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.