest expense (8,075) (7,839) (14,876) (13,993) Other income 58 3,217 2,176 3,721 ---------- ---------- ---------- ---------- Income Before Income Taxes 206,975 171,348 363,730 292,379 Income taxes 76,600 65,100 134,600 111,100 ---------- ---------- ---------- ---------- Net Income $ 130,375 $ 106,248 $ 229,130 $ 181,279 ========== ========== ========== ========== Per Share of Common Stock: Net income $1.05 $ .91 $1.85 $1.55 ===== ===== ===== ===== Cash dividends: Paid $ .17 $ .15 $ .34 $ .30 ===== ===== ===== ===== Declared $ .17 $ .15 $ .34 $ .30 ===== ===== ===== ===== Average number of shares of common stock outstanding during the period 123,764 117,214 123,726 117,147 ======= ======= ======= ======= ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (UNAUDITED) (In Thousands) ASSETS June 30, 1996 December 31, 1995 - ------ ------------- ----------------- Current Assets: Cash and equivalents $ 137,199 $ 116,600 Trade receivables 852,573 741,327 Inventories 548,360 518,964 Deferred income taxes 100,802 80,005 Prepaid expenses and other current assets 87,412 75,594 ---------- ---------- Total current assets 1,726,346 1,532,490 ---------- ---------- Plant and Equipment: Land 61,445 60,486 Buildings and improvements 403,105 375,352 Machinery and equipment 1,200,508 1,076,950 Equipment leased to others 90,768 75,175 Construction in progress 45,679 32,621 ---------- ---------- 1,801,505 1,620,584 Accumulated depreciation (1,053,407) (925,643) ---------- ---------- Net plant and equipment 748,098 694,941 ---------- ---------- Investments 486,639 504,820 Goodwill 556,090 518,747 Deferred Income Taxes 176,379 118,913 Other Assets 325,318 221,407 ---------- ---------- $4,018,870 $3,591,318 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Short-term debt $ 203,218 $ 176,188 Accounts payable 232,629 221,497 Accrued expenses 506,354 391,702 Cash dividends payable 21,043 20,100 Income taxes payable 28,376 41,445 ---------- ---------- Total current liabilities 991,620 850,932 ---------- ---------- Non-current Liabilities: Long-term debt 616,815 615,557 Other 242,440 200,592 ---------- ---------- Total non-current liabilities 859,255 816,149 ---------- ---------- Stockholders' Equity: Preferred stock -- -- Common stock 267,861 239,688 Income reinvested in the business 1,895,343 1,673,320 Common stock held in treasury (1,841) (1,866) Cumulative translation adjustment 6,632 13,095 ---------- ---------- Total stockholders' equity 2,167,995 1,924,237 ---------- ---------- $4,018,870 $3,591,318 ========== ========== ILLINOIS TOOL WORKS INC. and SUBSIDIARIES STATEMENT OF CASH FLOWS (UNAUDITED) (In Thousands) Six Months Ended June 30 1996 1995 Cash Provided by (Used for) Operating Activities: Net income $229,130 $181,279 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 90,820 78,864 Change in deferred income taxes (23) (3,269) Provision for uncollectible accounts 3,444 3,596 (Gain)loss on sale of plant and equipment (1,171) (328) Income from investment properties (27,079) (10,988) Gain on sale of operations and affiliates (4,856) (502) Other non-cash items, net 552 12,717 -------- -------- Cash provided by operating activities 290,817 261,369 Changes in assets and liabilities: (Increase) decrease in-- Trade receivables (44,836) (51,055) Inventories 14,157 (36,885) Prepaid expenses and other assets (35,693) 1,035 Increase (decrease) in-- Accounts payable (25,312) (4,302) Accrued expenses 44,208 11,714 Income taxes payable (16,286) (27,369) Other, net (1,195) 8,551 -------- -------- Net cash provided by operating activities 225,860 163,058 -------- -------- Cash Provided by (Used for) Investing Activities: Acquisition of businesses(excluding cash and equivalents) and additional interest in affiliates (85,340) (131,902) Additions to plant and equipment (79,487) (73,025) Purchase of investments (4,647) (2,791) Proceeds from investments 39,283 13,074 Proceeds from sale of plant and equipment 17,242 6,033 Proceeds from sale of operations and affiliates 12,913 1,736 Other, net (8,536) (5,678) -------- -------- Net cash used for investing activities (108,572) (192,553) Cash Provided by (Used for) Financing Activities: Cash dividends paid (40,910) (34,211) Issuance of common stock 2,688 4,402 Net proceeds from short-term debt 18,803 57,983 Proceeds from long-term debt 8,875 85 Repayments of long-term debt (86,970) (1,690) Other, net 2,885 (5,039) -------- -------- Net cash (used for) provided by financing activities (94,629) 21,530 -------- -------- Effect of Exchange Rate Changes on Cash and Equivalents (2,060) 5,022 -------- -------- Cash and Equivalents: Increase (decrease)during the period 20,599 (2,943) Beginning of period 116,600 76,867 -------- -------- End of period $137,199 $ 73,924 ======== ======== Cash Paid During the Period for Interest $ 18,521 $ 13,968 ======== ======== Cash Paid During the Period for Income Taxes $139,526 $132,927 ======== ======== Liabilities Assumed from Acquisitions $203,459 $112,634 ======== ======== ILLINOIS TOOL WORKS INC. and SUBSIDIARIES COMMENTS ON FINANCIAL STATEMENTS (UNAUDITED) (1) INVENTORIES at June 30, 1996 and December 31, 1995 were as follows: (In Thousands) June 30, Dec. 31, 1996 1995 -------- -------- Raw material $155,531 $140,302 Work-in-process 82,429 84,981 Finished goods 310,400 293,681 -------- -------- $548,360 $518,964 ======== ======== (2) LONG-TERM DEBT In May 1996, the Company amended its existing revolving credit facility (RCF) to increase the maximum available borrowings to $350,000,000 and extend the commitment termination date to May 30, 2001. The amended RCF provides for borrowings under a number of options and may be reduced or canceled at any time at the Company's option. There were no amounts outstanding under this facility at June 30, 1996. The amended RCF contains financial covenants establishing a maximum total debt to capitalization percentage and a minimum consolidated net worth. The Company was in compliance with these covenants at June 30, 1996. Item 2 - Management's Discussion and Analysis ENGINEERED COMPONENTS SEGMENT Businesses in this segment manufacture short lead-time plastic and metal components, fasteners and assemblies; industrial fluids and adhesives; fastening tools; and welding products. This segment primarily serves the construction, automotive and general industrial markets. (Dollars in Thousands) Three months ended Six months ended June 30 June 30 ------------------ ---------------------- Operating Revenues 1996 1995 1996 1995 - --------- -------- -------- ---------- ---------- Domestic $522,039 $364,074 $ 934,581 $ 692,990 International 234,535 197,412 446,959 368,225 -------- -------- ---------- ---------- Total $756,574 $561,486 $1,381,540 $1,061,215 ======== ======== ========== ========== Three months ended June 30 Six months ended June 30 ------------------------------- -------------------------------- Operating 1996 1995 1996 1995 Income Income Margin Income Margin Income Margin Income Margin -------- ------ ------- ------ -------- ------ -------- ------ Domestic $ 79,792 15.3% $59,274 16.3% $140,989 15.1% $112,299 16.2% International 34,447 14.7 29,899 15.1 57,999 13.0 46,863 12.7 -------- ------- -------- -------- Total $114,239 15.1 $89,173 15.9 $198,988 14.4 $159,162 15.0 ======== ======= ======== ======== Acquisitions largely contributed to domestic revenue growth, along with increased penetration in the automotive markets by the automotive businesses and new product introductions in the construction businesses for both the three month and six month periods. Operating income for the three month period increased primarily due to higher revenues without a corresponding increase in costs in the automotive and construction businesses, while acquisitions also contributed to the operating income growth for the six month period. Margins declined in both the three month and six month periods due to lower margins at acquired businesses (primarily Hobart Brothers and Medalist Industries), partially offset in the year-to-date period by margin increases in the automotive and construction businesses. For the three month and six month periods, international revenues and operating income increased primarily due to acquisitions in the European automotive businesses. For the three month period, margins were lower due to soft demand in the construction businesses and price decreases in the French automotive markets. A nonrecurring goodwill write-off of $3.7 million in the first quarter of 1995 contributed to the 1996 year-to-date operating income growth and margin increase. INDUSTRIAL SYSTEMS AND CONSUMABLES SEGMENT Businesses in this segment manufacture longer lead-time systems and related consumables for consumer and industrial packaging; marking, labeling and identification systems; industrial spray coating equipment and systems; and quality assurance equipment and systems. The largest markets served by this segment are general industrial, food and beverage and industrial capital goods. (Dollars in Thousands) Three months ended Six months ended June 30 June 30 ------------------ ---------------------- Operating Revenues 1996 1995 1996 1995 - --------- -------- -------- --------- ---------- Domestic $332,844 $323,396 $ 633,243 $ 592,694 International 221,158 205,831 418,810 365,889 -------- -------- ---------- ---------- Total $554,002 $529,227 $1,052,053 $ 958,583 ======== ======== ========== ========== Three months ended June 30 Six months ended June 30 ------------------------------- ------------------------------- Operating 1996 1995 1996 1995 Income Income Margin Income Margin Income Margin Income Margin -------- ------ ------- ------ -------- ------ ------- ------ Domestic $68,637 20.6% $57,782 17.9% $123,622 19.5% $101,497 17.1% International 24,933 11.3 24,785 12.0 40,285 9.6 31,208 8.5 -------- ------- -------- -------- Total $93,570 16.9 $82,567 15.6 $163,907 15.6 $132,705 13.8 ======== ======= ======== ======== Domestic revenues increased for the three month period primarily due to higher sales in the quality measurement businesses. For the six month period, domestic revenues increased primarily due to acquisitions in the consumer packaging and finishing systems businesses as well as revenue growth in the Specialty Industrial Packaging and Quality Measurement Group. For both the three month and six month periods, operating income and margins increased due to new products and lower raw material costs in the Signode packaging businesses, increased revenues in the specialty industrial packaging businesses as a result of improved demand in the domestic packaging markets, and lower operating costs in the quality measurement businesses. International revenues and operating income in the three month and six month periods increased primarily due to acquisitions in the specialty industrial packaging businesses and to a lesser degree the Signode packaging operations. The European finishing systems businesses also contributed to the growth as they continued to introduce new products. For the second quarter of 1996, operating income was flat and margins declined as a result of restructuring costs and a continuing soft demand in the European steel, construction and appliance markets served by the European specialty industrial packaging businesses. The above margin declines were partially offset by improved margins for the Signode packaging, consumer packaging and finishing systems operations. For the six month period, the majority of the 1996 increase in operating income and margins was due to 1995 nonrecurring costs of $9.6 million, which primarily related to a write-off of goodwill. LEASING AND INVESTMENTS SEGMENT The Company has historically had strong cash flows from its manufacturing operations. Although most of this cash has been reinvested in the manufacturing businesses, both through investments in capital equipment and through acquisitions, some of the excess cash has been used to make financial investments. These investments primarily include leveraged and direct financing leases of equipment, mortgage-related investments, investments in properties and property developments, and low-income housing investments. In 1996, due to the increased significance of these investments, the Company's leasing and investments business began reporting as a separate segment. Accordingly, certain reclassifications of amounts in the 1995 statement of income have been made. For the Leasing and Investments segment, operating revenues and operating income for the year ended December 31, 1995 were $25.9 million and $18.8 million, respectively, and identifiable assets at December 31, 1995 were $604.5 million. (Dollars in Thousands) Three months ended Six months ended June 30 June 30 ------------------ ------------------ 1996 1995 1996 1995 ------- ------ ------- ------- Operating revenues $14,224 $4,945 $28,129 $14,405 ======= ====== ======= ======= Operating income $ 7,183 $4,231 $13,535 $10,785 ======= ====== ======= ======= Margin 50.5% 85.6% 48.1% 74.9% For the three month and six month periods, revenues and operating income increased primarily due to the commercial mortgage transaction entered into at year-end 1995 (see Financial Position section for discussion). Year-to-date operating income in 1995 included a nonrecurring gain on the sale of equipment under leveraged lease of $4.0 million. Margins declined for both the second quarter and the first half of 1996 from the comparable periods in 1995 as a result of lower margins for the commercial mortgage transaction versus the transactions in the prior year. The 1996 year-to-date margins are more indicative of the segment's performance. OPERATING EXPENSES Cost of revenues as a percentage of revenues increased to 66.1% in the first half of 1996 versus 65.2% in the first six months of 1995, mainly due to lower gross margins for acquired companies. Selling, administrative and research and development expenses decreased to 17.9% of revenues in the first half of 1996 versus 19.2% in the first half of 1995, primarily due to higher 1995 nonrecurring costs of approximately $14.0 million. INTEREST EXPENSE Interest expense increased slightly to $14.9 million in the first half of 1996 from $14.0 million in the first half of 1995, primarily due to debt assumed in acquisitions and increased commercial paper borrowings. OTHER INCOME Other income decreased to $2.2 million for the first half of 1996 from $3.7 million in 1995. This decrease is primarily due to debt prepayment costs related to acquired companies in 1996 and higher 1996 currency translation losses, partially offset by higher gains on the sale of operations and the sale of plant and equipment. NET INCOME Net income of $229.1 million ($1.85 per share) in the first half of 1996 was 26.4% higher than the 1995 first half net income of $181.3 million ($1.55 per share). Foreign currency fluctuations had no material impact on revenues or earnings in the first half of 1996 versus 1995. FINANCIAL POSITION Net working capital at June 30, 1996 and December 31, 1995 is summarized as follows: (Dollars in Thousands) June 30, Dec. 31, Increase/ 1996 1995 (Decrease) ---------- ---------- ---------- Current Assets: Cash and equivalents $ 137,199 $ 116,600 $ 20,599 Trade receivables 852,573 741,327 111,246 Inventories 548,360 518,964 29,396 Other 188,214 155,599 32,615 ---------- ---------- -------- $1,726,346 $1,532,490 $193,856 ---------- ---------- -------- Current Liabilities: Short-term debt $ 203,218 $ 176,188 $ 27,030 Accounts payable and accrued expenses 738,983 613,199 125,784 Other 49,419 61,545 (12,126) ---------- ---------- -------- $ 991,620 $ 850,932 $140,688 ---------- ---------- -------- Net Working Capital $ 734,726 $ 681,558 $ 53,168 ========== ========== ======== Current Ratio 1.74 1.80 ========== ========== The increase in trade receivables in the first half of 1996 was primarily due to 1996 acquisitions and higher revenues in the second quarter of 1996 versus the fourth quarter of 1995. Accounts payable and accrued expenses increased at June 30, 1996 versus year-end 1995 as a result of overall business growth and 1996 acquisitions. In the first half of 1996, long-term debt of $80.7 million assumed in acquisitions was repaid. In December 1995, the Company acquired a pool of mortgage-related assets in exchange for a nonrecourse note payable of $256,000,000, preferred stock of a subsidiary of $20,000,000 and cash of $80,000,000. The mortgage-related assets relate to commercial real estate located throughout the U.S. and include 26 subperforming, variable rate, balloon loans and five foreclosed properties. In conjunction with this transaction, the Company simultaneously entered into a ten-year swap agreement and other related agreements whereby the Company will pay a third party the portion of the interest and net operating cash flow from the mortgage-related assets in excess of $9,000,000 per year and a portion (estimated to be $197,000,000 at December 31, 1995) of the proceeds from the disposition of the mortgage-related assets and principal repayments, in exchange for the third party making payments to the Company equal to the contractual principal and interest payments on the nonrecourse note payable. In addition, in the event that the pool of mortgage-related assets does not generate income of $9,000,000 a year, the Company has a collateral right against the cash flow generated by a separate pool of mortgage-related assets (owned by a third party in which the Company has a minimal interest) which has a fair value of approximately $749,000,000 at June 30, 1996. The Company entered into the swap and other related agreements in order to reduce its credit and interest rate risks relative to the mortgage-related assets. The Company expects to recover its net investment in the mortgage-related assets and net swap receivable of $100,000,000 (net of the related nonrecourse note payable) through its expected net cash flow of $9,000,000 per year for ten years and its estimated share of the proceeds from disposition of the mortgage-related assets and principal repayments of $118,000,000. The Company believes that because the swap counter party is Aaa-rated and that significant collateral secures the net annual cash flow of $9,000,000, its risk of not recovering that portion of its $100,000,000 net investment has been significantly mitigated. The Company currently believes that the disposition proceeds will be sufficient to recover the remainder of its net investment. However, there can be no assurances that all of the net investment will be recovered. Part II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Stockholders was held on May 3, 1996. Approval was granted for certain provisions of the Company's Executive Incentive Plan, by a vote of 101,201,491 shares in favor (with 5,439,267 votes against, 1,081,995 votes withheld, and 306,893 non-votes). In addition, approval was granted for the Company's 1996 Stock Incentive Plan by a vote of 102,036,538 shares in favor (with 5,226,863 votes against, 755,914 votes withheld, and 10,331 non-votes). The following members were elected to the Company's Board of Directors to hold office for the ensuing year: Nominees In favor Withheld - ----------------- ----------- -------- J. W. Becton, Jr. 107,904,759 124,887 S. Crown 107,922,067 107,579 H. R. Crowther 107,932,967 96,679 W. J. Farrell 107,929,821 99,825 L. R. Flury 107,929,707 99,939 R. M. Jones 107,907,824 121,822 G. D. Kennedy 107,904,215 125,431 R. H. Leet 107,910,947 118,699 R. C. McCormack 107,933,588 96,058 P. B. Rooney 107,933,230 96,416 H. B. Smith 107,933,345 96,301 O. J. Wade 107,931,425 98,221 C. A. H. Waller 107,924,534 105,112 Item 6 - Exhibits and Reports on Form 8-K (a) Exhibit Index (1) Pursuant to Regulation S-K, Item 601(b)(4)(iii), the Company has not filed with Exhibit 4 any instrument with respect to the new amended revolving credit facility as the total amount of securities authorized thereunder does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. The Company agrees to furnish a copy of the amended instrument to the Securities and Exchange Commission upon request. (2) Exhibit No. Description 10(a) Illinois Tool Works Inc. Executive Incentive Plan 10(b) Illinois Tool Works Inc. 1996 Stock Incentive Plan 10(c) Amendment to the Illinois Tool Works Inc. 1985 Executive Contributory Retirement Income Plan 10(d) Amendment to the Illinois Tool Works Inc. 1993 Executive Contributory Retirement Income Plan 10(e) Illinois Tool Works Inc. Phantom Stock Plan for Non-Officer Directors 27 Financial Data Schedule (b) Reports on Form 8-K Form 8-K/A Current Report (Amendment No. 2) dated April 30, 1996 which included Item 5, Item 7 and amended selected pages of the 1995 Annual Report to Stockholders was filed during the period. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ILLINOIS TOOL WORKS INC. Dated: August 13, 1996 By: /s/ Michael W. Gregg _____________________________________________ Michael W. Gregg, Senior Vice President and Controller, Accounting (Principal Accounting Officer) EX-10.A 2 FORM 10-Q EXHIBIT ILLINOIS TOOL WORKS INC. EXECUTIVE INCENTIVE PLAN Adopted by the Board of Directors on February 16, 1996 ILLINOIS TOOL WORKS INC. EXECUTIVE INCENTIVE PLAN SECTION 1 PURPOSE The purpose of the Plan is to provide key employees with a meaningful annual incentive opportunity geared to the achievement of specific corporate, operating group or individual performance goals. SECTION 2 DEFINITIONS Board: The Board of Directors of the Company Code: The Internal Revenue Code of 1986, as amended. Committee: The Compensation Committee of the Board or such other committee appointed by the Board to administer the Plan. To the extent required to comply with Code Section 162(m) and related regulations, each Committee member shall qualify as an "outside director" as defined therein. Company: Illinois Tool Works Inc., a Delaware corporation, and any success or thereto. Corporate Change: Any of the following: (i) the dissolution of the Company; (ii) the merger, consolidation, or reorganization of the Company with any other corporation after which the holders of the Company's common stock immediately prior to the effective date thereof hold less than 70% of the outstanding common stock of the surviving or resulting entity; (iii) the sale of all or substantially all of the assets of the Company to any person or entity other than a wholly owned subsidiary; (iv) any person or group of persons acting in concert, other than descendants of Byron L. Smith and trusts for the benefit of such descendants, or entity becoming the beneficial owner, directly or indirectly, of more than 30% of the Company's outstanding common stock; or (v) the individuals who, as of the close of the most recent annual meeting of the Company's stockholders, are members of the Board (the "Existing Directors") ceasing for any reason to constitute more than 50% of the Board; provided, however, that if the election, or nomination for election, by the Company's stockholders of any new director was approved by a vote of at least 50% of the Existing Directors, such new director shall be considered an Existing Director; provided further, however, that no individual shall be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 under the Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies by or on behalf of anyone other than the Board (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. Disabled: Eligible for Social Security disability benefits or disability benefits under the Company's long-term disability plan. An employee shall not be considered Disabled unless the Committee determines that the Disability arose prior to termination of employment. O Factor: Performance goals and objectives for individual key employees determined pursuant to Section 4. O Factor Award: An award to be paid to a Participant pursuant to Section 6. P Factor: Performance goals and objectives for the Company as a whole or any of its business units determined pursuant to Section 5. P Factor Award: An award to be paid to a Participant pursuant to Section6. Participant: A key employee of the Company approved by the Committee to participate in the Plan. Plan: The Illinois Tool Works Inc. Executive Incentive Plan, as amended from time to time. Qualifying O Factor: An objective performance goal based on one or more of the following: generation of free cash, earnings per share, revenues, market share, stock price, cash flow, retained earnings, results of customer satisfaction surveys, aggregate product price and other product price measures, safety record, acquisition activity, management succession planning, improved asset management, improved gross margins, increased inventory turns, product development and liability, research and development integration, proprietary protections, legal effectiveness, handling SEC or environmental issues, manufacturing efficiencies, system review and improvement, service reliability and cost management, and one or more of these criteria relative to the performance of other corporations. Qualifying O Factor Award: An O Factor Award intended to qualify as performance based compensation under Code Section 162(m). Qualifying P Factor: An objective performance goal based on one or more of the following: operating expense ratios, total stockholder return, return on sales, return on equity, return on capital, return on assets, return on investment, net income, operating income, and one or more of these criteria relative to the performance of other corporations. Qualifying P Factor Award: An P Factor Award intended to qualify as performance based compensation under Code Section 162(m). Retirement: Voluntary termination of employment while eligible for retirement as defined by the Company's tax-qualified defined benefit retirement plan. SECTION 3 ADMINISTRATION The Plan shall be administered by the Committee in accordance with rules that it may establish from time to time. The determination of the Committee as to any disputed question arising under the Plan shall be conclusive upon all persons. SECTION 4 O FACTOR AWARDS On or before March 31 of each fiscal year, the Committee may establish in writing O Factors (including Qualifying O Factors) for each Participant and a formula to determine the percentage of the maximum Qualifying or non-Qualifying O Factor Award payable to the Participant based upon the degree of attainment of the O Factors. O Factors shall measure a Participant's management effectiveness for the applicable fiscal year. SECTION 5 P FACTOR AWARDS On or before March 31 of each fiscal year, the Committee may establish in writing P Factors (including Qualifying P Factors) for each Participant and a formula to determine the percentage of the maximum Qualifying or non-Qualifying P Factor Award payable to the Participant based upon the degree of attainment of the P Factors. P Factors shall measure business performance for the applicable fiscal year. SECTION 6 ADJUSTMENTS AND AWARD PAYMENTS (a) Adjustments. Qualifying O or P Factors may not be adjusted after they have been established for any fiscal year by the Committee. The Committee may adjust any other O or P Factor, provided that no adjustment may be based upon the failure, or the expected failure, to attain or exceed a Qualifying O or P Factor. A non-Qualifying O or P Factor or related Award may not be dependent on any Qualifying O or P Factor or related Award. (b) Payment of O or P Factor Awards. An O or P Factor Award is payable in cash to a Participant based upon the degree of achievement of the related O or P Factors during the applicable fiscal year, as certified in writing by the Committee following the release of the Company's audited financial statements for the applicable fiscal year. With the approval of the Committee, a Participant who is covered by the stock ownership guidelines adopted by the Board, as amended from time to time, may elect to receive up to 50% of an Award in Common Stock under the Company's 1996 Stock Incentive Plan, and a Participant also may defer payment of an Award under rules established by the Committee. Any O or P Factor Award may be adjusted by the Committee; provided, that the Committee may not adjust upward any Qualifying O or P Factor Award. The maximum individual Qualifying O Factor Award or Qualifying P Factor Award payable to any Participant is $2,500,000 for any calendar year. SECTION 7 TERMINATION OF EMPLOYMENT OR PARTICIPATION (a) Termination of Employment Due to Death, Disability or Retirement. If a Participant's employment is terminated by reason of death, Disability or Retirement, the Participant, or the Participant's estate, shall receive an O Factor Award and/or a P Factor Award, determined as if the Participant had remained employed for the entire fiscal year, prorated for the number of days during the fiscal year that have elapsed as of the Participant's termination, and subject to the first sentence of Section 6(b). (b) Termination of Employment for Other Reasons. If a Participant's employment is terminated for a reason not specified in Section 7(a), the Participant's rights to any O and P Factor Awards for such fiscal year will be forfeited. However, the Committee may pay prorated O and P Factor Awards for the portion of the fiscal year that the Participant was employed by the Company, except in the event of termination for cause as determined by the Committee. (c) Termination of Participation. The Committee may terminate any Participant's rights to an O or P Factor Award at any time prior to the applicable payment date; provided, that the Committee may not, within the 90-day period prior to the date of a Corporate Change or at any time on or after such date, terminate or adjust any Participant's participation with respect to the current fiscal year. SECTION 8 CORPORATE CHANGE In the event of a Corporate Change, the maximum O Factor and P Factor Awards for the fiscal year then in progress, prorated for the number of days in the fiscal year that have elapsed as of the date of the Corporate Change, shall be paid immediately in cash. Any adjustment or termination of a Participant's participation in the Plan that occurs at any time on or after the 90th day preceding a Corporate Change shall be of no effect. SECTION 9 GENERAL PROVISIONS (a) Withholding Taxes. The Company shall have the right to deduct any Federal, state or local taxes applicable to payments under the Plan. (b) Nontransferability. No right or interest of any Participant in this Plan shall be assignable or transferable, or subject to any lien, directly, by operation of law or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. (c) Amendment or Termination. Except as provided in Sections 7(c) and 8, the Board may terminate or amend the Plan at any time provided, that, without the approval of stockholders, no amendment may be made which (i) increases the maximum Qualifying O or P Factor Award, (ii) modifies the Plan's eligibility requirements, (iii) changes the criteria upon which Qualifying O Factors or Qualifying P Factors may be based, or (iv) changes this Section 9(c). EX-10.B 3 FORM 10-Q EXHIBIT ILLINOIS TOOL WORKS INC. 1996 STOCK INCENTIVE PLAN Adopted by the Board of Directors on February 16, 1996 TABLE OF CONTENTS Section 1. Purpose 1 Section 2. Definitions 1 Section 3. Administration 3 Section 4. Common Stock Subject to Plan 3 Section 5. Options 3 Section 6. Stock Awards 4 Section 7. Performance Units 4 Section 8. Stock Appreciation Rights 5 Section 9. Termination of Employment 6 Section 10. Adjustment Provisions 7 Section 11. Term 7 Section 12. Corporate Change 7 Section 13. General Provisions 7 Section 14. Amendment or Discontinuance of the Plan 8 ILLINOIS TOOL WORKS INC. 1996 STOCK INCENTIVE PLAN SECTION 1 PURPOSE The purpose of the Plan is to encourage Key Employees to have a greater financial investment in the Company through ownership of its Common Stock. The Plan is an amendment and restatement of the 1979 Stock Incentive Plan (the "1979 Plan"). The terms of the Plan will apply to all outstanding Incentives granted under the 1979 Plan, including those pertaining to a Corporate Change and termination of employment as described below, unless the Committee determines otherwise. No additional Incentives will be granted under the 1979 Plan. SECTION 2 DEFINITIONS Board: The Board of Directors of the Company. Code: The Internal Revenue Code of 1986, as amended. Committee: The Compensation Committee of the Board or such other committee as shall be appointed by the Board to administer the Plan pursuant to Section 3. Common Stock: The Common Stock, without par value, of the Company or such other class of shares or other securities as may be applicable pursuant to the provisions of Section 10. Company: Illinois Tool Works Inc., a Delaware corporation, and any successor thereto. Corporate Change: Any of the following: (i) the dissolution of the Company; (ii) the merger, consolidation, or reorganization of the Company with any other corporation after which the holders of Common Stock immediately prior to the effective date thereof hold less than 70% of the outstanding common stock of the surviving or resulting entity; (iii) the sale of all or substantially all of the assets of the Company to any person or entity other than a wholly owned subsidiary; (iv) any person or group of persons acting in concert, other than descendants of Byron L. Smith and trusts for the benefit of such descendants, or entity becomes the beneficial owner, directly or indirectly, of more than 30% of the outstanding Common Stock; or (v) the individuals who, as of the close of the most recent annual meeting of the Company's stockholders, are members of the Board (the "Existing Directors") cease for any reason to constitute more than 50% of the Board; provided, however, that if the election, or nomination for election, by the Company's stockholders of any new director was approved by a vote of at least 50% of the Existing Directors, such new director shall be considered an Existing Director; provided further, however, that no individual shall be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 under the Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies by or on behalf of anyone other than the Board (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. Covered Employee: A Key Employee who is or is expected to be a "covered employee" within the meaning of Code Section 162(m) and the related regulations for the year in which an Incentive is taxable to such employee and for whom the Committee intends that such Incentive qualify as performance-based compensation under Code Section 162(m). Disabled: Eligible for Social Security disability benefits or disability benefits under the Company's long-term disability plan. A Key Employee shall not be considered Disabled unless the Committee determines that the Disability arose prior to such employee's termination date. Fair Market Value: The average of the highest and lowest price at which Common Stock was traded on the relevant date, as reported in the "NYSE-Composite Transactions" section of the Midwest Edition of the Wall Street Journal, or, if no sales of Common Stock were reported for that date, on the most recent preceding date on which Common Stock was traded. Incentive Stock Option: As defined in Code Section 422. Incentives: Options (including Incentive Stock Options), Stock Awards, Performance Units and Stock Appreciation Rights. Key Employee: An employee of the Company approved by the Committee for participation in the Plan on the basis of his or her ability to contribute significantly to the growth and profitability of the Company. Option: An option to purchase shares of Common Stock granted to a Key Employee pursuant to Section 5. Performance Unit: A unit representing a cash sum or one or more shares of Common Stock that is granted to a Key Employee pursuant to Section 7. Plan: The Illinois Tool Works Inc. 1996 Stock Incentive Plan, as amended from time to time. Restricted Shares: Shares of Common Stock issued subject to restrictions pursuant to Section 6(b). Retirement: Termination of employment while eligible for retirement as defined by the Company's tax-qualified defined benefit retirement plan. Stock Appreciation Right or Right: An award granted to a Key Employee pursuant to Section 8. Stock Award: An award of Common Stock granted to a Key Employee pursuant to Section 6. Stock Ownership Guidelines: The stock ownership guidelines adopted by the Board, as amended from time to time. SECTION 3 ADMINISTRATION (a) Committee. The Plan shall be administered by the Committee. To the extent required to comply with Rule 16b-3 under the Securities Exchange Act of 1934, each member of the Committee shall qualify as a "disinterested person" as defined therein. To the extent required to comply with Code Section 162(m) and the related regulations, each member of the Committee shall qualify as an "outside director" as defined therein. (b) Authority of the Committee. The Committee shall have the authority to approve Key Employees for participation; to construe and interpret the Plan; to establish, amend or waive rules and regulations for its administration; and to accelerate the exercisability of any Incentive or the termination of any restriction under any Incentive. Incentives may be subject to such provisions as the Committee shall deem advisable, and may be amended by the Committee from time to time; provided that no such amendment may adversely affect the rights of the holder of an Incentive without such holder's consent, and no amendment, as it applies to any Covered Employee, shall be made that would cause an Incentive granted to such Covered Employee to fail to satisfy the performance-based compensation exemption under Code Section 162(m) and the related regulations. SECTION 4 COMMON STOCK SUBJECT TO PLAN Subject to Section 10, the aggregate shares of Common Stock that may be issued under the Plan, including Common Stock authorized but not issued or reserved for issuance under the 1979 Plan, shall not exceed 10,000,000. In the event of a lapse, expiration, termination, forfeiture or cancellation of any Incentive granted under the Plan or the 1979 Plan without the issuance of shares or payment of cash, the Common Stock subject to or reserved for such Incentive may be used again for a new Incentive hereunder; provided that in no event may the number of shares of Common Stock issued hereunder exceed the total number of shares reserved for issuance. Any shares of Common Stock withheld or surrendered to pay withholding taxes pursuant to Section 13(e) or withheld or surrendered in full or partial payment of the exercise price of an Option pursuant to Section 5(e) shall be added to the aggregate shares of Common Stock available for issuance. SECTION 5 OPTIONS (a) Price. The exercise price per share of an Option shall be not less than the Fair Market Value on the grant date. (b) Limitations. The exercise price of Incentive Stock Options exercisable for the first time by a Key Employee during any calendar year shall not exceed $100,000. Options for more than 500,000 shares of Common Stock may not be granted in any calendar year to any Key Employee. No Incentive Stock Options may be granted after April 30, 2006. (c) Required Period of Employment. The Committee may condition the exercisability of any Option on the completion of a minimum period of employment. (d) Duration. Each Option shall expire at such time as the Committee may determine at the time of grant, provided that Incentive Stock Options must expire not later than ten years from the grant date. (e) Payment. The exercise price of an Option shall be paid in full at the time of exercise in cash, through the surrender or withholding of Common Stock having a Fair Market Value equal to the exercise price or by a combination of the foregoing. (f) Grant of Restorative Options. The Committee shall grant to any Key Employee a Restorative Option to purchase additional shares of Common Stock equal to the number of shares delivered by the Key Employee in payment of the exercise price of an Option. The terms of a restorative Option shall be identical to the terms of the exercised Option, except that the exercise price shall be not less than the Fair Market Value on the grant date. SECTION 6 STOCK AWARDS (a) Grant of Stock Awards. Stock Awards may be made on terms and conditions fixed by the Committee. Stock Awards may be in the form of Restricted Shares authorized pursuant to Section 6(b). Officers who are covered by the Stock Ownership Guidelines may elect to receive up to 50% of their Executive Incentive Plan awards in shares of Common Stock. The recipient of Common Stock pursuant to a Stock Award shall be a stockholder of the Company with respect thereto, fully entitled to receive dividends, vote and exercise all other rights of a stockholder except to the extent otherwise provided in the Stock Award. Stock Awards (including Restricted Share awards) for more than 500,000 shares of Common Stock may not be granted in any calendar year to any Key Employee. (b) Restricted Shares. Restricted Shares may not be sold by the holder, or subject to execution, attachment or similar process, until the lapse of the applicable restriction period or satisfaction of other conditions specified by the Committee. If the Committee intends the Restricted Shares granted to any Covered Employee to satisfy the performance-based compensation exemption under Code Section 162(m) ("Qualifying Restricted Shares"), the extent to which the Qualifying Restricted Shares will vest shall be based on the attainment of performance goals established in writing prior to commencement of the performance period by the Committee from the list in Section 7(a). The level of attainment of such performance goals and the corresponding number of vested Qualifying Restricted Shares shall be certified by the Committee in writing pursuant to Code Section 162(m) and the related regulations. SECTION 7 PERFORMANCE UNITS (a) Value of Performance Units. Prior to the commencement of the performance period, the Committee shall establish in writing an initial target value or number of shares of Common Stock for the Performance Units to be granted to a Key Employee, the duration of the performance period, and the specific performance goals to be attained, including performance levels at which various percentages of Performance Units will be earned and, for Covered Employees, the minimum level of attainment to be met to earn any portion of the Performance Units. If the Committee intends the Performance Units granted to any Covered Employee to satisfy the performance-based compensation exemption under Code Section 162(m) ("Qualifying Performance Units"), the performance goals shall be based on one or more of the following objective criteria: generation of free cash, earnings per share, revenues, market share, stock price, cash flow, retained earnings, results of customer satisfaction surveys, aggregate product price and other product price measures, safety record, acquisition activity, management succession planning, improved asset management, improved gross margins, increased inventory turns, product development and liability, research and development integration, proprietary protections, legal effectiveness, handling SEC or environmental issues, manufacturing efficiencies, system review and improvement, service reliability and cost management, operating expense ratios, total stockholder return, return on sales, return on equity, return on capital, return on assets, return on investment, net income, operating income, and the attainment of one or more performance goals relative to the performance of other corporations. (b) Payment of Performance Units. After the end of a performance period, the Committee shall certify in writing the extent to which performance goals have been met and shall compute the payout to be received by each Key Employee. With respect to Qualifying Performance Units, for any calendar year, the maximum amount payable in cash to any Covered Employee shall be $5,000,000, and the aggregate shares of Common Stock that may be issued to any Covered Employee is 500,000. The Committee may not adjust upward the amount payable to any Covered Employee with respect to Qualifying Performance Units. SECTION 8 STOCK APPRECIATION RIGHTS (a) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted in connection with an Option (at the time of the grant or at any time thereafter) or may be granted independently. Stock Appreciation Rights for more than 500,000 shares of Common Stock may not be granted to any Key Employee in any calendar year. (b) Value of Stock Appreciation Rights. The holder of a Stock Appreciation Right granted in connection with an Option, upon surrender of the Option, will receive cash or shares of Common Stock equal in value to the lesser of (i) the excess of the Fair Market Value on the exercise date over the Option's exercise price or (ii) the exercise price of the Option that is surrendered, multiplied by the number of shares covered by such Option. The holder of a Stock Appreciation Right granted independent of an Option, upon exercise, will receive cash or shares of Common Stock equal in value to the lesser of (i) the excess of the Fair Market Value on the exercise date over the Fair Market Value on the grant date or (ii) the Fair Market Value on the grant date, multiplied by the number of shares covered by the Right. SECTION 9 TERMINATION OF EMPLOYMENT (a) Forfeiture of Incentives Upon Termination of Employment. All unvested Incentives shall be forfeited upon termination of employment unless the terms of the Incentive or Section 9(b) provide otherwise. The Committee, in its sole discretion, may waive this automatic forfeiture provision at any time for any Incentive. (b) Termination Due to Retirement, Disability or Death. Upon death while employed or termination by reason of Retirement or Disability, all unvested Incentives shall become fully vested and, if applicable, payable to the Key Employee or to the Key Employee's estate in the event of death to the extent provided in Section 9(c)(ii). Notwithstanding the foregoing, the Committee may deem an Incentive to be immediately forfeited if, following termination by reason of Retirement or Disability, the holder competes with the Company or engages in conduct that, in the opinion of the Committee, adversely affects the Company. (c) Treatment of Incentives Following Termination. (i) Options and Stock Appreciation Rights. (A) Termination Due to Retirement, Disability or Death. Upon termination of employment by reason of Retirement or Disability, Options shall be exercisable not later than the earlier of five years after the termination date or the expiration of the term of the Options. Options held by a Key Employee who dies while employed by the Company or after terminating by reason of Retirement or Disability shall be exercisable by the Key Employee's estate not later than the earliest of two years after the date of death, five years after the date of termination due to Retirement or Disability or the expiration of the term of the Options. (B) Termination for Other Reasons. Upon termination of employment for any reason other than death, Retirement or Disability, Options vested prior to such termination may be exercised by a Key Employee during the three-month period commencing on the date of termination, but not later than the expiration of the term of the Options. If a Key Employee dies during such post-employment period, such Key Employee's estate may exercise the Options (to the extent such Options were vested and exercisable prior to death), but not later than the earlier of two years after the date of death or the expiration of the term of the Options. (C) Stock Appreciation Rights. Sections 9(c)(i)(A) and (B) shall apply in the same manner to Stock Appreciation Rights. (ii) Performance Units. If a Key Employee dies while employed, terminates by reason of Retirement or Disability, or otherwise terminates without forfeiting unvested Incentives pursuant to Section 9(a), the Key Employee or such Key Employee's estate in the event of death shall receive a prorated payment of the Performance Units based on the number of full months of service during the applicable performance period, adjusted based on the achievement of performance goals during the performance period. Payment shall be made at the time payments would have been made had the Key Employee not died or terminated. SECTION 10 ADJUSTMENT PROVISIONS In the event of a stock split, stock dividend, recapitalization, reclassification or combination of shares, merger, sale of assets or similar event, the Committee shall adjust equitably (a) the number and class of shares or other securities that are reserved for issuance under the Plan, (b) the number and class of shares or other securities that have not been issued under outstanding Incentives, and (c) the appropriate Fair Market Value and other price determinations applicable to Incentives. SECTION 11 TERM The Plan shall be deemed adopted and shall become effective on the date it is approved by the stockholders of the Company and shall continue until terminated by the Board or no Common Stock remains available for issuance under Section 4, whichever occurs first. SECTION 12 CORPORATE CHANGE In the event of a Corporate Change, all Incentives shall vest in each Key Employee, and the maximum value of all Performance Units shall be immediately payable in cash, prorated for the number of days in the applicable performance period that have elapsed as of the date of the Corporate Change. SECTION 13 GENERAL PROVISIONS (a) Employment. Nothing in the Plan or in any related instrument shall confer upon any employee any right to continue in the employ of the Company or shall affect the right of the Company to terminate the employment of any employee with or without cause. (b) Legality of Issuance of Shares. No Common Stock shall be issued pursuant to an Incentive unless and until all legal requirements applicable to such issuance have been satisfied. (c) Ownership of Common Stock Allocated to Plan. No employee (individually or as a member of a group), and no beneficiary or other person claiming under or through such employee, shall have any right, title or interest in or to any Common Stock allocated or reserved for purposes of the Plan or subject to any Incentive except as to shares of Common Stock, if any, as shall have been issued to such employee. (d) Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Illinois. (e) Withholding of Taxes. The Company may withhold, or allow an Incentive holder to remit to the Company, any Federal, state or local taxes applicable to any grant, exercise, vesting, distribution or other event giving rise to income tax liability with respect to an Incentive. An Incentive holder may elect to surrender previously acquired Common Stock or to have the Company withhold Common Stock that would otherwise have been issued pursuant to the exercise of an Option or in connection with any other Incentive, the number of shares of such withheld or surrendered Common Stock to be sufficient to satisfy all or a portion of the income tax liability that arises upon the exercise, vesting, distribution or other event giving rise to income tax liability with respect to an Incentive. (f) Non-transferability; Exceptions. Except as provided in this Section 13(f), no Incentive may be assigned or subjected to any encumbrance, pledge or charge of any nature. Under such rules and procedures as the Committee may establish, the holder of an Incentive may transfer such Incentive to members of the holder's immediate family (i.e., children, grandchildren and spouse) or to one or more trusts for the benefit of such family members or to partnerships in which such family members are the only partners, provided that (i) the agreement, if any, with respect to such Incentives, expressly so permits or is amended to so permit, (ii) the holder does not receive any consideration for such transfer, and (iii) the holder provides such documentation or information concerning any such transfer or transferee as the Committee may reasonably request. Any Incentives held by any transferees shall be subject to the same terms and conditions that applied immediately prior to their transfer. The Committee may also amend the agreements applicable to any outstanding Incentives to permit such transfers. Any Incentive not granted pursuant to any agreement expressly permitting its transfer or amended expressly to permit its transfer shall not be transferable. Such transfer rights shall in no event apply to any Incentive Stock Option. SECTION 14 AMENDMENT OR DISCONTINUANCE OF THE PLAN (a) Amendment or Discontinuance. The Plan may be amended or discontinued by the Board from time to time, provided that without the approval of stockholders, no amendment shall be made which (i) amends Section 4 to increase the aggregate Common Stock that may be issued pursuant to Incentives, (ii) amends the provisions of Section 12, (iii) permits any person who is not a Key Employee to be granted an Incentive, (iv) permits Common Stock to be valued at, or permits the exercise price of Options at the grant date, to be less than Fair Market Value, (v) amends the provisions of Section 8 to change the method of establishing the amount the Company shall distribute upon exercise of a Stock Appreciation Right, (vi) amends the provisions of Section 7(b) to increase the value which may be specified for Performance Units or amends any other provision of the Plan, the amendment of which would require stockholder approval in order to continue to satisfy the performance-based compensation exemption under Code Section 162(m) and the related regulations with respect to any Incentive awarded to any Covered Employee, (vii) changes the maximum number of shares of Common Stock that may be awarded to any employee in any year pursuant to Options, Stock Awards or Stock Appreciation Rights, or (viii) amends this Section 14. (b) Effect of Amendment or Discontinuance on Incentives. No amendment or discontinuance of the Plan by the Board or the stockholders of the Company shall adversely affect any Incentive theretofore granted without the consent of the holder. EX-10.C 4 FORM 10-Q EXHIBIT AMENDMENT Pursuant to Section 7.01 of the Illinois Tool Works Inc. 1985 Executive Contributory Retirement Income Plan ( the "Plan" ) effective May 1, 1996, Illinois Tool Works Inc. hereby amends Sections 2.06, 2.07, 4.07, 4.11, and 6.01 of this Plan to read as follows: 2.06 "Change in Control" means any of the following: (i) the dissolution of the Company; (ii) the merger, consolidation, or reorganization of the Company with any other corporation after which the holders of common stock immediately prior to the effective date thereof hold less than 70% of the outstanding common stock of the surviving or resulting entity; (iii) the sale of all or substantially all of the assets of the Company to any person or entity other than a wholly owned subsidiary; (iv) any person or group of persons acting in concert, other than descendants of Byron L. Smith and trusts for the benefit of such descendants, or entity becomes the beneficial owner, directly or indirectly, of more than 30% of the outstanding common stock; or (v) the individuals who, as of the close of the most recent annual meeting of the Company's stockholders, are members of the Board of Directors (the "Existing Directors") cease for any reason to constitute more than 50% of the Board of Directors; provided, however, that if the election, or nomination for election, by the Company's stockholders of any new director was approved by a vote of at least 50% of the Existing Directors, such new director shall be considered an Existing Director; provided further, however, that no individual shall be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 under the Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies by or on behalf of anyone other than the Board of Directors (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. 2.07 "Committee" means the Employee Benefits Committee appointed by the Board of Directors to manage and administer the Plan. 4.07 Form of Benefit Payment. (a) Upon the happening of an event described in Section 4.01, the Company shall pay to the Participant the amount calculated thereunder in monthly installments payable over a period of fifteen (15) years, with interest on the unpaid principal balance equal to the applicable Retirement InterestYield added to the Deferred Benefit Account on each succeeding Determination Date. The amount of the installment payments shall be based on the prevailing Retirement Interest Yield at the commencement of payments, projected into the future, and shall be recomputed every three years, based on changes in the Retirement Interest Yield. Upon the death of a Participant after the commencement of benefits pursuant to Section 4.01, the remaining installment payments shall be paid to the Beneficiary, except that the Interest Yield used to determine the Deferred Benefit Account shall be the Retirement Interest Yield in effect at the time of the Participant's death, until all payments have been made to the Beneficiary of the deceased Participant. (b) In the event of the death of the Participant, as described in Section 4.03, the Participant's Beneficiary may, with the consent of the Committee, elect one of the payment options in this Section 4.07. In such event, the applicable Death Interest Yield in effect at the time of the Participant's death, shall be the Interest Yield used in determining the Deferred Benefit Account until all payments have been made to the Beneficiary of the deceased Participant. (c) Upon a written request by a Participant or his Beneficiary filed with the Committee prior to the commencement of benefits under this Plan, the Committee may, in its sole discretion, (i) pay out a lump sum payment at a time designated but within fifteen (15) years of the Participant's retirement or death, or (ii) pay out installments over a period of fewer than fifteen (15) years. (d) In the event that a Participant retires on or subsequent to his Early Benefit Date but prior to his Normal Benefit Date, the Participant may file a written request with the Committee requesting the deferral of his Retirement Benefit, pursuant to Section 4.01, until age 65. The written request must be made prior to the earlier of December 31 of the calendar year preceding the Participant's Early Benefit Date or six months prior to the Participant's Early Benefit Date. The Committee may, but is not required to, grant the Participant's request. 4.11 Recipients of Payment: Designation of Beneficiary. All payments to be made by the Company under the Plan shall be made to the Participant during his/her lifetime, provided that if the Participant dies prior to the completion of such payments, then all subsequent payments under the Plan shall be made by the Company to the Beneficiary determined in accordance with this Section 4.11. The Participant may designate a Beneficiary by filing a written notice of such designation with the Committee in such form as the Company requires and may include contingent Beneficiaries. The Participant may from time-to-time change the designated Beneficiary by filing a new designation in writing with the Committee. If no designation is in effect or if an existing designation is determined to be invalid at the time any benefits payable under this Plan shall become due, the Beneficiary shall be the spouse of the Participant, or if no spouse is then living, the representatives of the Participant's estate. 6.01 Committee. The Plan shall be administered by the Committee. Members of the Committee or agents of the Committee may be Participants under the Plan. Only Sections 2.06, 2.07, 4.07, 4.11, and 6.01 are affected by this Amendment. EX-10.D 5 FORM 10-Q EXHIBIT AMENDMENT Pursuant to Section 7.1 of the Illinois Tool Works Inc. 1993 Executive Contributory Retirement Income Plan ( the "Plan" ) effective April 1, 1993, Illinois Tool Works Inc. hereby amends Section 2.7 of the Plan to read as follows: 2.7 "Change in Control" means any of the following: (i) the dissolution of the Company; (ii) the merger, consolidation, or reorganization of the Company with any other corporation after which the holders of common stock immediately prior to the effective date thereof hold less than 70% of the outstanding common stock of the surviving or resulting entity; (iii) the sale of all or substantially all of the assets of the Company to any person or entity other than a wholly owned subsidiary; (iv) any person or group of persons acting in concert, other than descendants of Byron L. Smith and trusts for the benefit of such descendants, or entity becomes the beneficial owner, directly or indirectly, of more than 30% of the outstanding common stock; or (v) the individuals who, as of the close of the most recent annual meeting of the Company's stockholders, are members of the Board of Directors (the "Existing Directors") cease for any reason to constitute more than 50% of the Board of Directors; provided, however, that if the election, or nomination for election, by the Company's stockholders of any new director was approved by a vote of at least 50% of the Existing Directors, such new director shall be considered an Existing Director; provided further, however, that no individual shall be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 under the Securities Exchange Act of (1934) or other actual or threatened solicitation of proxies by or on behalf of anyone other than the Board of Directors (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. Only Section 2.7 is affected by this Amendment. EX-10.E 6 FORM 10-Q EXHIBIT ILLINOIS TOOL WORKS INC. PHANTOM STOCK PLAN FOR NON-OFFICER DIRECTORS The Plan set forth herein shall be known as the "Non-Officer Directors' Phantom Stock Plan". Illinois Tool Works Inc. is hereinafter referred to as ITW. 1. ELIGIBILITY. Each member of ITW's Board of Directors who is not an officer of ITW shall be eligible to participate in the Plan and shall be known for the purposes of this Plan as an "eligible director." 2. PURPOSE. The purpose of the Plan is to enable ITW to attract and retain as members of its Board of Directors persons who are not officers of ITW, but whose experience and judgement are a valuable asset to ITW. It is also intended to provide for the equivalent of additional stock ownership to align the interests of the non-officer (employee) directors with those of the stockholders. 3. GRANT OF PHANTOM STOCK UNITS. Except for six eligible directors who are within ten years of retirement as of the Effective Date, all eligible directors present and future shall have their phantom stock accounts credited with one thousand phantom stock units, with each unit having a value at any time equal to the current market value of a share of ITW Common Stock. Five of the six eligible directors who are within ten years of retirement as of the Effective Date shall be credited with one thousand seven hundred thirteen phantom stock units and the other director (as identified by the Board) with one thousand seventy-five units. 4. PLAN ADMINISTRATION. The Plan shall be administered under the direction of the Corporate Secretary of ITW. Each phantom stock account will be maintained by ITW Corporate accounting, and annual statements will be issued reflecting current account balances adjusted for dividend reinvestment and market value changes. 5. DIVIDENDS. Whenever ITW declares a dividend on ITW the Common Stock, a dividend award shall be made to all eligible directors as of the date of payment of the dividend. The dividend award for an eligible director shall be determined by multiplying the phantom stock units credited to the eligible director's account on the date of payment by the amount of the dividend paid on the ITW Common Stock. The dividend award shall be converted into phantom stock units by dividing the award by the closing market price of a share of ITW Common Stock as of the dividend payment date. 6. ADJUSTMENTS. In the event of a stock dividend on the ITW Common Stock, or any split up or combination of shares of the ITW Common Stock, or other change therein, appropriate adjustment shall be made to the phantom stock units in each eligible director's phantom stock account so as to give effect, to the extent practicable, to such change in ITW's capital structure. 7. DISTRIBUTION OF PHANTOM STOCK ACCOUNT. An eligible director will be eligible for a cash distribution from his/her phantom stock account at retirement, death or approved resignation. This distribution will be in the form of a lump sum or ten annual installments as elected by the eligible director at the time that this Plan was implemented or upon appointment to the Board of Directors for future participants. The distribution will take place as soon as practical but no later than 60 days following the date of retirement, death or approved resignation. Any such election may be changed by the eligible director no less than twenty-four months prior to the first distribution to the director; any change made less than twenty-four months prior to the actual date as of which distributions are to commence shall be considered void and distributions shall thereafter commence pursuant to the director's initial election. For installments, the payment on each distribution date shall be an amount equal to the value of the phantom stock units credited to the eligible director's account on such distribution date, divided by the number of installments remaining to be paid. The value of the phantom stock units to be distributed is determined by multiplying the market value of a share of ITW Common Stock on the distribution date by the number of such phantom stock units. 8. BENEFICIARY DESIGNATION. Each eligible director or former eligible director entitled to payment from a phantom stock account may name any person or persons to whom the value of such director's phantom stock account shall be paid in the event of his/ her death. Each designation will revoke all prior designations, shall be in writing and in a form prescribed by the Corporate Secretary of ITW, and will be effective only when filed during the eligible director's or former eligible director's lifetime with the Corporate Secretary of ITW. If the director shall have failed to name a beneficiary, or if the named beneficiary dies before receiving payment of the entire balance in such director's phantom stock account, payment of the remaining balance shall be made in a lump sum to the legal representative of the estate of the director or named beneficiary, as applicable. 9. MISCELLANEOUS (a) Establishment of this Plan and coverage hereunder of any person shall not be construed to confer any right on the part of such person to be nominated for reelection to the Board of Directors or to be reelected to the Board of Directors. (b) No eligible director may assign, pledge or encumber his/her interest under the Plan, or any part thereof, except that an eligible director may designate a beneficiary as provided in Paragraph 8 or may elect to assign his/her phantom stock interests to a family trust or family partnership. However, under the "assignment of income" tax doctrine, any distributions of the assigned phantom stock interests would still be taxable to the eligible director as ordinary income. (c) No eligible director or beneficiary shall have any interest in ITW's assets by reason of his/her participation in the Plan. It is intended that ITW merely has a contractual obligation to make payments when due hereunder and it is not intended that ITW hold any funds in reserve or trust to secure payments hereunder. 10. AMENDMENT ON TERMINATION. This Plan may be amended or terminated at any time by the Board of Directors; provided, however, that no such amendment or termination may, without the consent of the eligible director, or his/her beneficiary in the case of his/her death, reduce the right of the eligible director, or his/her beneficiary as the case may be, to any payment under the Plan. 11. CORPORATE CHANGE. Notwithstanding the provisions of Paragraph 7, each eligible the value of director's phantom stock account shall be distributed immediately to the director or his/her beneficiary in the event of a Corporate Change. "Corporate Change" shall mean (i) a dissolution of ITW, (ii) a merger, consolidation, or reorganization of ITW with any other corporation after which the holders of ITW Common Stock immediately prior to the effective date thereof hold less than 70% of the outstanding common stock of the surviving or resulting entity, (iii) a sale of all or substantially all of the assets of ITW to any person or entity other than a wholly owned subsidiary, (iv) any person or group of persons, other than the Smith family trusts as described in ITW's proxy statement, or entity becomes the beneficial owner, directly or indirectly, of more than 30% of the outstanding ITW Common Stock, or (v) the individuals who, as of the close of most recent annual meeting of ITW's stockholders, are members of the Board of Directors (the "Existing Directors") cease for any reason to constitute more than 50% of the Board of Directors; provided, however, that if the election, or nomination for election, by ITW's stockholders of any new director was approved by a vote of at least 50% of the Existing Directors, such new director shall be considered an Existing Director; provided further, however, that no individual shall be considered an Existing Director if such individual initially assumed office as a result of either an actual or threatened "Election Contest" (as described in Rule 14a-11 promulgated under the Securities Exchange Act of 1934) or other actual or threatened solicitation of proxies by or on behalf of anyone other than the Board of Directors (a "Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election Contest or Proxy Contest. 12. GOVERNING LAW. This Plan shall be construed, administered and governed in all respects under and by the laws of the state of Illinois. 13. EFFECTIVE DATE. This Plan shall become effective on the date of its adoption by the Board of Directors of ITW. EX-27 7 FORM 10-Q EXHIBIT
5 THE SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF INCOME (UNAUDITED) AND THE STATEMENT OF FINANACIAL POSITION (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 137,199 0 852,573 0 548,360 1,726,346 1,801,505 1,053,407 4,018,870 991,620 616,815 267,861 0 0 1,895,343 4,018,870 2,461,722 2,461,722 1,626,695 1,626,695 18,097 0 14,876 363,730 134,600 229,130 0 0 0 229,130 1.85 1.85
-----END PRIVACY-ENHANCED MESSAGE-----