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Exhibit 10(a)
ILLINOIS TOOL WORKS INC.
1996 STOCK INCENTIVE PLAN
Approved by the Board of Directors on February 16, 1996
and by the Stockholders on May 3, 1996
Amended by the Board of Directors on December 12, 1997
Dated: December 12, 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. 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).
Disability: Eligible for Social Security disability benefits or
disability benefits under the Company's long-term disability plan, based upon a
determination by the Committee that the condition arose prior to termination of
employment.
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 "non-employee
director" 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 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 of the
restorative Option.
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 that
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 of that Right, 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
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Value on the grant date, multiplied by the number of shares covered by such
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 beneficiary 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, all unvested Options shall be forfeited as
provided in Section 9(a) and any 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 beneficiary 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.
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(ii) Performance Units. If a Key Employee terminates
employment by reason of Retirement, Disability or death, the Key
Employee or such Key Employee's beneficiary 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 completed by the Key
Employee 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 terminated by reason of Retirement, Disability or
death.
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 each Key Employee's Performance Units,
prorated for the number of full months of service completed by the Key Employee
during the applicable performance period, shall immediately be paid in cash to
the Key Employee.
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
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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.
(g) Forfeiture of Incentives. Except for an Incentive that becomes
vested pursuant to Section 12, the Committee may immediately forfeit an
Incentive, whether 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.
(h) Beneficiary Designation. Under such rules and procedures as the
Committee may establish, each Key Employee may designate a beneficiary or
beneficiaries to succeed to any rights which the Key Employee may have with
respect to Options, Stock Appreciation Rights, Stock Awards or Performance Units
at the time of his or her death. The designation may be changed or revoked by
the Key Employee at any time. No such designation, revocation or change shall be
effective unless made in writing on a form provided by the Company and delivered
to the Company prior to the Key Employee's death. If a Key Employee does not
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designate a beneficiary or no designated beneficiary survives the Key Employee,
then his or her beneficiary shall be the Key Employee's estate.
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.
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