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EXHIBIT 4.1
ILLINOIS TOOL WORKS INC.
1996 STOCK INCENTIVE PLAN
Adopted by the Board of Directors on February 16, 1996
and Approved By the Stockholders on May 3, 1996
February 19, 1997
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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 5
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
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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
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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.
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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.
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(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.
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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 independently 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
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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. Except as
may be determined otherwise by the Committee, all unvested Options, Rights and
Stock Awards and all unpaid Performance Units shall be forfeited upon
termination of employment for reasons other than Retirement, Disability or
death.
(b) Vesting Upon Retirement, Disability or Death. Subject to
Section 13(g), upon termination of employment by reason of Retirement,
Disability or death, all unvested Options, Rights and Stock Awards shall become
fully vested and any Performance Units shall become payable to the extent
provided in Section 9(c)(ii).
(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 Retirement, Disability or death, 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 at the date of
termination of employment), 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. Subject to Section 13(g), if a Key
Employee terminates employment by reason of Retirement, Disability
or death, the Key Employee or such Key
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Employee's estate in the event of death shall receive a prorated payment
of the Key Employee's 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 Retired, become Disabled or died.
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.
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(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.
(g) Forfeiture of Incentives. Notwithstanding any other Plan
provision, the Committee may immediately forfeit an Incentive, vested or
unvested, if the holder competes with the Company or engages in conduct that,
in the opinion of the Committee, adversely affects the Company.
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
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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.
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