Document:

Exhibit 10.1 - Nonemployee Compensation Plan

    FRANKLIN
      ELECTRIC CO., INC.

     

    

     

    NONEMPLOYEE
      DIRECTORS’ DEFERRED COMPENSATION PLAN

     

    

     

    (As
      Amended and Restated April 28, 2006)

     

    

     

    
      
        
          

        

        
        

      

      
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                TABLE
                  OF CONTENTS

                 

              	 
	 	 	
                PAGE

                 

              
	
                Article
                  I -

                 

              	
                Introduction

                 

              	
                1

                 

              
	
                Article
                  II -

                 

              	
                Shares
                  Subject to the Plan

                 

              	
                1

                 

              
	
                Article
                  III -

                 

              	
                Director
                  Compensation

                 

              	
                1

                 

              
	
                Article
                  IV -

                 

              	
                Deferral
                  Elections

                 

              	
                2

                 

              
	
                Article
                  V -

                 

              	
                Participant
                  Accounts

                 

              	
                3

                 

              
	
                Article
                  VI -

                 

              	
                Distribution
                  of Accounts

                 

              	
                4

                 

              
	
                Article
                  VII -

                 

              	
                Administration
                  of the Plan

                 

              	
                5

                 

              
	
                Article
                  VIII -

                 

              	
                Amendment
                  or Termination

                 

              	
                6

                 

              
	
                Article
                  IX -

                 

              	
                General
                  Provisions

                 

              	
                7

                 

              

      

       

    

    
      
        
          
            	 	 	 

          

          

        

        
        

      

      
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    FRANKLIN
      ELECTRIC CO., INC. 

     

    NONEMPLOYEE
      DIRECTORS’ DEFERRED COMPENSATION PLAN

     

    Article
      I -  Introduction

     

    Franklin
      Electric Co., Inc., an Indiana corporation (the “Company”), maintains the
      Nonemployee Directors’ Deferred Compensation Plan (the “Plan”) for members of
      its Board of Directors (the “Board”) who are not employees of the Company or an
      affiliate of the Company (the “Nonemployee Directors”). The Plan was initially
      effective as of February 11, 2000 and is hereby amended and restated as of
      April
      28, 2006.

     

    Article
      II -  Shares
      Subject to the Plan

     

    2.1  Number
      of Shares.
      Subject
      to adjustment as provided in Section 2.2 herein, the total number of shares
      of
      common stock of the Company (“Common Stock”) available for issuance under the
      Plan shall be 25,000 shares. Such shares of Common Stock
      may
      be either authorized but unissued, reacquired or a combination
      thereof.

     

    2.2  Adjustment.
      Any
      increase in the number of outstanding shares of Common Stock occurring through
      stock splits or stock dividends after the adoption of the Plan shall be
      reflected proportionately in an increase in the aggregate number of shares
      of
      Common Stock then available for issuance under the Plan. Any fractional shares
      of Common Stock resulting from such
      adjustments
      shall be eliminated. If changes in capitalization other than those considered
      above shall occur, the Board shall make such adjustment in the number and class
      of shares of Common Stock which may thereafter be issued, as the Board in its
      discretion may consider appropriate, and all such adjustments shall be
      conclusive upon all persons.

     

    Article
      III -  Director
      Compensation

     

    3.1  Director
      Compensation.
      The
      Plan permits each Nonemployee Director to make an election for each calendar
      year to defer all of (a) the retainer payable to the Nonemployee Director for
      his or her services as a member of the Board for the fiscal year that begins
      in
      such calendar year; (b) the fees paid to the Nonemployee Director for each
      Board
      and Committee meeting attended during such calendar year; (c) the fees paid
      to
      each Nonemployee Director, if any, for services during such calendar year as
      Chairman of a Board Committee; and (d) the Stock Award granted to the
      Nonemployee Director during each such calendar year under the Franklin Electric
      Co., Inc. Stock Plan (the “Stock Plan”) (collectively, the “Director
      Compensation”). The components of Director Compensation described in Subsections
      (a) - (c) shall be referred to herein as the “Cash Portion” and the component of
      Director Compensation described in Subsection (d) shall be referred to herein
      as
      the “Stock Portion”.

     

    3.2  Participation.
      Each
      Nonemployee Director shall become a participant under the Plan (a “Participant”)
      by filing the written Election Form described in Article IV below with the
      Plan
      Administrator with
      respect to the deferral of the entire amount of Director Compensation payable
      to
      him or her during a calendar year.

     

    
      
        
        

      

      
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    Article
      IV -  Deferral
      Elections

     

    4.1  Initial
      Election.
      

     

    (a)  Each
      Nonemployee Director may elect, on an Election Form provided by the Plan
      Administrator, to defer receipt of his or her entire Director Compensation
      payable during a calendar year until the date on which his or her service on
      the
      Board terminates
      for any reason. In such case, the value of such Director Compensation will
      be
      credited to the Participant Account established for him or her under the Plan
      pursuant to the provisions of Section 5.1 below.

     

    (b)  If
      a
      Nonemployee Director does not make an election pursuant to Subsection 4.1(a)
      above to defer Director Compensation payable during a calendar year, the
      Nonemployee Director shall receive (i) with respect to the retainer described
      in
      Subsection 3.1(a), at his or her option, either (A) a cash payment equal to
      such
      amount, or (B) a distribution of a number of full shares of Common Stock equal
      to the cash value of such amount divided by the Fair Market Value (as defined
      in
      Section 9.2)
      of a
      share of Common Stock on the date on which such amount is payable, and cash
      for
      any fractional shares; (ii) with respect to the fees described in Subsections
      3.1(b) and (c), a cash payment equal to such amount; and (iii) with respect
      to
      the Stock Portion, the Stock Award that would otherwise be granted under the
      Stock Plan, in accordance with the terms of the Stock Plan. Any distribution
      of
      cash or Common Stock shall be made as soon as practicable after the date on
      which such Director Compensation is payable. Any distribution of Common Stock
      shall be evidenced by a certificate representing the applicable number of shares
      of Common Stock, registered in the name of the Nonemployee Director, and issued
      to the Nonemployee Director, provided that the Company may instead reflect
      the
      issuance of shares of Common Stock on a non-certificated basis, with the
      ownership of such shares by the Nonemployee Director evidenced solely by book
      entry in the records of the Company’s transfer agent.

     

    4.2  Timing
      of Election.
      

     

    (a)  An
      Election Form effective for a calendar year shall be delivered to the Plan
      Administrator prior to the first day of such calendar year. An Election Form
      shall remain in effect for subsequent calendar years until a written notice
      to
      revise the Election Form is delivered to the Plan Administrator on or before
      the
      first day of the calendar year in which the revision is to become effective.
      Except as provided in Subsection 4.2(b) below, an initial Election Form or
      a
      revised Election Form shall apply only to Director Compensation otherwise
      payable to a Nonemployee Director after the end of the calendar year in which
      such initial or revised Election Form is delivered to the Plan Administrator.
      Any Election Form delivered by a Nonemployee Director shall be irrevocable
      with
      respect to any Director Compensation covered by the elections set forth therein.
      If an Election Form is not in effect for a Nonemployee Director for a calendar
      year, he or she shall be deemed to have elected to receive the Cash Portion
      of
      his or her Director Compensation in cash as specified in Subsection
      4.1(b)(i)(A).

     

    
      
        
        

      

      
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    (b)  Notwithstanding
      the provisions of Subsection 4.2(a), an election made by a Nonemployee Director
      in the calendar year in which he or she first becomes a Nonemployee Director
      may
      be made pursuant to an Election Form delivered to the Plan Administrator
within
      thirty days after the date on which he or she initially becomes a Nonemployee
      Director, and such Election Form shall be effective with respect to Director
      Compensation earned from and after the date such Election Form is delivered
      to
      the Plan Administrator.

     

    Article
      V -  Participant
      Accounts

     

    5.1  Credits
      to Account.

     

    (a)  A
      Participant’s Director Compensation deferred pursuant to Section 4.1 shall be
      credited to the Participant’s Account as of the date on which such payment
would
      have been made (a “Payment Date”). 

     

    (b)  The
      Participant shall have indicated on the Election Form to have the Cash Portion
      of the deferred Director Compensation credited to his or her Account invested
      in
      one of the following ways: 

     

    (i)  Such
      dollar amount shall be held in the Cash Subaccount of the Participant’s Account
      and credited with interest as of the end of each calendar month at the rate
      in
      effect for such month as published by Wells Fargo for its Stable Return Fund,
      or
      a similar interest rate as determined by the Plan Administrator; or

     

    (ii)  Such
      dollar amount shall be held in the Stock Subaccount of the Participant’s Account
      and converted into a number of phantom shares of Common Stock (“Stock Units”),
      determined by dividing such dollar amount by the Fair Market Value of a share
      of
      Common Stock on the Payment Date. The number of Stock Units for full shares
      of
      Common Stock shall be credited to the Stock Subaccount. Any cash remaining
      after
      such conversion, together with other subsequent credits of the Cash Portion
      of
      deferred Director Compensation, shall be converted into Stock Units on the
      next
      applicable Payment Date.

     

    (c)  The
      Stock
      Portion of the deferred Director Compensation shall be held in the Stock
      Subaccount of the Participant’s Account and converted as of the applicable
      Payment Date into a number of Stock Units equal to the number of shares of
      Common Stock subject to the Stock Award. Any subsequent credits of the Stock
      Portion of deferred Director Compensation shall be converted into Stock Units
      on
      the next applicable Payment Date.

     

    
      
        
        

      

      
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    (d)  Additional
      credits shall be made to the Stock Subaccount of a Participant’s Account in
      amounts equal to the cash dividends (or the fair market value of dividends
      paid
      in property other than Common Stock) that the Participant would have received
      had he or she been the owner on each record date of a number of shares of Common
      Stock equal to the number of Stock Units in his or her Stock Subaccount on
      such
      date. In the case of a dividend in Common Stock or a Common Stock split,
      additional credits will be made to the Stock Subaccount of a Participant’s
      Account of a number of Stock Units equal to the number of full shares of Common
      Stock that the Participant would have received had he or she been the owner
      on
      each record date of a number of shares of Common Stock equal to the number
      of
      Stock Units in his or her Stock Subaccount on such date. All dividends will
      be
      converted into Stock Units as described above on the applicable dividend payment
      date.

     

    5.2  Transfer
      Between Subaccounts.

     

    (a)  Except
      as
      provided in Subsection (b) below, amounts credited to a Participant’s Cash
      Subaccount and/or Stock Subaccount pursuant to Section 5.1 shall remain in
      such
      Subaccount until distributions occur as described in Article VI, and no
      Participant shall be permitted to transfer any amounts between such
      Subaccounts.

     

    (b)  Notwithstanding
      Subsection (a), a Participant may elect to transfer all or a portion of his
      or
      her Stock Subaccount to the Cash Subaccount. Such election may be made once
      the
      Stock Portion has been held in the Stock Subaccount for three full years, and
      in
      accordance with procedures established by the Plan Administrator. In such case,
      the Stock Subaccount will be reduced by the number of Stock Units to be
      transferred and the Cash Subaccount will be credited with an amount equal to
      the
      number of Stock Units transferred multiplied by the Fair Market Value of a
      share
      of Common Stock on the date of the transfer.

     

    5.3  Accounts
      Maintained Until Payment.
      Each
      Participant Account shall be maintained on the books of the Company until full
      payment of the balance thereof has been made to the applicable Participant
      (or
      the beneficiaries of a deceased Participant). No funds shall be set aside or
      earmarked for any Participant Account, which shall be purely a bookkeeping
      device.

     

    Article
      VI -  Distribution
      of Accounts

     

    6.1  Distribution
      on Termination of Service.
      The
      entire balance of a Participant’s Account shall be paid to him or her (or to his
      or her beneficiaries in the event of his or her death) in a single lump sum
      as
      of the January 31 next following the date the Participant’s service on the Board
      terminates for any
      reason.

     

    
      
        
        

      

      
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    6.2  Form
      of Distribution.
      

     

    (a)  (i)The
      balance of the Stock Subaccount of the Participant’s Account shall be
      distributed in shares of Common Stock or in cash as designated by the
      Participant (or his or her beneficiaries in the event of his or her death)
      by
written
      notice delivered to the Plan Administrator prior to the applicable January
      31
      distribution date. If a timely designation is not received by the Plan
      Administrator, distribution shall be made in cash or in Common Stock as the
      Company shall decide. 

     

    (ii)  The
      balance of the Cash Subaccount of the Participant’s Account shall be distributed
      in cash.

     

    (b)  In
      the
      event of a distribution in Common Stock, a certificate representing a number
      of
      shares of Common Stock equal to the number of Stock Units in the Participant’s
      Account, registered in the name of the Participant (or his or her
      beneficiaries), and any remaining cash in the Stock Subaccount shall be
      distributed to the Participant (or his or her beneficiaries). Notwithstanding
      the foregoing, the Company, in lieu of issuing a stock certificate, may reflect
      the issuance of shares of Common Stock on a non-certificated basis, with the
      ownership of such shares by the Participant (or his or her beneficiaries)
      evidenced solely by book entry in the records of the Company’s transfer
      agent.

     

    (c)  In
      the
      event of a cash distribution, the Participant (or his or her beneficiaries)
      shall receive an amount in cash equal to the aggregate of (i) the number of
      Stock Units in the Stock Subaccount multiplied by the Fair Market Value of
      a
      share of Common Stock on the applicable January 31, (ii) any cash in the Stock
      Subaccount, and (iii) any cash in the Cash Subaccount, including interest
      credited for the month of January.

     

    6.3  Distribution
      Upon Death.
      If a
      Participant’s service on the Board terminates by reason of his or her death, or
      if he or she dies after becoming entitled to distribution hereunder, but prior
      to receipt of his or her entire distribution,
      all cash or Common Stock then distributable hereunder with respect to him or
      her
      shall be distributed to such beneficiary or beneficiaries as such Participant
      shall have designated by an instrument in writing last filed with the Committee
      prior to his or her death, or in the absence of such designation or of any
      living beneficiary, to his or her spouse, or if not then living, to his or
      her
      then living descendants, per stirpes, or if none is then living, to the personal
      representative of his or her estate, in the same manner as would have been
      distributed to the Participant had he or she continued to live.

     

    
      
        
        

      

      
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    6.4  Unforeseeable
      Emergency.
      In the
      discretion of the Plan Administrator, and at the written request of a
      Participant, up to 100% of the balance in his or her Account, determined as
      of
      the last day of the calendar month prior to
      the
      date of distribution, may be distributed to the Participant in a lump sum in
      the
      case of an Unforeseeable Emergency, subject to the limitations set forth below.
      For purposes of this Section 6.4, an Unforeseeable Emergency is a severe
      financial hardship of the Participant resulting from a sudden and unexpected
      illness or accident of the Participant or of a spouse or dependent (as defined
      in Section 152(a) of the Internal Revenue Code of 1986, as amended (the “Code”))
      of the Participant, loss of the Participant’s property due to casualty or other
      similar, extraordinary and unforeseeable circumstances arising as a result
      of
      events beyond the control of the Participant. The circumstances constituting
      an
      Unforeseeable Emergency will depend upon the facts of each case, as determined
      by the Plan Administrator in its discretion, but in any case payment may not
      be
      made to the extent that such hardship is or may be relieved:

     

    (a)  through
      reimbursement or compensation by insurance or otherwise;

     

    (b)  by
      liquidation of the Participant’s assets to the extent the liquidation of such
      assets would not itself cause severe financial hardship; or

     

    (c)  by
      cessation of deferrals under the Plan.

     

    Distribution
      of amounts because of an Unforeseeable Emergency shall be permitted only
      to the
      extent reasonably needed to satisfy the Unforeseeable Emergency (which may
      include amounts necessary to pay any Federal, state or local taxes or penalties
      reasonably anticipated to result from the distribution).

     

    6.5  Distribution
      Limitation for Key Employees.
      Notwithstanding the foregoing, if at the time of a Participant’s termination of
      service on the Board he or she is employed by the Company or any affiliate
      thereof, and is considered to be a Key Employee as defined in Code Section
      409A,
      distribution of his or her Account shall not be made earlier than six months
      following the Participant’s termination of service on the Board, to the extent
      required by Code Section 409A.

     

    Article
      VII -  Administration
      of the Plan

     

    7.1  Plan
      Administration.
      The
      Corporate Governance Committee of the Board of Directors of the Company shall
      act as the Plan Administrator. The Plan Administrator shall be responsible
      for
      the general operation and administration of the Plan, and shall have such powers
      as are necessary to discharge its duties under the Plan, including, without
      limitation, the following:

     

    (a)  To
      construe and interpret the Plan, to decide all questions of eligibility, to
      determine the amount, manner and time of payment of any
      benefits hereunder, to prescribe rules and procedures to be followed by
      Participants and their beneficiaries under the Plan, and to otherwise carry
      out
      the purposes of the Plan.

     

    
      
        
        

      

      
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    (b)  To
      appoint or employ individuals to assist in the administration of the Plan and
      any other agents deemed advisable. The decisions of the Plan Administrator
      shall
      be binding and conclusive upon all Participants, beneficiaries and other
      persons.

     

    7.2  Claims
      for Benefits.
      Any
      Participant claiming a benefit, requesting an interpretation or ruling, or
      requesting information, under the Plan, shall present the request in writing
      to
      the Plan Administrator, which shall respond in writing as soon as
      practicable. If the claim or request is denied, the written notice of denial
      shall state the following:

     

    (a)  the
      reasons for denial, with specific reference to the Plan provisions upon which
      the denial is based;

     

    (b)  a
      description of any additional material or information required and an
      explanation of why it is necessary; and

     

    (c)  an
      explanation of the Plan’s review procedure.

     

    The
      initial notice of denial shall normally be given within 90 days after receipt
      of
      the claim. If special circumstances require an extension of time, the claimant
      shall be so notified and the time limit shall be 180 days. Any person whose
      claim or request is denied, or who has not received a response within 30 days,
      may request review by notice in writing to the Plan Administrator. The original
      decision shall be reviewed, by the Plan Administrator, which may, but shall
      not
      be required to, grant the claimant a hearing. On review, whether or not there
      is
      a hearing, the claimant may have representation, examine pertinent documents
      and
      submit issues and comments in writing. The decision on review shall ordinarily
      be made within 60 days. If an extension of time is required for a hearing or
      other special circumstances, the claimant shall be so notified and the time
      limit shall be extended to 120 days. The decision on review shall be in writing
      and shall state the reasons and the relevant Plan provisions. All decisions
      on
      review shall be final and bind all parties concerned.

     

    Article
      VIII -  Amendment
      or Termination

     

    8.1  Authority.
      The
      Company intends the Plan to be permanent but reserves the right to amend or
      terminate the Plan when, in the sole opinion of the Company, such amendment
      or
      termination is advisable. Any such amendment or termination shall be made
      pursuant to a resolution of the Board without further action on the part of
      the
      Company’s stockholders to the extent permitted by law, regulation or stock
      exchange requirements, and shall be effective as of the date of such resolution
      or such later date as the resolution may expressly state.

     

    
      
        
        

      

      
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    8.2  Limits.
      No
      amendment or termination of the Plan shall (a) directly or indirectly deprive
      any current or former Participant or his or her beneficiaries of all or any
      portion of his or her Account as determined
      as of the effective date of such amendment or termination, or (b) directly
      or
      indirectly reduce the balance of
      any
      Account held hereunder as of
      the
      effective date of such amendment or termination. Upon termination of the Plan,
      distribution of balances in all Accounts shall continue to be made to
      Participants or their beneficiaries in the manner and at the time described
      in
      Article VI. No additional deferred Director Compensation shall be credited
      to
      the Accounts of Participants after termination of the Plan, but the Company
      shall continue to credit earnings, gains and losses to Accounts pursuant to
      Article VI until the balances of such Accounts have been fully distributed
      to
      Participants or their beneficiaries.

     

    8.3  Stockholder
      Approval.
      No such
      amendment, modification or termination of the Plan may occur without the
      approval of the stockholders of the Company, if stockholder approval for such
      amendment, modification or termination is required by the federal securities
      laws, any national securities exchange or system on which the Shares are then
      listed or reported, or a regulatory body having jurisdiction with respect
      thereto.

     

    Article
      IX -  General
      Provisions

     

    9.1  Plan
      Unfunded.
      The
      Plan at all times shall be entirely unfunded and no provision shall at any
      time
      be made with respect to segregating any assets of the Company for payment of
      any
      benefits hereunder. The right of a Participant or his or her beneficiary to
      receive a benefit hereunder shall be an unsecured claim against the general
      assets of the Company, and neither the Participant nor a beneficiary shall
      have
      any rights in or against any specific assets of the Company. All amounts
      credited to Accounts shall constitute general assets of the
      Company.

     

    9.2  Fair
      Market Value.
      For all
      purposes of the Plan, the Fair Market Value of a share of Common Stock as of
      a
      given date shall be the closing sale price of a share of Common Stock on the
      principal securities exchange on which the shares of Common Stock are publicly
      traded, or if there is no such sale on the relevant date, then on the last
      previous day on which a sale was reported.

     

    9.3  No
      Guaranty of Assets. Nothing contained in the Plan shall constitute a guaranty
      by
      the Company, the
      Corporate Governance Committee, the Plan Administrator, or any other person
      or
      entity, that the assets of the Company will be sufficient to pay any benefit
      hereunder. No Participant or beneficiary shall have any right to receive a
      distribution under the Plan except in accordance with the terms of the
      Plan.

     

    9.4  No
      Guaranty of Service.
      Establishment of the Plan shall not be construed to give any Nonemployee
      Director the right to be retained as a member of the Board.

     

    
      
        
        

      

      
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    9.5  No
      Assignment.
      No
      interest of any person or entity in, or right to receive a distribution under,
      the Plan, shall be subject in any manner to sale, transfer, assignment, pledge,
      attachment, garnishment, or other alienation or encumbrance of any kind; nor
      may
      such interest or right to receive a distribution be taken, either voluntarily
      or
      involuntarily, for the satisfaction of the debts of, or other obligations or
      claims against, such person or entity, including claims for alimony, support,
      separate maintenance and claims in bankruptcy proceedings.

     

    9.6  Governing
      Law.
      The
      Plan shall be construed and administered under the laws of the State of Indiana,
      except to the extent preempted by federal law.

     

    9.7  Incapacity
      of Participant.
      If any
      person entitled to a payment under the Plan is deemed by the Company to be
      incapable of personally receiving and giving a valid receipt for such payment,
      then, unless and until claim therefor shall have been made by a duly appointed
      guardian or other legal representative of such person, the Company may provide
      for such payment or any part thereof to be made to any other person or
      institution that is contributing toward or providing for the care and
      maintenance of such person. Any such payment shall be a payment for the account
      of such person and a complete discharge of any liability of the Company, the
      Committee, the Plan Administrator and the Plan therefor.

     

    9.8  Succession.
      The
      Plan shall be continued, following a transfer or sale of assets of the Company,
      or following the merger or consolidation of the Company into or with any other
      corporation or entity, by the transferee, purchaser or successor entity, unless
      the Plan has been terminated by the Company pursuant to the provisions of
      Article VIII prior to the effective date of such transaction.

     

    9.9  Location
      of Participants.
      Each
      Participant or beneficiary shall keep the Plan Administrator informed of his
      or
      her current address. The Plan Administrator shall not be obligated to search
      for
      the whereabouts of any person. If the location of a Participant is not made
      known to the Plan Administrator within three years after the date on which
      payment of the Participant’s benefits under the Plan be made, payment may be
      made as though the Participant had died at the end of the three-year period.
      If,
      within one additional year after such three-year period has elapsed, or, within
      three years after the actual death of a Participant, the Plan Administrator
      is
      unable to locate any beneficiary of the Participant, then the Company shall
      have
      no further obligation to pay any benefit hereunder to such Participant, or
      beneficiary or any other person and such benefit shall be forfeited. If such
      Participant, or his or her beneficiary or any other person, subsequently makes
      a
      valid claim for distribution of the amount forfeited, such amount, without
      gains
      or earnings thereon, shall be distributed to such Participant or his or her
      beneficiary or such other person pursuant to Article VI.

     

    9.10  No
      Liability.
      Notwithstanding any of the preceding provisions of the Plan, none of the
      Company, any member of the Board, any Plan Administrator or any individual
      acting as an employee or agent of the Company, the Board, or the Plan
      Administrator, shall be liable to any Participant, former Participant, or any
      beneficiary or other person for any claim, loss, liability or expense incurred
      by such Participant, or beneficiary or other person in connection with the
      Plan.

     

    
      
        
        

      

      
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    9.11  Savings
      Clause.
      Notwithstanding anything to the contrary contained in the Plan, if (a) the
      Internal Revenue Service prevails in a claim by it that amounts credited to
      a
      Participant’s Account, and/or earnings thereon, constitute taxable income to the
      Participant or his or her beneficiary for any taxable year of his, prior to
      the
      taxable year in which such credits and/or earnings are distributed to him or
      (b)
      legal counsel satisfactory to the Company, and the applicable Participant or
      his
      or her beneficiary, renders an opinion that the Internal Revenue Service would
      likely prevail in such a claim, the balance of such Participant’s Account shall
      be immediately distributed to the Participant or his or her beneficiary. For
      purposes of this paragraph, the Internal Revenue Service shall be deemed to
      have
      prevailed in a claim if such claim is upheld by a court of final jurisdiction,
      or if the Company, or a Participant or beneficiary, based upon an opinion of
      legal counsel satisfactory to the Company and the Participant or his or her
      beneficiary, fails to appeal a decision of the Internal Revenue Service, or
      a
      court of applicable jurisdiction, with respect to such claim, to an appropriate
      Internal Revenue Service appeals authority or to a court of higher jurisdiction,
      within the appropriate time period.

     

    9.12  Notices.
      Any
      notice under the Plan shall be in writing, or by electronic means, and shall
      be
      received when actually delivered, or mailed postage paid as first class U.S.
      Mail. Notices shall be directed to the Company at its principal business office
      at 400 East Spring Street, Bluffton, Indiana 46714, to a Participant at the
      address stated in his or her Election Form, and to a beneficiary entitled to
      benefits at the address stated in the Participant’s beneficiary designation, or
      to such other addresses any party may specify by notice to the other
      parties.

     

    
      
        
        

      

      
        -
          31
          -EXHIBIT 10(a)

 

Illinois Tool Works Inc.

2006 Stock Incentive Plan

 

Approved by the Board of Directors on February 10, 2006

Amended by the Board of Directors on May 5, 2006

and Approved by the Stockholders on May 5, 2006

 

 

	
            Section 1.
 	
            Purpose.
 

The purpose of the Illinois Tool Works Inc. 2006 Stock Incentive Plan (the "Plan") is to encourage Key Employees and Directors to have a greater financial interest in the Company through ownership of its Common Stock. The Plan, which subject to stockholder approval shall be effective May 5, 2006, is an amendment and restatement of the Illinois Tool Works Inc. 1996 Stock Incentive Plan, as amended (the "1996 Plan"). The Premark International, Inc. 1994 Incentive Plan (the "Premark Plan") was merged into the 1996 Plan effective May 9, 2003.

The Company hereby amends and restates the 1996 Plan to merge the non-deferral provisions of the Illinois Tool Works Inc. Non-Officer Directors' Fee Conversion Plan (the "Directors' Fee Conversion Plan") into the Plan, change the name of the 1996 Plan to the "Illinois Tool Works Inc. 2006 Stock Incentive Plan," and make other desired changes as provided herein.

	
            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, or any similar transaction, 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 to any person or entity, other than a wholly owned subsidiary, of Company assets having a total gross fair market value of at least 40% of the total gross fair market value of all Company assets; (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 an actual or threatened solicitation of proxies by or on behalf of anyone other than the Board.

 

Covered Employee: A Key Employee who is or is expected to be a "covered employee" under Code Section 162(m) for the year in which an Incentive is taxable to such employee.

Director: An individual who is a member of the Board but who is not an employee of the Company.

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: An Option as defined in Code Section 422.

Incentives: Options (including Incentive Stock Options), Stock Awards, Performance Units, Restricted Stock Units and Stock Appreciation Rights.

Key Employee: An employee of the Company who has been approved by the Committee for participation in the Plan.

Option: An option to purchase shares of Common Stock granted to a Participant pursuant to Section 5.

Participant: A Key Employee or Director who has been granted an Incentive.

Performance Unit: A unit representing a cash sum or a share of Common Stock that is granted to a Participant pursuant to Section 7.

Plan: The Illinois Tool Works Inc. 2006 Stock Incentive Plan, as amended from time to time.

Restricted Stock: Shares of Common Stock issued subject to restrictions pursuant to Section 6(b).

Restricted Stock Unit: A unit representing a share of Common Stock that is granted to a Participant pursuant to Section 8.

Stock Appreciation Right: An award granted to a Participant pursuant to Section 9.

Stock Award: An award of Common Stock granted to a Participant pursuant to Section 6.

	
            Section 3.
 	
            Administration.
 

(a)          Committee. The Plan shall be administered by the Committee, which shall be composed of "independent directors" as defined in the New York Stock Exchange Listed Company Manual. 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 and Directors for participation in the Plan, to approve the number and types of Incentives and other terms and conditions, to construe and interpret the Plan, and to establish, amend or waive rules and regulations for its administration.

 

(c)          Incentive Provisions. Incentives may be subject to such provisions as the Committee shall deem advisable, which 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 his/her consent. Incentive provisions may include, without limitation, provisions for the forfeiture of, or restrictions on resale or other disposition of Common Stock acquired under, any Incentive; provisions to comply with Federal or state securities laws and stock exchange rules; provisions allowing acceleration of exercise or the lapse of restrictions in the event of death, disability, retirement or other specified event; understandings or conditions as to the Participant's employment in addition to those
specifically provided for under the Plan; and provisions allowing the deferral of the receipt of Incentives for such period and upon such terms and conditions as the Committee shall determine.

	
             
 	
            Section 4.
 	
            Common Stock Subject to Plan.
 

Subject to Section 10, the aggregate number of shares of Common Stock that may be issued under the Plan, consisting of shares of Common Stock authorized but unissued or treasury shares, and including shares previously reserved for issuance that have not been issued under the 1996 Plan and the Directors' Fee Conversion Plan, is 35,000,000. The number of authorized shares that may be issued in the form of Stock Awards, Restricted Stock, Restricted Stock Units and Performance Units is limited to 5,000,000 in the aggregate. In the event of a lapse, expiration, termination, forfeiture or cancellation of any Incentive granted under the Plan, the Common Stock subject to or reserved for such Incentive may not be used again for a new Incentive hereunder. 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 not be added to the aggregate number of shares of Common Stock available for issuance.

	
            Section 5.
 	
            Options.
 

(a)          Option Agreement. Options may be granted on terms and conditions established by the Committee. The grant of each Option shall be evidenced by a written agreement specifying the type of Option granted, the exercise period, the exercise price, the method of payment of the exercise price, the expiration date, the number of shares of Common Stock subject to each Option and such other terms and conditions, as may be established by the Committee. Each Option shall become exercisable as provided in the agreement; provided that the Committee shall have the discretion, among other things, to accelerate the date as of which any Option shall become exercisable and extend the period during which the Option may be exercised, in the event of the Participant's termination of employment with the
Company or service on the Board. The Committee may condition the exercisability of any Option on the completion of a specific period of employment or service, or upon the attainment of Company or individual performance goals. Any Option granted under the Plan, including any Option previously granted under the Premark Plan, shall be governed by the terms of the applicable Option agreement.

(b)          Price. The exercise price per Option share shall be not less than the Fair Market Value on the grant date. The aggregate exercise price of Incentive Stock Options exercisable for the first time by a Key Employee during any calendar year shall not exceed $100,000.

(c)          Limitations. Options for more than 500,000 shares of Common Stock may not be granted in any calendar year to any Participant. Incentive Stock Options (i) may not at any time be granted to Directors, and (ii) may not be exercised if at any time more than 10,000,000 shares of Common Stock have already been issued pursuant to the exercise of Incentive Stock Options.

(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 (i) in cash, (ii) by the surrender of Common Stock previously acquired by the Incentive holder, (iii) by any other method approved by the Committee, or (iv) by a combination of the foregoing as approved by the Committee.

 

 

	
             
 	
            Section 6.
 	
            Stock Awards.
 

(a)          Grant of Stock Awards. Stock Awards may be made to Key Employees and Directors on terms and conditions established by the Committee. 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. Key Employees who are ITW officers may elect to convert up to 50% of their bonuses, and Directors may elect to convert all or any portion of their fees, into shares of Common Stock to be issued to them pursuant to this Section 6(a). The number of shares to be issued to the Key Employee or Director who so elects is determined by dividing the dollar amount of the bonus or fee subject to the
election by the Fair Market Value of the Common Stock on the date the bonus or fee otherwise would have been paid in cash to the Key Employee or Director. Stock Awards (including Restricted Stock awards) for more than 500,000 shares of Common Stock may not be granted in any calendar year to any Participant. 

(b)          Restricted Stock. Stock Awards may be in the form of Restricted Stock. Restricted Stock 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 Stock granted to any Covered Employee to satisfy the performance-based compensation exemption under Code Section 162(m) ("Qualifying Restricted Stock"), the extent to which the Qualifying Restricted Stock will vest shall be based on the attainment of performance goals established in writing by the Committee from the list in Section 7(b) prior to, or within 90 days following, the commencement of the performance period. The level of attainment of such
performance goals and the corresponding number of vested shares of Qualifying Restricted Stock shall be certified by the Committee in writing pursuant to Code Section 162(m) and the related regulations.

	
            Section 7.
 	
            Performance Units.
 

(a)          Grant of Performance Units. Performance Units may be granted on terms and conditions set forth by the Committee prior to, or within 90 days following, the commencement of the applicable performance period. At such time, the Committee shall establish in writing (i) an initial target value or number of shares of Common Stock for the Performance Units to be granted to a Participant, (ii) the form of payment which may be cash or shares of Common Stock, or a combination thereof, (iii) the duration of the performance period, and (iv) the specific, objective performance goals to be attained, including performance levels at which various percentages of Performance Units will be earned.

(b)          Performance Goals. 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 Committee shall specify (i) the minimum level of attainment to be met to earn any portion of the Performance Units, and (ii) the performance goals which 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, diversity, safety record, acquisition activity, management succession planning, improved asset management, improved operating 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 invested 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.

(c)          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 Participant. 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 number of shares of Common Stock that may be issued to any Covered Employee may not exceed 500,000. The Committee may not adjust upward the amount payable to any Covered Employee with respect to Qualifying Performance Units. The Committee may also provide for pro rata payment of Performance Units to a Participant upon retirement, disability or other termination of employment.

 

 

	
             
 	
            Section 8.
 	
            Restricted Stock Units.
 

(a)          Grant of Restricted Stock Units. Restricted Stock Units may be granted to Participants on terms and conditions set forth by the Committee which may include, without limitation, provisions for (i) the vesting of the Restricted Stock Units, (ii) the lapse of restrictions in the event of death, disability, retirement or other specified event, and (iii) the payment of vested Restricted Stock Units in the form of an equivalent number of shares of Common Stock or cash. Additional Restricted Stock Units shall be credited to each Participant with respect to the Participant’s current Restricted Stock Units, to reflect dividends paid to stockholders of the Company with respect to its Common Stock. A Participant who has been granted Restricted Stock Units shall not be entitled to any
voting or other stockholder rights with respect to shares of Common Stock attributable to Restricted Stock Units until such time as the shares are issued by the Company to the Participant.

(b)          Qualifying Restricted Stock Units. If the Committee intends the Restricted Stock Units granted to any Covered Employee to satisfy the performance-based compensation exemption under Code Section 162(m) (“Qualifying Restricted Stock Units”), the extent to which the Qualifying Restricted Stock Units will vest shall be based on the attainment of performance goals established in writing by the Committee from the list in Section 7(b) prior to, or within 90 days following, the commencement of the performance period. The level of attainment of such performance goals and the corresponding number of vested Qualifying Restricted Stock Units shall be certified by the Committee in writing pursuant to Code Section 162(m) and the related regulations. With respect to Qualifying
Restricted Stock Units, for any calendar year, the maximum amount payable in cash to any Covered Employee shall be $5,000,000, and the aggregate number of shares of Common Stock that may be issued to any Covered Employee may not exceed 500,000. The Committee may not adjust upward the amount payable to any Covered Employee with respect to vested Qualifying Restricted Stock Units.

(c)          Payment of Restricted Stock Units. Upon the vesting of a Participant’s Restricted Stock Units, the Participant shall receive from the Company a share of Common Stock with respect to each vested Restricted Stock Unit, with any fractional vested Restricted Stock Unit to be paid in cash based on the Fair Market Value of the Common Stock on the distribution date. If the Committee determines in its sole discretion that a Participant’s vested Restricted Stock Units shall be paid in cash, the amount of cash shall be determined by multiplying the number of vested Restricted Stock Units by the Fair Market Value of the Common Stock on the distribution date. 

	
             
 	
            Section 9.
 	
            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. Each Stock Appreciation Right will generally entitle the Participant to receive, upon exercise, an amount in cash or shares of Common Stock not exceeding the excess of the Fair Market Value on the exercise date over the Fair Market Value on the grant date, times the number of shares of Common Stock with respect to which the Right is being exercised. Stock Appreciation Rights for more than 500,000 shares of Common Stock may not be granted to any Participant in any calendar year. The grant of each Stock Appreciation Right shall be evidenced by a written agreement specifying the value of the Right on the grant date, the exercise period, the expiration date, the number of shares of Common Stock subject to the Right, and such other terms
and conditions as may be established by the Committee. Each Stock Appreciation Right shall become exercisable as provided in the agreement; provided that the Committee shall have the discretion, among other things, to accelerate the date as of which any Right shall become exercisable and extend the period during which the Right may be exercised, in the event of the Participant's termination of employment with the Company or service on the Board.

	
            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 (i) the number and class of shares or other securities that are reserved for issuance under the Plan, (ii) the number and class of shares or other securities that have not been issued under outstanding Incentives, and (iii) 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. Notwithstanding anything to the contrary contained herein, no Incentives shall be granted under the Plan on or after February 10, 2016.

	
            Section 12.
 	
            Corporate Change.
 

Notwithstanding any other Plan provision to the contrary, in the event of a Corporate Change, (i) all Incentives shall vest and, in the case of Options and Stock Appreciation Rights, become exercisable, (ii) the maximum value of each Participant's Performance Units, prorated for the number of full months of service completed by the Participant during the applicable performance period, shall immediately be paid in cash to the Participant, and (iii) each Participant's Restricted Stock Units shall immediately be paid in cash (determined pursuant to Section 8(c)) to the Participant.

	
            Section 13.
 	
            General Provisions.
 

(a)          Employment and Service on the Board. Nothing in the Plan or in any related instrument shall interfere with or limit in any way the right of the Company to terminate any Participant's employment or service on the Board at any time with or without cause, nor confer upon any Participant any right to continue in the employ of the Company or continue to serve on the Board. 

(b)          Legality of Issuance of Shares. The Committee may postpone any grant or settlement of an Incentive or exercise of an Option or Stock Appreciation Right for such time as the Board in its sole discretion may deem necessary in order to allow the Company:

(i)            to effect, amend or maintain any necessary registration of the Plan or the shares of Common Stock issuable pursuant to an Incentive under the Securities Act of 1933, as amended, or the securities laws of any applicable jurisdiction;

(ii)           to allow any action to be taken in order to (A) list such shares of Common Stock on a stock exchange if shares of Common Stock are then listed on such exchange or (B) comply with restrictions or regulations incident to the maintenance of a public market for its shares of Common Stock, including any rules or regulations of any stock exchange on which the shares of Common Stock are listed; or 

(iii)          to determine that such shares of Common Stock and the Plan are exempt from such registration or that no action of the kind referred to in (b)(ii) above needs to be taken; and the Company shall not be obligated by virtue of any terms and conditions of any Incentive or any provision of the Plan to sell or issue shares of Common Stock in violation of the Securities Act of 1933 or the law of any government having jurisdiction thereof.

Any such postponement shall not extend the term of an Incentive unless the Committee determines otherwise, and neither the Company nor its Directors or officers shall have any obligation or liability to any Participant or other person with respect to any shares of Common Stock as to which the Incentive shall lapse because of such postponement.

(c)          Ownership of Common Stock Allocated to Plan. No individual or group of individuals 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 individual or individuals.

 

(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 in its sole discretion 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. In order to satisfy all or a portion of the income tax liability that arises with respect to any Incentive, the holder of the Incentive 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; provided that any withheld Common Stock, or any surrendered Common Stock previously acquired from the Company and held by the
Incentive holder for less than six months, may only be used to satisfy the minimum tax withholding required by law.

(f)           Nontransferability. No Incentive may be assigned or subjected to any encumbrance, pledge or charge of any nature, other than (i) by will or by the laws of descent and distribution, (ii) pursuant to a beneficiary designation that meets the requirements of Section 13(h), (iii) pursuant to the terms of a qualified domestic relations order to which the Participant is a party that meets the requirements of any relevant provisions of the Code, or (iv) pursuant to a transfer that meets the requirements set forth hereinafter. 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 by the Committee 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. Such transfer rights shall in no event apply to any Incentive Stock Options, Stock Appreciation Rights, Performance Units and Restricted Stock Units.

(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 Participant may designate a beneficiary or beneficiaries to succeed to any rights which the Participant may have with respect to Options, Stock Appreciation Rights, Stock Awards, Performance Units or Restricted Stock Units at death. The designation may be changed or revoked by the Participant 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 Participant's death. If a Participant does not designate a beneficiary or no designated beneficiary survives the Participant, then the beneficiary shall be the Participant's estate.

	
             
 	
            Section 14.
 	
            Amendment or Termination of the Plan.
 

The Board may at any time amend or terminate the Plan as it deems advisable and in the best interests of the Company; provided, that no amendment, suspension or termination shall adversely affect the rights of any Participant under any outstanding Incentive in any material way without his/her consent, unless such amendment or termination is required by applicable law or stock exchange rule. No amendment to the Plan shall be made without stockholder approval if stockholder approval is required by law or stock exchange rule. No amendment to the Plan or any outstanding Option agreement shall be effective if it results, or may result, in the repricing of an Option, or in the grant of a reload or restorative Option for the number of shares delivered by a Participant in payment of an Option exercise price.

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