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EXHIBIT 22
ELECTION OF DIRECTORS
Stockholders will elect ten directors at the Annual Meeting. The
individuals listed below have been nominated by the Board of Directors as
recommended by the Corporate Governance and Nominating Committee. L. Richard
Flury recently resigned from our Board as he completes his move to BP-Amoco's
business in the United Kingdom. Each director will serve until the May 2000
annual meeting, until a qualified successor director has been elected, or until
he or she resigns or is removed by the Board of Directors.
We will vote your shares as you specify on the enclosed proxy card. If
you do not specify how you want your shares voted, we will vote them FOR the
election of all the nominees listed below. If unforeseen circumstances (such as
death or disability) make it necessary for the Board of Directors to substitute
another person for any of the nominees, we will vote your shares FOR that other
person. The Board of Directors does not anticipate that any nominee will be
unable to serve. The nominees have provided the following information about
themselves:
WILLIAM F. ALDINGER III, 51, has served as the Chairman and Chief Executive
Officer of Household International, Inc. a consumer finance company, since 1994.
From 1986 through 1994, Mr. Aldinger held various senior management positions at
Wells Fargo Bank, N.A. He serves on the boards of SunAmerica, Inc. and
MasterCard International. Mr. Aldinger has been a director of ITW since 1998.
MICHAEL J. BIRCK, 61, founded Tellabs, Inc. and has been its President and Chief
Executive Officer since 1975. Tellabs designs, manufactures, markets and
services voice and data equipment. Mr. Birck is a director of Molex, Inc. and
Tellabs, Inc. He has been a director of ITW since 1996.
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MARVIN D. BRAILSFORD, 60, has been Vice President of Kaiser-Hill Company LLC, a
construction and environmental services company, since 1996. Mr. Brailsford
founded the Brailsford Group, an acquisition consulting firm, and served as its
President from 1995 to 1996. From 1992 to 1995, he was the President of Metters
Industries, an information technology company. Mr. Brailsford retired from the
United States Army in 1992 with the rank of Lieutenant General after 33 years of
service. He has served as a director of ITW since 1996.
SUSAN CROWN, 40, has been Vice President of Henry Crown and Company, a family
owned and operated business with investments in securities, real estate and
manufacturing operations, since 1984. Ms. Crown is a director of Baxter
International Inc. and Northern Trust Corporation and its subsidiary, The
Northern Trust Company. She has been a director of ITW since 1994.
H. RICHARD CROWTHER, 66, was the Vice Chairman of ITW from 1990 to 1995 and
Executive Vice President from 1983 through 1989. Mr. Crowther had 36 years of
service with ITW prior to his retirement. He is a director of Applied Power Inc.
and has been a director of ITW since 1995.
W. JAMES FARRELL, 56, has been Chairman of ITW since 1996 and Chief Executive
Officer since 1995. Mr. Farrell served as President from 1994 until 1996 and as
Executive Vice President from 1983 until 1994. He has 33 years of service with
ITW. Mr. Farrell is a director of Morton International, Inc., Premark
International, Inc. and The Quaker Oats Company. He has been a director of ITW
since 1995.
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ROBERT C. MCCORMACK, 59, has been a Partner of Trident Capital LP, a venture
capital firm, since 1993. Mr. McCormack served as Assistant Secretary of the
Navy from 1990 to 1993, as Deputy Under Secretary of Defense from 1987 to 1990,
and as Managing Director of Morgan Stanley & Co. Incorporated, an investment
bank, from 1985 to 1987. He is a director of DeVry, Inc. and has been a director
of ITW since 1993. He previously was a director of ITW from 1978 through 1987.
PHILLIP B. ROONEY, 54, has served as Vice Chairman of The ServiceMaster Company,
a network of quality service companies, since 1997. Mr. Rooney was the President
of WMX Technologies Inc., a waste management company, from 1985 until 1997. He
is a director of The ServiceMaster Company and Urban Shopping Centers Inc. and a
trustee of the Van Kampen American Capital Open-End Funds. Mr. Rooney has been a
director of ITW since 1990.
HAROLD B. SMITH, 65, has been Chairman of the Executive Committee of ITW since
1982. Mr. Smith is a director of W.W. Grainger Inc. and Northern Trust
Corporation and its subsidiary, The Northern Trust Company. He is a trustee of
The Northwestern Mutual Life Insurance Company. He has served as a director of
ITW since 1968.
ORMAND J. WADE, 59, was Vice Chairman of Ameritech Corp., a
telecommunications products and services provider, from 1987
to 1993. Mr. Wade served as the President and Chief
Executive Officer of Illinois Bell Telephone Company from
1982 to 1986. He is a director of Andrew Corporation and
Westell Inc. and has been a director of ITW since 1985.
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OWNERSHIP OF ITW STOCK
DIRECTORS AND EXECUTIVE OFFICERS
The following table shows how much ITW common stock the directors, the
named executive officers, and all executive officers and directors as a group
beneficially owned as of December 31, 1998. The named executive officers include
the Chief Executive Officer and the four next most highly compensated executive
officers based on compensation earned during 1998.
Beneficial ownership is a technical term broadly defined by the SEC to
mean more than ownership in the usual sense. In general, beneficial ownership
includes any shares a director or executive officer can vote or transfer and
stock options that are exercisable currently or become exercisable within 60
days. Except as otherwise noted, the stockholders named in this table have sole
voting and investment power for all shares shown as beneficially owned by them.
The number of shares beneficially owned by each non-officer director
includes 900 shares (600 for Mr. Aldinger granted January 4, 1999) of restricted
ITW common stock that were granted under the Directors' Restricted Stock Plan.
The number of the director's phantom stock units disclosed in the table
represents an equivalent number of shares of ITW common stock. Phantom stock
units are not transferable and have no voting rights. The units are not included
in the "percent of class" calculation.
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5
PERCENT
SHARES OF COMMON STOCK PHANTOM OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED STOCK UNITS CLASS
------------------------ ---------------------- ----------- --------
Directors (other than Executive Officers)
William F. Aldinger III......................... 700(1) 1,000 *
Michael J. Birck................................ 3,500 2,041 *
Marvin D. Brailsford............................ 2,200 2,036 *
Susan Crown..................................... 10,700(2) 2,058 *
H. Richard Crowther............................. 351,612(3) 2,212 *
L. Richard Flury................................ 2,100 2,058 *
Robert C. McCormack............................. 14,519,200(4) 2,058 5.7
Phillip B. Rooney............................... 34,641(5) 2,058 *
Harold B. Smith................................. 38,640,002(6) -- 15.2
Ormand J. Wade.................................. 5,700 2,058 *
Executive Officers
W. James Farrell................................ 444,252(7) -- *
Russell M. Flaum................................ 103,388(8) -- *
Frank S. Ptak................................... 227,552(9) -- *
F. Ronald Seager................................ 203,038(10) -- *
David B. Speer.................................. 57,011(11) -- *
Directors and Executive Officers as a Group (24
Persons)........................................ 40,516,295(12) 17,579 16.0
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* Less than 1%.
(1) Includes 100 shares owned by Mr. Aldinger's spouse, as to which he
disclaims beneficial ownership.
(2) Includes (a) 2,000 shares owned in a trust as to which Ms. Crown shares
voting and investment power; and (b) 2,000 shares held in trusts of which
Ms. Crown's children are beneficiaries and as to which she disclaims
beneficial ownership.
(3) Includes (a) 255,041 shares held in a revocable living trust as to which
Mr. Crowther shares voting and investment power; (b) 30,107 shares owned by
his spouse as to which Mr. Crowther disclaims beneficial ownership; and (c)
27,104 shares covered by options exercisable within 60 days.
(4) Includes (a) 400 shares owned in a trust as to which Mr. McCormack shares
voting and investment power with The Northern Trust Company; and (b)
14,510,380 shares owned in twelve trusts as to which Messrs. McCormack,
E.B. Smith, Jr., H.B. Smith and The Northern Trust Company are trustees and
share voting and investment power. Mr. McCormack's address is c/o The
Secretary, Illinois Tool Works Inc., 3600 West Lake Avenue, Glenview,
Illinois 60025.
(5) Includes 2,000 owned by Mr. Rooney's spouse, as to which he disclaims
beneficial ownership.
(6) Includes (a) 21,318,764 shares owned in twelve trusts as to which Mr. Smith
shares voting and investment power with The Northern Trust and others; (b)
2,164,480 shares owned in ten trusts as to which he shares voting and
investment power; (c) 14,510,380 shares owned in twelve trusts as to which
Messrs. McCormack, E.B. Smith, Jr., H.B. Smith and The Northern Trust
Company are trustees and share voting and investment power; and (d) 69,792
shares owned by a charitable foundation of which Mr. Smith is a director.
Mr. Smith's address is c/o The Secretary, Illinois Tool Works Inc., 3600
West Lake Avenue, Glenview, Illinois 60025.
(7) Includes (a) 1,395 shares owned by Mr. Farrell's son as to which he
disclaims beneficial ownership; (b) 1,700 shares owned by Mr. Farrell's
spouse as to which he disclaims beneficial ownership; (c) 38,158 shares
owned in a partnership as to which Mr. Farrell shares voting and investment
power; (d) 7,263 shares owned by a charitable foundation of which Mr.
Farrell is an officer; (e) 7,044 shares allocated to Mr. Farrell's account
in the ITW Savings and Investment Plan; and (f) 367,000 shares covered by
options exercisable within 60 days.
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(8) Includes (a) 1,534 shares allocated to Mr. Flaum's account in the ITW
Savings and Investment Plan; and (b) 71,600 shares covered by options
exercisable within 60 days.
(9) Includes 159,500 shares covered by options exercisable by Mr. Ptak within
60 days.
(10) Includes (a) 1,976 shares owned by Mr. Seager's spouse as to which he
disclaims beneficial ownership; and (b) 152,500 shares covered by options
exercisable within 60 days.
(11) Includes (a) 806 shares allocated to Mr. Speer's account in the ITW Savings
and Investment Plan; and (b) 53,500 shares covered by options exercisable
within 60 days.
(12) Includes 1,181,018 shares covered by options exercisable within 60 days.
OTHER PRINCIPAL STOCKHOLDERS
This table shows, as of December 31, 1998, all stockholders other than
directors that we know to be beneficial owners of more than 5% of ITW common
stock. We have a commercial banking relationship with The Northern Trust
Company, which also acts as the trustee under our principal pension plan. The
Northern Trust Company is a wholly owned subsidiary of Northern Trust
Corporation. Harold B. Smith and Susan Crown, directors of ITW, are also
directors of Northern Trust Corporation and The Northern Trust Company.
NAME AND ADDRESS AMOUNT OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------- -------------------- --------
Edward Byron Smith, Jr...................................... 14,753,365(1) 5.8
The Northern Trust Company.................................. 46,149,581(2) 18.2
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(1) Includes (a) 13,440 shares that Mr. Smith holds directly and as to which he
has sole voting and investment power; (b) 32,932 shares owned in two trusts
as to which Mr. Smith has sole voting and investment power; (c) 155,733
shares owned in two trusts as to which Mr. Smith shares voting and
investment power with his sister; (d) 14,510,380 shares owned in twelve
trusts as to which Messrs. McCormack, E.B. Smith, Jr., H.B. Smith and The
Northern Trust Company are trustees and share voting and investment power;
and (e) 40,880 shares held for the benefit of Mr. Smith's children in four
accounts as to which Mr. Smith has sole voting and investment power. Mr.
Smith's address is c/o The Secretary, Illinois Tool Works Inc., 3600 West
Lake Avenue, Glenview, Illinois 60025.
(2) 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
46,149,581 shares. They have sole voting power with respect to 16,917,386
shares and share voting power with respect to 16,953,619 shares. They have
sole investment power with respect to 3,471,813 shares and share investment
power with respect to 37,878,984 shares. In addition, The Northern Trust
Company holds in other accounts, but does not beneficially own, 17,428,099
shares, resulting in aggregate holdings by The Northern Trust Company of
63,577,680 shares, or 25.1%. The Northern Trust Company's address is 50
South LaSalle Street, Chicago, Illinois 60675.
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EXECUTIVE COMPENSATION
This table summarizes the compensation of the Chief Executive Officer and
the other four most highly compensated executive officers of ITW.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION(3)
---------------
AWARDS
------
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND ------------------------------ UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1) BONUS(1)(2) OPTIONS (4)(5)
------------------ ---- --------- ----------- --------------- ------------
W. James Farrell................. 1998 $600,000 $877,500 100,000 $42,935(6)
Chairman and Chief 1997 499,900 600,000 100,000 48,042
Executive Officer 1996 453,754 500,000 400,000 40,808
Frank S. Ptak.................... 1998 $312,312 $468,000 60,000 $11,826
Vice Chairman 1997 288,017 293,030 50,000 14,140
1996 255,261 275,000 -- 11,429
F. Ronald Seager................. 1998 $244,650 $360,000 30,000 $10,983
Executive Vice President 1997 232,562 220,980 30,000 15,155
1996 218,801 204,580 -- 12,160
David B. Speer................... 1998 $214,231 $295,350 30,000 $ 7,203
Executive Vice President 1997 190,924 183,300 30,000 7,262
1996 179,507 159,480 -- 5,931
Russell M. Flaum................. 1998 $230,000 $257,140 30,000 $ 6,516
Executive Vice President 1997 214,955 218,500 30,000 7,552
1996 208,082 209,195 -- 6,411
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(1) Actual salary or bonus earned. Includes amounts deferred by the executive
under the 1993 Executive Contributory Retirement Income Plan or the Savings
and Investment Plan.
(2) Amounts awarded under the Executive Incentive Plan are calculated on the
executive's base salary as of December 31 for that year and paid in the
following year.
(3) As part of long term compensation, awards of ITW restricted stock were made
under the Stock Incentive Plan in 1994. At December 31, 1998 the number of
unvested restricted shares and their value was: Mr. Farrell, 22,400 shares
valued at $1,299,200; Mr. Ptak, 22,400 shares valued at $1,299,200; Mr.
Seager, 14,000 shares valued at $812,000; and Mr. Flaum, 14,000 shares
valued at $812,000.
(4) Includes company matching contributions to the 1993 Executive Contributory
Retirement Income Plan or the Savings and Investment Plan as follows: Mr.
Farrell, $18,000; Mr. Ptak, $9,369; Mr. Seager, $7,339; Mr. Speer, $6,427;
and Mr. Flaum $5,308.
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(5) Includes interest credited on deferred compensation under the 1993 Executive
Contributory Retirement Income Plan in excess of 120% of the Applicable Long
Term Rate as follows: Mr. Farrell, $2,854; Mr. Ptak, $2,457; Mr. Seager,
$3,644; Mr. Speer, $776; and Mr. Flaum, $1,208.
(6) Includes $22,081 representing imputed income on Mr. Farrell's outstanding
home loan made by ITW in 1995. The maximum amount of the loan outstanding
during 1998 was $355,000, which by March 1, 1999 had been reduced to
$225,000. 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.
Under stock ownership guidelines established by the Board of Directors,
we require each executive officer to own a certain number of shares of ITW stock
based upon a multiple of base salary. We have lent money to Messrs. Farrell,
Ptak and Flaum to help them comply with these guidelines. The promissory notes
evidencing these loans have a five-year term, which is renewable. The executive
must repay the note within 180 days following termination of employment with ITW
or upon bankruptcy, insolvency, death or breach of the terms of the note. In
addition, if we terminate the executive's employment for gross or willful
misconduct, then he must repay the note immediately. As of February 28, 1999,
Mr. Farrell had an outstanding loan payable December 31, 2000 of $99,760, which
is the largest amount that Mr. Farrell has been indebted to us since the
beginning of 1998. This loan is at an annual interest rate of 5.91% and is
secured by 3,200 shares of ITW stock. Also as of February 28, 1999, Mr. Ptak had
two outstanding loans. A loan in the amount of $31,018 payable October 23, 2000
is at an annual interest rate of 6.31% and is secured by 4,000 shares of ITW
stock. A second loan in the amount of $25,915 payable December 31, 2000 is at an
annual interest rate of 5.91% and is secured by 3,200 shares of ITW stock. The
largest aggregate amount that Mr. Ptak has been indebted to us since the
beginning of 1998 was $63,363. In addition, in February 1999, Mr. Flaum repaid
an outstanding loan of $62,352, which is the largest amount that Mr. Flaum had
been indebted to us since the beginning of 1998. The loan was at an annual
interest rate of 5.91% and was secured by 2,000 shares of ITW stock.
In the event of a change of control of ITW, each executive officer's
unvested restricted stock and stock options previously granted under the Stock
Incentive Plan fully vest. In addition, executives receive a cash payment under
the Executive Incentive Plan immediately upon a change of control. The amount
paid under the Executive Incentive Plan equals a portion of the maximum awards
payable under the Plan for that year based on the number of days in the year
that have elapsed as of the date of the change of control.
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OPTION GRANTS IN 1998
This table gives information relating to option grants in 1998 to the
Chief Executive Officer and the other four most highly compensated executive
officers of ITW.
INDIVIDUAL GRANTS
-----------------------------------------------------
PERCENT OF GRANT DATE
SECURITIES TOTAL OPTIONS VALUE
UNDERLYING GRANTED TO EXERCISE OR ----------------
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME GRANTED(1) 1998 PER SHARE DATE PRESENT VALUE(2)
---- ---------- ------------- ----------- ---------- ----------------
W. James Farrell............. 100,000 9.0 $58.25 12/11/08 $1,671,000
Frank S. Ptak................ 60,000 5.3 58.25 12/11/08 1,002,600
F. Ronald Seager............. 30,000 2.7 58.25 12/11/08 501,300
David B. Speer............... 30,000 2.7 58.25 12/11/08 501,300
Russell M. Flaum............. 30,000 2.7 58.25 12/11/08 501,300
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(1) Options become exercisable in four equal annual installments on the
anniversaries of the grant or immediately in the event of retirement,
disability or death. A restorative option right applies to option grants so
long as the option holder is employed by ITW. This means that an option
holder who delivers previously acquired shares of ITW common stock in
payment of an option's exercise price will be granted an additional option,
which is subject to certain restrictions, to purchase the number of shares
equal to the number of delivered shares.
(2) The estimated fair value of each option granted is calculated using the
Black-Scholes option pricing model. The model assumes a 4.76% risk-free
interest rate, 24.5% expected stock volatility, 1.20% dividend yield and 5.5
years expected until exercise.
OPTION EXERCISES IN 1998 AND
YEAR-END 1998 OPTION VALUES
This table provides information regarding the exercise of options during
1998 and options outstanding at the end of the year for the Chief Executive
Officer and the other four most highly compensated executive officers of ITW.
The "value realized" is calculated using the difference between the option
exercise price and the price of ITW common stock on the date of exercise
multiplied by the number of shares acquired upon exercise. The "value of
unexercised in-the-money options at year end 1998" is calculated using the
difference between the option exercise price and $58.00 (the closing price of
ITW stock on December 31, 1998) multiplied by the number of shares underlying
the option. An option is in-the-money if the market value of ITW common stock is
greater than the option's exercise price.
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES YEAR END 1998 YEAR END 1998
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
W. James Farrell..... 15,992 $793,882 367,000 445,000 $10,302,000 $6,999,750
Frank S. Ptak........ 0 0 159,500 112,500 5,550,999 544,875
F. Ronald Seager..... 15,000 774,843 152,500 67,500 5,393,475 494,175
David B. Speer....... 6,200 329,375 53,500 58,500 1,606,850 243,300
Russell M. Flaum..... 0 0 71,600 60,000 2,347,163 285,113
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RETIREMENT PLANS
ITW's principal defined benefit pension plan covers approximately 15,000
domestic business unit employees, including executive officers. Upon retirement,
participants receive benefits based on years of service and average monthly
compensation for the five highest consecutive years out of the last ten years of
employment. Because the Internal Revenue Code imposes limits on those plan
benefits, the Board has established a supplemental plan that provides for
payments to certain executives equal to benefits that would be paid but for
these limitations. The table below shows the maximum estimated annual benefits
to be paid under the pension plan and supplemental plan at age 65 normal
retirement to individuals in specified compensation and years of service
categories. Compensation includes salary and bonus shown in the Summary
Compensation Table on page 11.
ESTIMATED ANNUAL NORMAL RETIREMENT BENEFITS(1)
--------------------------------------------------------------------------------
YEARS OF SERVICE AT NORMAL RETIREMENT(2)
COMPENSATION 10 15 20 25 30 35 40
------------ -------- -------- -------- -------- -------- -------- --------
$ 350,000................. $ 57,750 $ 86,625 $115,500 $144,375 $173,250 $186,375 $199,500
600,000................. 99,000 148,500 198,000 247,500 297,000 319,500 342,000
850,000................. 140,250 210,375 280,500 350,625 420,750 452,625 484,500
1,100,000................. 181,500 272,250 363,000 453,750 544,500 585,750 627,000
1,350,000................. 222,750 334,125 445,500 556,875 668,250 718,875 769,500
1,600,000................. 264,000 396,000 528,000 660,000 792,000 852,000 912,000
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(1) The actual pension formula in effect excludes an amount equivalent to 0.65%
of Social Security covered compensation times the individual's years of
service up to 30 years. This exclusion is not reflected in the table and,
therefore, the amounts shown are overestimated by relatively small
percentages.
(2) Years of service as of December 31, 1998 for the five most highly
compensated executive officers were as follows: Mr. Farrell, 33.5 years; Mr.
Ptak, 23.1 years; Mr. Seager, 18.6 years; Mr. Speer, 20.5 years; and Mr.
Flaum, 12.0 years.
In addition, under ITW'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.