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).