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EXHIBIT 22
Election of Directors
Ten directors of the Company are to be elected to hold office until the
next annual meeting, until their successors are duly elected and qualified, or
until their earlier resignation or removal. Unless otherwise directed, proxies
will be voted at the meeting for the election of the persons listed below or, in
the event of an unforeseen contingency, for different persons as substitutes.
The Corporate Governance and Nominating Committee and the Board of Directors are
recommending this slate. Set forth below are the name, age, principal occupation
and other information concerning each nominee.
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MICHAEL J. BIRCK (59)
Founder, and President and Chief Executive Officer since
1975, of Tellabs, Inc. Tellabs designs, manufactures,
markets and services voice and data equipment. Mr. Birck
is a director of USF&G Corporation and Molex, Inc. He has
been a director of the Company since 1996.
MARVIN D. BRAILSFORD (59)
Vice President of Kaiser-Hill Company LLC (construction
and environmental services) since 1996, founder and
President of the Brailsford Group (acquisition consulting)
from 1995 to 1996, and President of Metters Industries
(information technology) from 1992 to 1995. He retired
from the United States Army in 1992 with the rank of
Lieutenant General after 33 years of service. He has been
a director of the Company since 1996.
SUSAN CROWN (39)
Vice President, Henry Crown and Company since 1984, a
family owned and operated company with investments in
securities, real estate and manufacturing operations. Ms.
Crown is a director of Baxter International Inc. and
Northern Trust Corporation and its subsidiary, The
Northern Trust Company. She is also a trustee of The Yale
Corporation. She has been a director of the Company since
1994.
H. RICHARD CROWTHER (65)
Former Vice Chairman of the Company from 1990 through
1995. Prior to becoming Vice Chairman, Mr. Crowther was
Executive Vice President from 1983 through 1989 and had a
total of 36 years service with the Company before his
retirement. He is a director of Applied Power Inc. and has
been a director of the Company since 1995.
W. JAMES FARRELL (55)
Chairman since 1996 and Chief Executive Officer of the
Company since 1995. Mr. Farrell served as President from
1994 until 1996 and as Executive Vice President from 1983
to 1994. He has a total of 32 years service with the
Company. Mr. Farrell is a director of Morton
International, Inc., Premark International, Inc. and the
Quaker Oats Company, and has been a director of the
Company since 1995.
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L. RICHARD FLURY (50)
Executive Vice President, Amoco Corporation (energy and
chemicals) since 1996, formerly Senior Vice President for
Shared Services from 1994 through 1995 and Executive Vice
President, Amoco Chemical Co., from 1991 to 1994, with a
total of 27 years service with Amoco. Mr. Flury is a
director of the Illinois Coalition, North Central College
and the Field Museum, and has been a director of the
Company since 1995.
ROBERT C. MCCORMACK (58)
Partner, Trident Capital LP(venture capital) since 1993;
Assistant Secretary of the Navy from 1990 to 1993; Deputy
Under Secretary of Defense from 1987 to 1990; and Managing
Director, Morgan Stanley & Co. Incorporated (investment
banking) from 1985 to 1987. Mr. McCormack is a director of
DeVry, Inc. and has been a director of the Company since
1993. He was previously a director of the Company from
1978 through 1987.
PHILLIP B. ROONEY (53)
Vice Chairman of The ServiceMaster Company (a network of
quality service companies). Former President of WMX
Technologies Inc. (waste management) from 1985 until 1997.
Mr. Rooney is a director of The ServiceMaster Company,
Urban Shopping Centers Inc. and Stone Container
Corporation, and a Trustee of the Van Kampen American
Capital Open-End Funds. He has been a director of the
Company since 1990.
HAROLD B. SMITH (64)
Chairman of the Executive Committee of the Company since
1982. Mr. Smith is a director of W.W. Grainger Inc. and
Northern Trust Corporation and its subsidiary, The
Northern Trust Company, and a trustee of The Northwestern
Mutual Life Insurance Company. He has been a director of
the Company since 1968.
ORMAND J. WADE (58)
Former Vice Chairman, Ameritech Corp. (telecommunications
products and services) from 1987 to 1993 and President and
Chief Executive Officer, Illinois Bell Telephone Company
from 1982 through 1986. Mr. Wade is a director of Andrew
Corporation and Westell Inc. and has been a director of
the Company since 1985.
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Security Ownership
The following table sets forth information regarding ownership of the
Company's Common Stock as of December 31, 1997 by each director and nominee for
director; by each of the named Executive Officers; by directors, nominees and
Executive Officers as a group; and by other persons who, to the knowledge of the
Company, own of record or beneficially more than 5% of the outstanding Common
Stock of the Company.
DIRECTORS'
AMOUNT AND NATURE OF PHANTOM STOCK PERCENT OF
NAME OF BENEFICIAL OWNER OR GROUP BENEFICIAL OWNERSHIP(1) UNITS(2) CLASS
--------------------------------- ----------------------- ------------- ----------
Directors and Nominees
(Other than Executive Officers)
Michael J. Birck.......................... 3,500(3) 2,024 *
Marvin D. Brailsford...................... 1,900(3) 2,019 *
Susan Crown............................... 8,700(3)(4) 2,040 *
H. Richard Crowther....................... 363,327(3)(5)(6) 2,193 *
L. Richard Flury.......................... 2,100(3) 2,040 *
Robert C. McCormack....................... 14,519,200(3)(7)(8) 2,040 5.8
Phillip B. Rooney......................... 24,641(3)(9) 2,040 *
Harold B. Smith........................... 38,840,362(8)(10) -- 15.6
Ormand J. Wade............................ 4,700(3) 2,040 *
Executive Officers
W. James Farrell.......................... 320,733(6)(11) *
Russell M. Flaum.......................... 91,883(6)(12) *
Frank S. Ptak............................. 205,690(6) *
F. Ronald Seager.......................... 195,538(6)(13) *
David B. Speer............................ 45,205(6)(14) *
Directors, Nominees and All Executive
Officers as a Group (22 Persons).......... 40,445,526(6) 16.2
Other Principal Beneficial Owners
Edward Byron Smith, Jr. .................. 15,067,868(15) 6.0
The Northern Trust Company................ 46,846,170(16) 18.8
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* Less than 1% of Class
(1) Unless otherwise noted, ownership is direct.
(2) Represents units of phantom stock and dividend equivalents earned under the
phantom stock plan for non-officer directors. Each unit is equal in value
to one share of Common Stock. The units are not transferable and have no
voting rights. Such units are not included in the "Percent of Class"
column.
(3) Includes 900 shares of restricted stock granted on January 2, 1998 under
the Directors' Restricted Stock Plan.
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(4) Includes 2,000 shares owned in a trust as to which Ms. Crown shares voting
and investment power.
(5) Includes 266,041 shares held in a revocable living trust as to which Mr.
Crowther shares voting and investment power and 30,107 shares owned by his
spouse, as to which Mr. Crowther disclaims beneficial ownership.
(6) Includes shares covered by stock options exercisable within 60 days of
December 31, 1997 as follows: Mr. Crowther, 27,104; Mr. Farrell, 247,992;
Mr. Flaum, 56,600; Mr. Ptak, 132,000; Mr. Seager, 145,000; Mr. Speer,
42,200; and directors, nominees and Executive Officers as a group, 924,746.
(7) Includes 400 shares owned in a trust as to which Mr. McCormack shares
voting and investment power with The Northern Trust Company and 14,510,380
shares as described in Footnote 8.
(8) Robert C. McCormack, Edward Byron Smith, Jr., Harold B. Smith and The
Northern Trust Company are trustees of twelve trusts owning 14,510,380
shares as to which they share voting and investment power.
(9) Includes 2,000 shares owned by Mr. Rooney's spouse, as to which he
disclaims beneficial ownership.
(10) Includes 21,443,264 shares owned in twelve trusts as to which Mr. Smith
shares voting and investment power with The Northern Trust Company and
others; 2,164,480 shares owned in eleven trusts as to which he shares
voting and investment power; 14,510,380 shares as described in Footnote 8;
and 83,012 shares owned by a charitable foundation of which he is a
director.
(11) Includes 2,450 shares held by Mr. Farrell's son and 1,700 shares owned by
his spouse, as to both of which holdings Mr. Farrell disclaims beneficial
ownership, and 43,847 shares owned in a partnership as to which Mr. Farrell
shares voting and investment power.
(12) Includes 1,473 shares allocated to Mr. Flaum's account in the Company's
Savings and Investment Plan.
(13) Includes 1,976 shares owned by Mr. Seager's spouse, as to which he
disclaims beneficial ownership.
(14) Includes 800 shares allocated to Mr. Speer's account in the Company's
Savings and Investment Plan.
(15) Includes 32,932 shares owned in two trusts as to which Edward Byron Smith,
Jr. has sole voting and investment power; 192,400 shares owned in a trust
as to which The Northern Trust Company has sole voting and investment
power; 166,666 shares owned in two trusts as to which Mr. Smith shares
voting and investment power; and 14,510,380 shares as described in Footnote
8. Also includes the following shares held for the benefit of Mr. Smith's
children: 111,160 shares owned in two trusts as to which The Northern Trust
Company has sole voting and investment power; 32,080 shares held in two
trusts as to which Mr. Smith's spouse and sister share voting and
investment power; and 8,800 shares owned in two trusts as to which Mr.
Smith's sister has sole voting and investment power.
(16) Including its holdings as trustee described in Footnotes 7, 8, 10 and 15,
The Northern Trust Company and its affiliates act as sole fiduciary or
co-fiduciary of trusts and other fiduciary accounts that own an aggregate
of 46,846,170 shares. They have sole voting power with respect to
17,792,456 shares and share voting power with respect to 16,766,852 shares.
They have sole investment power with respect to 3,544,639 shares and share
investment power with respect to 38,046,475 shares. In addition, The
Northern Trust Company holds in other accounts, but does not beneficially
own, 18,634,203 shares, resulting in aggregate holdings by The Northern
Trust Company of 65,479,373 shares (25.9%).
Because of their holdings individually and as trustees, the holdings of
their immediate families and/or their positions with the Company, Robert C.
McCormack, Edward Byron Smith, Jr. and Harold B. Smith may be deemed to be
"controlling persons" of the Company within the meaning of
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the Securities Act of 1933, as amended. Byron L. Smith, great grandfather of
Robert C. McCormack, Edward Byron Smith, Jr. and Harold B. Smith, founded the
Company in 1912.
The Company maintains normal commercial banking relationships with The
Northern Trust Company, which also acts as the trustee under the Company's
principal pension plan. The Northern Trust Company is a wholly owned subsidiary
of Northern Trust Corporation. Harold B. Smith and Susan Crown, directors of the
Company, are also directors of both Northern Trust Corporation and The Northern
Trust Company.
The Northern Trust Company's address is 50 South LaSalle Street, Chicago,
IL 60675 and the address of each of the other beneficial owners of more than 5%
of the Company's Common Stock is c/o The Secretary, Illinois Tool Works Inc.,
3600 West Lake Avenue, Glenview, IL 60025.
Executive Compensation
The table below summarizes the compensation of the Chief Executive Officer
and the other four most highly compensated Executive Officers.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
----------------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- -------
RESTRICTED SECURITIES
NAME AND OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($)(1) ($)(1)(2) ($)(3) ($)(4) (#) ($) ($)
--------- ---- ------- --------- ------------ ---------- ---------- ------- ------------
W. James Farrell 1997 499,900 600,000 -- -- 100,000 -- 48,042(5)(6)(7)
Chairman and Chief 1996 453,754 500,000 -- -- 400,000 -- 40,808
Executive Officer 1995 317,212 370,000 -- -- 120,000 -- 38,000
Frank S. Ptak 1997 288,017 293,030 -- -- 50,000 -- 14,140(5)(6)
Vice Chairman 1996 255,261 275,000 -- -- -- -- 11,429
1995 219,397 219,670 -- -- 60,000 -- 10,252
F. Ronald Seager 1997 232,562 220,980 -- -- 30,000 -- 15,155(5)(6)
Executive 1996 218,801 204,580 -- -- -- -- 12,160
Vice President 1995 209,501 206,150 -- -- 60,000 -- 11,306
Russell M. Flaum 1997 214,955 218,500 -- -- 30,000 -- 7,552(5)(6)
Executive 1996 208,082 209,195 -- -- -- -- 6,411
Vice President 1995 199,452 195,000 -- -- 30,000 -- 6,364
David B. Speer 1997 190,924 183,300 -- -- 30,000 -- 7,262(5)(6)
Executive 1996 179,507 159,480 -- -- -- -- 5,931
Vice President 1995 159,746 113,085 -- -- 24,000 -- 5,300
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(1) Actual salary or bonus earned. Includes amounts deferred under the Company's
1993 Executive Contributory Retirement Income Plan or Savings and Investment
Plan or both.
(2) Amounts awarded under the Executive Incentive Plan are calculated on the
base salary of record as of December 31 for the respective years and paid in
the subsequent year.
(3) Perquisites and other personal benefits, securities or property in the
aggregate do not exceed the threshold reporting level of the lesser of
$50,000 or 10% of total salary and bonus reported for the named Executive
Officer.
(4) The number of unvested restricted shares previously granted under the
Company's Stock Incentive Plan and their value as of December 31, 1997 were:
Mr. Farrell, 35,200 shares ($2,116,400); Mr. Ptak, 35,200 shares
($2,116,400); Mr. Seager, 22,000 shares ($1,322,750); and Mr. Flaum, 22,000
shares ($1,322,750).
(5) Includes Company matching contributions to the 1993 Executive Contributory
Retirement Income Plan or the Savings and Investment Plan as follows: Mr.
Farrell, $14,997; Mr. Ptak, $8,641; Mr. Seager, $6,977; Mr. Flaum, $4,800;
and Mr. Speer $5,728.
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(6) Includes interest credited on deferred compensation in excess of 120% of the
Applicable Federal Long Term Rate as follows: Mr. Farrell, $6,193; Mr. Ptak,
$5,500; Mr. Seager, $8,178; Mr. Flaum, $2,752; and Mr. Speer $1,535.
(7) Includes $26,852 representing imputed income on Mr. Farrell's outstanding
home loan made by the Company in 1995. The maximum amount of the loan
outstanding during 1997 was $420,000, which by March 1, 1998 had been
reduced to $290,000. The imputed rate of interest on the loan is 7.34% per
annum and the loan is repayable in annual installments through the year
2000.
The Company has a loan program for Executive Officers to assist them in
complying with the Company's stock ownership guidelines. As of February 28,
1998, Mr. Farrell had an outstanding loan of $94,193 payable December 31, 2000,
bearing interest at a rate of 5.91% per annum and secured by 3,200 shares of
Common Stock of the Company. The five-year term of the promissory note is
renewable, but the note is repayable 180 days following termination of
employment with the Company (or immediately if termination is for gross or
willful misconduct) and upon bankruptcy, insolvency or death of the employee or
breach of the terms of the note.
In the event of a corporate change of control, each Executive Officer's
unvested restricted stock and stock options previously granted under the Stock
Incentive Plan would immediately become fully vested. In addition, the maximum
awards under the Executive Incentive Plan for the fiscal year then in progress,
prorated for the number of days in the fiscal year that have elapsed as of the
date of the change of control, would immediately be paid in cash.
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The table below sets forth information as to options granted during 1997 to
the Executive Officers listed in the Summary Compensation Table.
OPTION GRANTS IN 1997
INDIVIDUAL GRANTS
------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED EXERCISE GRANT DATE VALUE
OPTIONS TO OR BASE --------------------
GRANTED EMPLOYEES PRICE EXPIRATION GRANT DATE
NAME (#)(1) IN 1997 ($/SH) DATE PRESENT VALUE ($)(2)
---- ---------- ---------- -------- ---------- --------------------
W. James Farrell................... 100,000 8.8% 54.62 12/12/07 1,582,000
Frank S. Ptak...................... 50,000 4.4% 54.62 12/12/07 791,000
F. Ronald Seager................... 30,000 2.7% 54.62 12/12/07 474,600
Russell M. Flaum................... 30,000 2.7% 54.62 12/12/07 474,600
David B. Speer..................... 30,000 2.7% 54.62 12/12/07 474,600
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(1) These grants become exercisable as to 25% of the shares underlying the
options on each of the first four anniversaries of the grant, and are
generally fully exercisable after the first anniversary in the event of
retirement, disability or death. A restorative option right applies to
these grants so long as the option holder is employed by the Company.
(2) The estimated fair value of each option granted is calculated using the
Black-Scholes option pricing model. The assumptions used in the model are:
risk-free interest rate (5.9%); expected stock volatility (21.7%); dividend
yield (1.29%); and expected years until exercise (5.5).
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The table below sets forth information as to option exercises during 1997
as well as the number and value of unexercised options as of December 31, 1997
for the Executive Officers listed in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN 1997
AND 1997 YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED VALUE OPTIONS AT YEAR END(#) AT YEAR END($)(1)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- --------- ----------- ------------- ----------- -------------
W. James Farrell........... 42,000 1,594,313 247,992 480,000 8,664,101 10,910,500
Frank S. Ptak.............. 12,000 520,583 132,000 80,000 5,371,124 1,175,250
F. Ronald Seager........... 15,000 678,444 145,000 60,000 5,972,968 1,065,150
Russell M. Flaum........... 18,000 585,750 56,600 45,000 2,233,025 615,150
David B. Speer............. 5,000 186,563 42,200 46,000 1,620,800 684,150
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(1) Based on the closing market price ($60.125) of the Company's Common Stock on
December 31, 1997.
RETIREMENT PLANS
The Company's principal non-contributory defined benefit pension plan
covers approximately 15,000 domestic business unit employees, including
Executive Officers. Benefit amounts are based on years of service and average
monthly compensation for the five highest consecutive years out of the last ten
years of employment. The following table illustrates the maximum estimated
annual benefits to be paid upon normal retirement at age 65 to individuals in
specified compensation and years of service classifications. The table does not
reflect the limitations on those benefits contained in the Internal Revenue Code
of 1986. Supplemental payments in excess of those limitations will be made under
a Board approved plan to participants designated by the Compensation Committee
in order to maintain their retirement benefits at the levels provided under the
pension plan's formula.
ESTIMATED ANNUAL NORMAL RETIREMENT BENEFITS(1)
--------------------------------------------------------------------------
YEARS OF SERVICE AT NORMAL RETIREMENT(2)
COMPENSATION(3) 10 15 20 25 30 35 40
--------------- -------- -------- -------- -------- -------- -------- --------
$ 250,000........... $ 41,250 $ 61,875 $ 82,500 $103,125 $123,750 $133,125 $142,500
500,000........... 82,500 123,750 165,000 206,250 247,500 266,250 285,000
750,000........... 123,750 185,625 247,500 309,375 371,250 399,375 427,500
1,000,000........... 165,000 247,500 330,000 412,500 495,000 532,500 570,000
1,250,000........... 206,250 309,375 412,500 515,625 618,750 665,625 712,500
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(1) Amounts shown exceed actual amounts by .65% of Social Security covered
compensation for each year of service up to 30 years.
(2) Years of service as of December 31, 1997 for the five most highly
compensated Executive Officers were as follows: Mr. Farrell, 32.5 years;
Mr. Ptak, 22.1 years; Mr. Seager, 17.6 years; Mr. Flaum, 11.0 years; and
Mr. Speer, 19.5 years.
(3) Compensation includes all amounts shown under the columns "Salary" and
"Bonus" in the Summary Compensation Table.
Under the Company's 1982 Executive Contributory Retirement Income Plan,
annual benefits payable beginning at the normal retirement age of 65 for 15
years are as follows: Mr. Farrell, $113,529 and Mr. Seager, $68,266.