Securities & Exchange Commission

Washington, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended January 2, 1999

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

Commission File Number 1-7724

SNAP-ON INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware                                           39-0622040
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

10801 Corporate Drive, Pleasant Prairie, Wisconsin           53158-1603
(Address of principal executive offices)                     (Zip code)

Registrant's telephone number, including area code: (414) 656-5200

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                     Name of exchange on which  registered  
- -------------------                     -------------------------------------
Common stock,  $1 par value             New York Stock Exchange  
Preferred stock purchase rights         New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:  None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months,  and (2) has been subject to such filing  requirements
for the past 90 days. Yes [ X] No [ ]

Indicate by check mark if  disclosure of  delinquent  filers  pursuant to Item
405 of Regulation S-K is not contained herein,  and will not be contained,  to
the best of the registrant's  knowledge,  in a definitive proxy or information
statements  incorporated  by  reference  in Part III of this  Form 10-K or any
amendment to this Form 10-K. [X]

Aggregate market value of voting stock held by  non-affiliates of the registrant
at February 23, 1999:
$1,909,184,462

Number of shares outstanding of each of the registrant's classes of common stock
at February 23, 1999:
Common stock, $1 par value, 65,591,328 shares

Documents incorporated by reference
Portions of the Corporation's  Annual Report to Shareholders for the fiscal year
ended January 2, 1999, are  incorporated by reference into Parts I, II and IV of
this report.

Portions of the Corporation's  Proxy Statement,  dated March 12, 1999,  prepared
for the  Annual  Meeting  of  Shareholders  scheduled  for April 23,  1999,  are
incorporated by reference into Part III of this report.

TABLE OF CONTENTS
Page

PART I
Item 1.    Business.........................................................3
Item 2.    Description of Properties........................................9
Item 3.    Legal Proceedings...............................................10
Item 4.    Submission of Matters to a Vote of Security Holders.............10

PART II
Item 5.   Market for Registrant's Common Equity and Related Stockholder
Matters..........................................................11
Item 6.   Selected Financial Data .........................................11
Item 7.   Management Discussion and Analysis of Financial Condition 
and Results of Operations .......................................11
Item 7A.  Qualitative and Quantitative Disclosures About Market Risk.......11
Item 8.   Financial Statements and Supplementary Data......................11
Item 9.   Changes in and Disagreements with Accountants on Accounting and 
Financial Disclosure ............................................11

PART III
Item 10.  Directors and Executive Officers of the Registrant...............11
Item 11.  Executive Compensation...........................................12
Item 12.  Security Ownership of Certain Beneficial Owners and Management...12
Item 13.  Certain Relationships and Related Transactions...................12

PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K..12

Auditor's Reports............................................................13
Signature Pages..............................................................14
Exhibit Index................................................................16

2

PART I

Item I: Business

Snap-on Incorporated (the "Corporation" or "Snap-on") was incorporated under the
laws of the state of Wisconsin in 1920 and reincorporated  under the laws of the
state of Delaware in 1930.  Snap-on's  mission is to create  value by  providing
innovative   solutions  to  transportation   service  and  industrial  customers
worldwide.  Snap-on is a leading global developer,  manufacturer and distributor
of professional tools,  equipment and related services marketed in more than 150
countries.  Long known as a quality and performance leader in professional tools
and tool  storage,  Snap-on  now  offers a full  range  of  capabilities  in the
automotive  service  environment.  The Corporation's  largest geographic markets
include the United States,  Australia,  Brazil, Canada, France,  Germany, Japan,
Mexico,  the  Netherlands,  Spain  and the  United  Kingdom.  Customers  include
professional   technicians,   independent  automotive  repair  and  body  shops,
franchised  service  centers,  specialty repair shops,  automotive  dealerships,
vehicle manufacturers, and industry and government. The originator of the dealer
van  distribution  channel,  Snap-on also reaches its customers  through company
direct and distributor channels where appropriate.

The Corporation's business segments are based on the organization structure that
is used by  management  for making  operating and  investment  decisions and for
assessing  performance.  Based on this management approach,  the Corporation has
five reportable  segments:  North America  Transportation,  North America Other,
Europe,  International and Financial Services.  The North America Transportation
segment consists of the Corporation's business operations serving the franchised
dealer channel in the United States and Canada.  The North America Other segment
consists of the Corporation's  business  operations serving the direct sales and
distributor   channels  in  the  United  States  and  Canada,  as  well  as  the
Corporation's exports from the United States. The Europe segment consists of the
Corporation's  operations  in  Europe  and  Africa.  The  International  segment
consists of the  Corporation's  operations in the Asia/Pacific  region and Latin
America.  These four segments derive  revenues  primarily from the sale of tools
and equipment and related  services.  The Financial  Services  segment  provides
financing  to  technicians  and shop owners,  as well as to dealers.  Additional
information about the Corporation's business segments,  customers,  domestic and
international  operations  and  products  and services is provided in Note 13 on
pages 37 and 38 of the Corporation's 1998 Annual Report,  incorporated herein by
reference.

In  1998,  the  Corporation  announced  a  simplification  initiative  ("Project
Simplify") which is a broad program of internal rationalizations, consolidations
and reorganizations.  The goal is to make the Corporation's  business operations
simpler and more effective.  Additional  information  regarding Project Simplify
can be found on page 17, Management's Discussion and Analysis, and in Note 14 on
pages 38 and 39, of the Corporation's 1998 Annual Report, incorporated herein by
reference.

During 1998,  the  Corporation  acquired  full or partial  ownership of five new
business  operations  and an additional  interest in a business for an aggregate
cash purchase  price of $79.5  million.  Each of the  acquisitions  provides the
Corporation  with a  complementary  product  line,  new customer  relationships,
access to  additional  distribution  and/or  extended  geographic  reach.  These
acquisitions  were 100%  interests in White  Industries  ("White"),  Hein-Werner
Corporation ("Hein-Werner"), Nationwide International L.L.C. ("Nationwide"), and
G.S.  S.r.l.  ("G.S.");  a 55%  interest  in  Cartec  GmbH  ("Cartec");  and  an
additional  10%  interest  in  the  Thompson   Corporation's   Mitchell   Repair
Information  business.  Subsequent  to  the  end of the  year,  the  Corporation
announced  that it had  exercised  its call option to purchase  from its venture
partner,  The Thompson  Corporation,  a further stake in their  Mitchell  Repair
Information  business,  which will  result in  Snap-on's  owning 99% of Mitchell
Repair Information Company ("MRIC").

White manufactures  equipment used to recover,  recycle and recharge refrigerant
in vehicle  air-conditioning  systems.  Hein-Werner is a leading manufacturer of
collision  repair  products  in  North  America  and  Europe.  Nationwide  is  a
franchisor  of vehicle and service  repair  facilities.  G.S. is an  Italy-based
manufacturer  and  distributor  of wheel service  equipment.  Cartec is a German
manufacturer  of test and safety  lane  equipment.  MRIC is a major  provider of
print and  electronic  versions  of vehicle  mechanical  and  electrical  repair
information and of shop management software to repair and service establishments
throughout North America.

Products and Services

The Corporation derives income from the manufacture,  marketing and distribution
of its  products  and  related  services,  and the  financing  of certain of its
products.  The  Corporation's  four  reportable  manufacturing,   marketing  and
distribution

3

segments offer a broad line of products and complementary  services which can be
divided into two groups:  tools and  equipment.  The  following  table shows the
approximate percentage of consolidated sales for each of these product groups in
each of the past three years.

Product Group                     % of Sales
1998     1997     1996
Tools                        52%      55%      58%
Equipment                    48%      45%      42%
----    -----    -----
100%     100%     100%

The tools  product  group  includes  hand tools,  power  tools and tool  storage
products. Hand tools include wrenches,  screwdrivers,  sockets, pliers, ratchets
and other similar products,  and instruments  developed for medical applications
and for the  manufacture  and  servicing of  electronic  equipment.  Power tools
include pneumatic (air), cord-free (battery) and corded (electric) tools such as
impact  wrenches,  ratchets,  chisels,  drills,  sanders,  polishers and similar
products.  Tool  storage  units  include tool  chests,  roll  cabinets and other
similar  products  for  automotive,  industrial,  aerospace  and  other  storage
applications.  The majority of products are manufactured by Snap-on; to complete
the product line, some items are purchased from external manufacturers.

The equipment  product group  includes  hardware and software  solutions for the
diagnosis and service of automotive and industrial  equipment.  Products include
engine and  emissions  analyzers,  air  conditioning  service  equipment,  brake
service  equipment,  wheel  balancing  and  alignment  equipment,   transmission
troubleshooting equipment,  vehicle safety testing equipment,  battery chargers,
lifts and hoists,  diagnostics  equipment and collision repair  equipment.  Also
included  are  service  and repair  information  products,  on-line  diagnostics
services,  management  systems,  point of sale systems,  integrated  systems for
automotive  repair shops, and purchasing  facilitation  services.  In the United
States, the Corporation  supports the sale of its diagnostics and shop equipment
by offering  training  programs to technician  customers.  These  programs offer
certification in both specific automotive technologies and in the application of
specific diagnostics equipment developed and marketed by the Corporation.

Tools and equipment are marketed  under a number of brand names and  trademarks,
many of which are well known in the automotive and  industrial  markets  served.
Some of the major trade names and  trademarks and the products and services with
which they are associated include the following:

Trade Names/Trademarks   Products and Services

Snap-on                  Hand tools, power tools, tool storage units, and
certain equipment

Blue Point               Hand tools, power tools, tool storage units

J.H. Williams (Williams  Hand tools

A.T.I. Tools (ATI)       Tools and equipment for aerospace and industrial
applications

Sioux Tools (Sioux)      Power tools

Sun Electric (Sun)       Diagnostics and service equipment

Balco                    Engine diagnostics and wheel balancers

White                    Equipment  to  recover,   recycle  and  recharge
refrigerant in vehicle air-conditioning systems

John Bean                Under-car and other service equipment

Wheeltronic              Hoists and lifts for vehicle service shops

Hofmann                  Wheel  balancers,   lifts,   tire  changers  and
aligners

G.S.                     Wheel service equipment

4

Brewco                   Frame straightening equipment, vehicle measuring
systems, paint booths and other collision repair
equipment

Hein-Werner              Collision repair products

Mitchell                 Repair   and   service   information   and  shop
management systems

The Financial  Services  segment offers credit programs that facilitate the sale
of many of the  Corporation's  products  and  services.  Through  a  contractual
arrangement,  extended  credit is  offered  to  technicians  to  enable  them to
purchase tools and equipment that can be used to generate  income while they pay
for the products over time.  Financing,  in a lease  format,  is also offered to
shop owners, both independent and national chains, who purchase equipment items,
which  typically  are higher price point  products  than tools.  The duration of
lease contracts is often two to three times that of extended credit contracts.

The Corporation's financing activities have been conducted primarily through its
Snap-on Credit  Corporation (the "Credit Corp")  subsidiary.  The Credit Corp is
responsible for certain credit and non-credit services used to support sales and
to provide dealer financing options. Currently, the majority of its revenues are
derived from the automotive service industry in North America.

Credit Corp also makes  available  financing to new  dealers,  whereby a 10-year
loan is  originated  to enable the dealer to fund the purchase of the  franchise
and the related  working  capital  needs,  particularly  inventory  and customer
receivables.

On January 3, 1999,  the  Corporation  established a joint venture with Newcourt
Financial  USA  Inc.   ("Newcourt")  to  provide   financial   services  to  the
Corporation's global dealer and customer network. Such services will be provided
through a limited  liability  company  know as Snap-on  Credit LLC (the  "LLC"),
which is 50% owned by the Corporation and 50% owned by Newcourt.  As a result of
the establishment of the joint venture, the Corporation  effectively  outsourced
to the  LLC the  credit  function  that  the  Credit  Corp  previously  managed.
Additional  information  about the LLC is  provided in Note 15 on page 39 of the
Corporation's 1998 Annual Report, incorporated herein by reference.

Market Sectors Served

The  Corporation  markets and  distributes  its  products  and related  services
primarily  to  professional  users around the world in two market  sectors:  the
vehicle service and repair sector, and the industrial sector

Vehicle Service and Repair Sector

The  vehicle  service  and  repair  sector  has  three  main  customer   groups:
professional  technicians,  primarily  in  the  vehicle  service  industry,  who
purchase tools and equipment for themselves;  service and repair shop owners and
managers  --  including   independent  shops,  national  chains  and  automotive
dealerships -- who purchase  equipment for use by multiple  technicians within a
service or repair facility; and vehicle manufacturers.

The Corporation  provides  innovative tool and equipment  solutions,  as well as
technical  sales  support and training,  to meet  technicians'  evolving  needs.
Snap-on's dealer van distribution  system offers  technicians the convenience of
purchasing  quality tools with minimal  disruption  of their work  routine.  The
Corporation also serves owners and managers of shops where technicians work with
tools,  diagnostics  equipment,   repair  and  service  information,   and  shop
management  products.   Snap-on  provides  vehicle  manufacturers  products  and
services   including   tools,   facilitation   services  for  the  purchase  and
distribution of equipment, and consulting services.

Major challenges for the Corporation and the vehicle service and repair industry
include the increasing rate of technological  change within motor vehicles,  and
the evolution in the conduct of business by both suppliers and customers that is
necessitated by such change.

5

Industrial Sector

The Corporation markets its products to a wide variety of industrial  customers,
including  industrial  maintenance  and  repair  facilities;  manufacturing  and
assembly operations;  industrial distributors;  government facilities;  schools;
and original  equipment  manufacturers  ("OEMs") who require  instrumentation or
service tools and equipment for their products.

Major  challenges  in  the  industrial  market  include  a  highly  competitive,
cost-conscious  environment,  and a trend toward  customers  making all of their
tool purchases through one integrated  supplier.  The Corporation believes it is
currently  a  meaningful  participant  in the  market for  industrial  tools and
equipment.

Distribution Channels

The  Corporation   serves   customers   primarily   through  three  channels  of
distribution:  dealer/tech  reps,  company direct sales, and  distributors.  The
following  discussion  represents  the  Corporation's  general  approach in each
channel, and is not intended to be all-inclusive.

Dealer/Tech Rep Organization

In the United States,  the majority of sales to the automotive  repair  industry
are conducted  through the  Corporation's  dealer/tech  rep network;  the market
served by this  network  centers on  professional  technicians  and shop owners.
Snap-on's mobile dealer van system covers automotive technicians and independent
shop owners, calling weekly at the customer's place of business.  Dealers' sales
are  concentrated  in hand and power tools and some small  equipment,  which can
easily be  transported in a van and  demonstrated  during a brief sales call, as
well as in tool storage units. Dealers purchase the Corporation's  products at a
discount from suggested  retail prices and resell them at prices of the dealer's
choosing.  Although some dealers have sales areas defined by other methods, most
U.S. dealers are provided a list of places of business which serves as the basis
of the dealer's sales route.

The dealer  sales force is supported by the  Snap-on/Sun  Tech Systems  employee
sales force ("Tech Specialists"), who work with dealers in the demonstration and
sale of  diagnostics  equipment and also sell  higher-end  diagnostics  and shop
equipment on their own. Tech Specialists are compensated  primarily on the basis
of  commission;  dealers  receive a commission  for  referring  business to Tech
Specialists.

Most products sold through the dealer/tech rep  organization  are sold under the
Snap-on or Sun brand names.

Since 1991, all new U.S. dealers, and a majority of existing U.S. dealers,  have
been enrolled as  franchisees  of the  Corporation.  The  Corporation  currently
charges initial and ongoing monthly license fees, which do not add materially to
the  Corporation's  revenues.  The Corporation makes it possible for prospective
dealer  candidates  to work as employee  sales  representatives,  at salary plus
commission,  for up to one year prior to making an investment in a franchise. In
addition,  through Snap-on  Financial  Services,  Inc. and its  subsidiary,  the
Credit Corp, the Corporation  provides financial  assistance for newly converted
franchised  dealers  and  other  new  franchise  dealers,  which  could  include
financing for initial license fees,  inventory,  revolving  accounts  receivable
acquisition, equipment, fixtures, other expenses and an initial checking account
deposit.  At year-end 1998,  approximately  89 percent of all U.S.  dealers were
enrolled as franchisees.

The  Corporation  services and  supports  its dealers  with an  extensive  field
organization  of branch  offices  and  service  and  distribution  centers.  The
Corporation  also  provides  sales  training,   customer  and  dealer  financial
assistance, and marketing and product promotion programs to help maximize dealer
sales. A National Dealer Advisory  Council,  composed of and elected by dealers,
assists the  Corporation in identifying  and  implementing  enhancements  to the
franchise program.

The  Corporation has replicated its dealer van method of distribution in certain
countries,  including Australia, Canada, Germany, Mexico, the Netherlands, Japan
and the United  Kingdom.  In these markets,  as in the United  States,  purchase
decisions  are  generally  made by  professional  technicians.  The  Corporation
markets  products in certain other  countries  through its  subsidiary,  Snap-on
Tools International,  Ltd., which sells to foreign distributors under license or
contract with the Corporation.

6

Company Direct Sales

In the United States, a growing proportion of sales of Snap-on and Sun equipment
are made by a direct sales force that has  responsibility for national accounts.
As the automotive service and repair industry  consolidates,  with more business
conducted by national  chains,  automotive  dealerships  and franchised  service
centers,  these larger  organizations  can be serviced most effectively by sales
people who can demonstrate and sell the full line of products and services.  The
Corporation   also  sells  its  products   and  services   directly  to  vehicle
manufacturers.

Tools and equipment are marketed to industrial  and  governmental  customers and
for the  medical  profession  in the  United  States  through  industrial  sales
representatives, who are employees, and independent industrial distributors. The
sales representatives focus on industrial customers whose main purchase criteria
are quality and service, as well as on certain OEM accounts. At the end of 1998,
the  Corporation  had  industrial  sales  representatives  in the United States,
Canada, Australia, Japan, Mexico, Puerto Rico, and some European countries, with
the  United  States   representing  the  majority  of  the  Corporation's  total
industrial sales.

Tools and  equipment for the U.S.  industrial  and  government  markets are sold
through a direct sales force as well as through industrial distributors. In most
markets  outside  the United  States,  industrial  sales are  conducted  through
distributors.

Distributors

Sales of certain tools and equipment are made through  automotive and industrial
distributors,  who  purchase  the items from  Snap-on and resell them to the end
users.  Products sold through  distributors in North America,  Europe and select
other parts of the world include  under-car and other service  equipment.  These
products are sold under brands including John Bean, Hofmann,  Irimo, Palmero and
Acesa,  and are  differentiated  from those sold through the dealer/tech rep and
direct sales channels.  Sun brand equipment is marketed through  distributors in
South America and Asia,  and through both a direct sales force and  distributors
in Europe.

Competition

The Corporation  competes on the basis of its product  quality,  service,  brand
awareness and technological  innovation.  While no one company competes with the
Corporation across all of its product lines and distribution  channels,  various
companies  compete  in  one  or  more  product  categories  and/or  distribution
channels.

The Corporation  believes that it is a leading  manufacturer  and distributor of
its products for the customers it serves in the vehicle  service  industry,  and
that it offers the broadest  line of products to the vehicle  service  industry.
The major competitors selling to professional technicians in the vehicle service
and repair sector through the mobile van channel  include MAC Tools (The Stanley
Works) and Matco  (Danaher  Corporation).  The  Corporation  also  competes with
companies  that sell through  non-mobile  van  distributors;  these  competitors
include The Stanley Works,  Sears,  Roebuck and Co., and Strafor  Facom.  In the
industrial sector,  major competitors  include Armstrong (Danaher  Corporation),
Cooper  Industries,  Inc. and Proto (The Stanley Works).  The major  competitors
selling diagnostics and shop equipment to shop owners in the vehicle service and
repair sector include SPX Corporation,  Corghi S.p.A.,  Pentair, Inc. and Hunter
Engineering.

Raw Material & Purchased Product

The Corporation's supply of raw materials (including primarily various grades of
steel bars and sheets) and  purchased  components  are  readily  available  from
numerous suppliers.

The majority of 1998  consolidated net sales consisted of products  manufactured
by the  Corporation.  The  remainder was purchased  from outside  suppliers.  No
single supplier's products accounted for a material portion of 1998 consolidated
net sales.

7

Patents and Trademarks

The Corporation  vigorously  pursues and relies on patent  protection to protect
its  inventions  and its  position in its  markets.  As of January 2, 1999,  the
Corporation and its subsidiaries  held over 1,000 patents  worldwide,  with more
than 600 pending  patent  applications.  No sales  relating to any single patent
represent a material portion of the Corporation's revenues in 1998.

Examples of products  that have  features or designs  that  benefit  from patent
protection  include  engine  analyzers,  serrated jaw open-end  wrenches,  wheel
alignment systems, wheel balancers, sealed ratchets, electronic torque wrenches,
ratcheting   screwdrivers,   emissions  sensing  devices  and  air  conditioning
equipment.

Much of the  technology  used  in the  manufacturing  of  automotive  tools  and
equipment is in the public domain.  The  Corporation  relies  primarily on trade
secret protection to protect proprietary processes used in manufacturing.
Methods and processes are patented when appropriate.

Trademarks  used  by  the  Corporation  are  of  continuing  importance  to  the
Corporation in the  marketplace.  Trademarks  have been registered in the United
States  and 78  other  countries,  and  additional  applications  for  trademark
registrations are pending. The Corporation  rigorously polices proper use of its
trademarks.

The  Corporation's  right to manufacture and sell certain  products is dependent
upon licenses from others. These products do not represent a material portion of
the Corporation's sales.

Working Capital

Because most of the  Corporation's  business is not seasonal,  and its inventory
needs are relatively constant, no unusual working capital needs arise during the
year.

The  Corporation's use of working capital to extend credit to its dealers and to
purchase   installment   credit   receivables   from  dealers  is  discussed  in
"Management's  Discussion  and Analysis of Results of  Operations  and Financial
Condition,"  which is found on pages 17 to 23 of the  Corporation's  1998 Annual
Report and is incorporated herein by reference.

The Corporation does not depend on any single customer, small group of customers
or government for any material part of its sales, and has no significant backlog
of orders.

Environment

The Corporation complies with applicable  environmental  control requirements in
its  operations.  Compliance has not had, and the  Corporation  does not for the
foreseeable  future expect it to have, a material effect upon the  Corporation's
capital expenditures, earnings or competitive position.

Employees

At the end of 1998, the Corporation  employed  approximately  12,000 people,  of
whom approximately 38 percent are engaged in manufacturing activities.

8

Item 2: Description of Properties

The  Corporation  maintains  both  leased  and owned  manufacturing,  warehouse,
distribution  and  office  facilities  throughout  the  world.  The  Corporation
believes that its facilities are well maintained and have a capacity adequate to
meet the Corporation's  present and foreseeable future demand. The Corporation's
U.S.  facilities  occupy   approximately  4.6  million  square  feet,  of  which
approximately 75 percent is owned. The Corporation's facilities outside the U.S.
contain approximately 2.6 million square feet, of which approximately 52 percent
is owned.

The Corporation's principal manufacturing locations and distribution centers are
as follows:

Location                       Type of property                 Owned/Leased
- --------                       ----------------                 ------------
Conway, Arkansas               Manufacturing                    Owned
City of Industry, California   Manufacturing                    Leased
Escondido, California          Manufacturing                    Owned
San Jose, California           Manufacturing                    Leased
Columbus, Georgia              Manufacturing                    Owned

Crystal Lake, Illinois         Distribution and manufacturing   Owned
Mt. Carmel, Illinois           Manufacturing                    Owned
Ottawa, Illinois               Distribution                     Owned
Algona, Iowa                   Manufacturing                    Owned
Sioux City, Iowa               Manufacturing                    Owned

Natick, Massachusetts          Manufacturing                    Owned
Olive Branch, Mississippi      Distribution                     Leased and owned
Carson City, Nevada            Distribution                     Leased and owned
Robesonia, Pennsylvania        Distribution                     Owned
Johnson City, Tennessee        Manufacturing                    Owned

Elizabethton, Tennessee        Manufacturing                    Owned
Baraboo, Wisconsin             Manufacturing                    Leased
East Troy, Wisconsin           Manufacturing                    Owned
Elkhorn, Wisconsin             Manufacturing                    Owned
Kenosha, Wisconsin             Manufacturing                    Owned

Milwaukee, Wisconsin           Manufacturing                    Owned
Sydney, Australia              Distribution                     Leased
Barbara D'oeste, Brazil        Manufacturing                    Owned
Calgary, Canada                Distribution                     Leased
Mississagua, Canada            Manufacturing                    Leased

Newmarket, Canada              Distribution and manufacturing   Owned
Kettering, England             Distribution                     Owned
King's Lynn, England           Distribution and manufacturing   Owned
Altmittweida, Germany          Distribution                     Owned
Pfungstadt, Germany            Manufacturing                    Leased

Unterneukirchen, Germany       Manufacturing                    Leased
Sopron, Hungary                Manufacturing                    Owned
Shannon, Ireland               Manufacturing                    Leased
Corregio, Italy                Manufacturing                    Owned
Tokyo, Japan                   Distribution                     Leased

Amsterdam, the Netherlands     Distribution                     Owned
Irun, Spain                    Manufacturing                    Owned
Soria, Spain                   Manufacturing                    Owned
Urretxu, Spain                 Manufacturing                    Owned
Vitoria, Spain                 Distribution and manufacturing   Owned

9

Item 3: Legal Proceedings

The Corporation  intervened in litigation  commenced by Tejas Testing Technology
One, L.C. and Tejas Testing Technology Two, L.C. (the "Tejas Companies"), and is
involved  in a suit  with  SPX  Corporation,  as  described  in  Note  12 to the
Financial  Statements of the  Corporation  on pages 36 and 37 of its 1998 Annual
Report, which is incorporated herein by reference.

Item 4: Submission of Matters to a Vote of Security Holders

There was no matter  submitted to a vote of the  shareholders  during the fourth
quarter of the fiscal year ending January 2, 1999.

Executive Officers of the Registrant

The executive officers of the Corporation, their ages as of January 2, 1999, and
their current  titles and  positions  held during the last five years are listed
below.

Robert A.  Cornog  (58) -  Chairman,  President  and Chief  Executive  Officer
since July 1991.  A Director since 1982.

Branko M. Beronja (64) - Executive  Vice  President  since October 1998.  Senior
Vice  President - Diagnostics  from  February 1998 to October 1998.  Senior Vice
President  -  Diagnostics,  North  America  from  April 1996 to  February  1998.
President - North  American  Operations  from April 1994 to April 1996, and Vice
President - Sales,  North  America  from  August 1989 to April 1994.  A Director
since January 1997.

Frederick D. Hay (54) - Senior Vice  President - Operations  since October 1998.
Senior Vice President - Transportation from February 1996 to October 1998. Prior
to joining  Snap-on,  he was  President of the Interior  Systems and  Components
Division of UT Automotive,  a business unit of United Technologies  Corporation,
from December 1989 to January 1996.

Donald S. Huml  (52) - Senior  Vice  President  -  Finance  and Chief  Financial
Officer since August 1994. Prior to joining  Snap-on,  he was Vice President and
Chief Financial Officer of Saint-Gobain Corporation from December 1990 to August
1994.

Michael F.  Montemurro  (50) - Senior  Vice  President  -  Transportation  since
October 1998. Senior Vice President - Financial Services and Administration from
August  1994 to October  1998.  Senior  Vice  President  -  Financial  Services,
Administration  and Chief  Financial  Officer  from April  1994 to August  1994.
Senior Vice President - Finance and Chief  Financial  Officer from March 1990 to
April 1994.

Neil T. Smith (44) - Controller since November 1997.  Financial  Controller from
June 1997 to November  1997.  Director of Financial  Analysis and Planning  from
December 1994 to May 1997. Prior to joining Snap-on,  he was Director of Finance
for the Nielsen Marketing  Research  Division of Dun and Bradstreet  Corporation
from January 1991 to December 1994.

Susan F. Marrinan (50) - Vice  President,  Secretary and General Counsel since
January 1992.

There is no family  relationship among the executive officers and there has been
no  involvement  in legal  proceedings  during the past five years that would be
material to the  evaluation  of the ability or integrity of any of the executive
officers.  Executive  officers  may be  elected  by the  board of  directors  or
appointed by the Chief Executive  Officer at the regular meeting of the board of
directors  which follows the Annual  Shareholders'  Meeting,  held on the fourth
Friday of April each year,  and at such other times as new positions are created
or vacancies must be filled.

10

PART II

Item 5: Market for Registrant's Common Equity and Related Stockholder Matters

On June 26, 1998, the Corporation's board of directors authorized the repurchase
of up to $100.0 million of the Corporation's common stock. On June 27, 1997, the
Corporation's board of directors  authorized the repurchase of $100.0 million of
the  Corporation's  common stock over a two-year period. At the end of 1998, the
1997  authorization  essentially  had  been  exhausted,  and  all  of  the  1998
authorization remained available.  In 1996, the Corporation's board of directors
approved an ongoing authorization to repurchase stock in an amount equivalent to
that necessary to prevent  dilution  created by shares issued for stock options,
employee and dealer stock purchase plans, and other corporate purposes. In 1998,
the Corporation  repurchased  2,279,400 shares of its common stock at an average
price of $39.64.

At  January 2, 1999,  the  Corporation  had  65,668,945  shares of common  stock
outstanding. This consists of 58,744,926 shares which are considered outstanding
for purposes of computing earnings per share and an additional  6,924,019 shares
held in a Grantor  Stock  Trust  which are  considered  outstanding  for  voting
purposes only.

Subsequent  to the end of the year,  at its January 1999  meeting,  the board of
directors  authorized the repurchase of up to an additional $50.0 million of the
Corporation's common stock.

Additional  information  required by Item 5 is contained on in the Six-year Data
and Investor  Information  on pages 41 and 45 of the  Corporation's  1998 Annual
Report and is incorporated herein by reference.

Item 6: Selected Financial Data

The information required by Item 6 is contained in the Quarterly Information and
Six-year Data on pages 40 and 41 of the Corporation's  1998 Annual Report and is
incorporated herein by reference.

Item 7:  Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations

The  information  required  by  Item 7 is  contained  on  pages  17 to 23 of the
Corporation's 1998 Annual Report and is incorporated herein by reference.

Item 7A: Qualitative and Quantitative Disclosures About Market Risk

The  information  required  by Item 7A is  contained  on  pages 22 and 32 of the
Corporation's 1998 Annual Report and is incorporated herein by reference.

Item 8: Financial Statements and Supplementary Data

The  information  required  by  Item 8 is  contained  on  pages  24 to 39 of the
Corporation's 1998 Annual Report and is incorporated herein by reference.

Item 9:  Changes in and  Disagreements  With  Accountants  on  Accounting  and
Financial Disclosure

None.

PART III

Item 10: Directors and Executive Officers of the Registrant

The  identification  of the  Corporation's  directors  as required by Item 10 is
contained in the  Corporation's  Proxy  Statement,  dated March 12, 1999, and is
incorporated  herein by  reference  to said  Proxy  Statement.  With  respect to
information about the Corporation's  executive officers,  see caption "Executive
Officers of the Registrant" at the end of Part I of this report.

The disclosure  concerning Section 16(a) filing compliance  pursuant to Item 405
of Regulation S-K is contained on page 19 of the Corporation's  Proxy Statement,
dated March 12,  1999,  and is  incorporated  herein by  reference to said Proxy
Statement.

11

Item 11: Executive Compensation

The  information  required  by Item 11 is  contained  on  pages  15 to 18 of the
Corporation's Proxy Statement,  dated March 12, 1999, and is incorporated herein
by reference.

Item 12: Security Ownership of Certain Beneficial Owners and Management

The  information  required  by  Item  12 is  contained  on  pages  8 to 9 of the
Corporation's Proxy Statement,  dated March 12, 1999, and is incorporated herein
by reference.

Item 13: Certain Relationships and Related Transactions

None.

PART IV

Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K

Item 14(A):  Document List

1.  List of Financial Statements

The following consolidated financial statements of Snap-on Incorporated, and the
Auditors'  Report  thereon,  each  included  in the 1998  Annual  Report  of the
Corporation  to its  shareholders  for the  year  ended  January  2,  1999,  are
incorporated by reference in Item 8 of this report:

Consolidated Balance Sheets as of January 2, 1999 and January 3, 1998.

Consolidated Statements of Earnings for the years ended January 2, 1999, January
3, 1998 and December 28, 1996.

Consolidated Statements of Shareholders' Equity and Comprehensive Income for the
years ended January 2, 1999, January 3, 1998 and December 28, 1996.

Consolidated  Statements  of Cash  Flows for the years  ended  January  2, 1999,
January 3, 1998 and December 28, 1996.

Notes to Consolidated Financial Statements.

2.  Financial Statement Schedule

The following  consolidated financial statement schedule of Snap-on Incorporated
is included in Item 14(d) as a separate section of this report.

Schedule II Valuation and Qualifying Accounts and Reserves.      Page 18

All other  schedules for which  provision is made in the  applicable  accounting
regulations  of the Securities and Exchange  Commission  are  inapplicable  and,
therefore,  have been omitted,  or are included in the Corporation's 1998 Annual
Report in the Notes to  Consolidated  Financial  Statements  for the years ended
January 2, 1999,  January 3, 1998 and December 28, 1996,  which are incorporated
by reference in Item 8 of this report.

3.  List of Exhibits

The  exhibits  filed with or  incorporated  by reference in this report are as
specified in the exhibit index. Page 16

Item 14(B):  Reports on Form 8-K

During the fourth  quarter of 1998, the  Corporation  reported on Form 8-K dated
October 22, 1998 its third quarter 1998 Analyst Bulletin.

Subsequent to year-end,  the Corporation  reported on Form 8-K dated January 19,
1999 that the  Corporation  and Newcourt  Financial  USA Inc. had  established a
joint  venture  known as Snap-on  Credit LLC,  which will serve as the preferred
provider of financial  services to the Corporation's  global dealer and customer
network.

12

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

We have audited, in accordance with generally accepted auditing  standards,  the
financial  statements  included in Snap-on  Incorporated's  (the  "Corporation")
Annual Report to Shareholders,  incorporated by reference in this Form 10-K, and
have issued our report  thereon dated  February 2, 1999.  Our audit was made for
the  purpose of forming an  opinion on those  statements  taken as a whole.  The
schedule listed on page 18 is the responsibility of the Corporation's management
and is  presented  for purposes of complying  with the  Securities  and Exchange
Commission's  rules  and is not part of the  basic  financial  statements.  This
schedule has been subjected to the auditing  procedures  applied in the audit of
the  basic  financial  statements  and,  in our  opinion,  fairly  states in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 2, 1999

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent  public  accountants,  we hereby consent to the  incorporation by
reference in this Form 10-K of our report dated February 2, 1999 included in the
Corporation's   previously  filed  Registration  Statement  File  Nos.  2-53663,
2-53578, 33-7471, 33-22417,  33-37924,  33-39660,  33-57898, 33-55607, 33-58939,
33-58943, 333-14769, 333-21277, 333-21285 and 333-41359. It should be noted that
we have not audited any financial  statements of the  Corporation  subsequent to
January 2, 1999 or performed any audit procedures  subsequent to the date of our
report.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Chicago, Illinois
March 29, 1999

13

SIGNATURES

Pursuant to the  requirements of Section 13 of 15(d) of the Securities  Exchange
Act of 1934,  the  Corporation  has duly  caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

SNAP-ON INCORPORATED

By: /s/ R. A. Cornog                                       Date: March 26, 1999
R. A. Cornog, Chairman of the Board of Directors,
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Corporation and in the
capacities as indicated.

/s/ R. A. Cornog                                       Date: March 26, 1999 
R. A. Cornog, Chairman of the Board of Directors,
President and Chief Executive Officer

/s/ D. S. Huml                                         Date: March 26, 1999 
D. S. Huml, Principal Financial Officer,
and Senior Vice President - Finance

/s/ N. T. Smith                                        Date: March 26, 1999 
N. T. Smith, Principal Accounting Officer,
and Controller

14

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Corporation and in the
capacities as indicated.

By: /s/ B. M. Beronja                                      Date: March 26, 1999
B. M. Beronja, Director

By: /s/ D. W. Brinckman                                    Date: March 26, 1999
D. W. Brinckman, Director

By: /s/ B. S. Chelberg                                     Date: March 26, 1999 
B. S. Chelberg, Director

By: /s/ R. J. Decyk                                        Date: March 26, 1999 
R. J. Decyk, Director

By:  /s/ L. A. Hadley                                      Date: March 26, 1999
L. A. Hadley, Director

By: /s/ A. L. Kelly                                        Date: March 26, 1999
A. L. Kelly, Director

By: /s/ G. W. Mead                                         Date: March 26, 1999
G. W. Mead, Director

By: /s/ J. D. Michaels                                     Date: March 26, 1999 
J. D. Michaels, Director

By: /s/ E. H. Rensi                                        Date: March 26, 1999
E. H. Rensi, Director

By: /s/ R. F. Teerlink                                     Date: March 26, 1999
R. F. Teerlink, Director

15

EXHIBIT INDEX
Item 14(c):  Exhibits
- ---------------------
(3) (a)     Restated  Certificate  of  Incorporation  of  the  Corporation  as
amended  through  April 25, 1997  (incorporated  by  reference  to
Exhibit (3)(a) to the Corporation's Annual Report on Form 10-K for
the  fiscal  year  ended  January  2,  1998  (Commission  File No.
1-7724))

(b)     Bylaws  of the  Corporation,  effective  as of  January  26,  1996
(incorporated by reference to Exhibit (3)(b) to the  Corporation's
Annual Report on Form 10-K for the fiscal year ended  December 30,
1996 (Commission File No. 1-7724))

(4) (a)     Rights  Agreement  between the Corporation and First Chicago Trust
Company of New York, effective as of August 22, 1997 (incorporated
by reference to the  Corporation's  Form 8-A12B dated  October 17,
1997 (Commission File No. 1-7724))

The Corporation and its subsidiaries have no long-term debt agreement for
which the related  outstanding  debt  exceeds 10% of  consolidated  total
assets as of January 2, 1999.  Copies of debt  instruments  for which the
related  debt is less  than  10% of  consolidated  total  assets  will be
furnished to the Commission upon request.

(10)  Material Contracts

(a)     Amended and Restated  Snap-on  Incorporated  1986 Incentive  Stock
Program  (incorporated  by  reference  to  Exhibit  (10)(a) to the
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 28, 1996 (Commission File No. 1-7724))*

(b)     Form of Restated Senior Officer  Agreement between the Corporation
and each of Robert A. Cornog, Branko M. Beronja, Frederick D. Hay,
Donald  S.  Huml  and  Michael  F.  Montemurro   (incorporated  by
reference to Exhibit (10)(b) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 30, 1995  (Commission
File No. 1-7724))*

(c)     Form of Restated  Executive  Agreement between the Corporation and
each of Alan T. Biland, Sharon M. Brady, Richard V. Caskey, Dan G.
Craighead,  Dale  F.  Elliott,  Nicholas  L.  Loffredo,  Denis  J.
Loverine,  Susan F.  Marrinan and Neil T. Smith  (incorporated  by
reference to Exhibit (10)(b) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 30, 1995  (Commission
File No. 1-7724))*

(d)     Deferred  Compensation  Waiver  and  Insurance  Benefit  Agreement
between the  Corporation  and Robert A. Cornog  dated  January 30,
1998.*

(e)     Deferred  Compensation  Waiver  and  Insurance  Benefit  Agreement
between the  Corporation  and Branko M. Beronja dated December 21,
1998*

(f)     Form of Indemnification Agreement between the Corporation and each
of the  Directors,  Frederick  D. Hay,  Donald S.  Huml,  Susan F.
Marrinan  and  Michael F.  Montemurro  effective  October 24, 1997
(incorporated by reference to Exhibit (3)(a) to the  Corporation's
Annual  Report on Form 10-K for the fiscal  year ended  January 2,
1998 (Commission File No. 1-7724))*

(g)     Amended and Restated Snap-on Incorporated Directors' 1993 Fee Plan
(incorporated by reference to Exhibit (10)(e) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended  December 28,
1996 (Commission File No. 1-7724))*

(h)     Snap-on Incorporated  Deferred  Compensation Plan (incorporated by
reference to Exhibit (10)(f) to the Corporation's Annual Report on
Form 10-K for the fiscal year ended December 28, 1996  (Commission
File No. 1-7724))*

(i)     Snap-on  Incorporated  Supplemental  Retirement  Plan for Officers
(incorporated by reference to Exhibit (10)(b) to the Corporation's
Annual Report on Form 10-K for the fiscal year ended  December 30,
1995 (Commission File No. 1-7724))*

16

EXHIBIT INDEX (continued)

(j)     Benefit Trust  Agreement  between the Corporation and The Northern
Trust  Company,  effective  as of July 2,  1998  (incorporated  by
reference  to the  Corporation's  Form  8-K  dated  July  2,  1998
(Commission File No. 1-7724))

(12)        Computation of Ratio of Earnings to Fixed Charges

(13)        Annual Report to Shareholders

(21)        Subsidiaries of the Corporation

(23)        Consent of Independent Public Accountants

(27)        Fiscal 1998 Financial Data Schedule

* Denotes management contract or compensatory plan or arrangement

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Balance of
Balance at        Subsidiary                                      Balance at
Beginning         at Time of                     Costs and         End of
Description                of Year         Acquisition        Expenses    Deductions (1)      Year
- -----------              -----------       -----------      -----------   --------------      ----

Allowance for 
doubtful accounts
- -----------------

Year ended
January 2, 1999          $20,644,676      $  2,072,723      $24,983,781     $18,470,578    $29,230,602

Year ended
January 3, 1998          $16,902,581      $  2,220,474      $21,039,748     $19,518,127    $20,644,676

Year ended
December 28, 1996        $14,650,458      $    296,140      $13,611,414     $11,655,431    $16,902,581

(1) This amount represents write-offs of bad debts.

18

EXHIBIT 10.d

DEFERRED COMPENSATION WAIVER
AND INSURANCE BENEFIT AGREEMENT

This  Agreement  is entered  into this 30th day of  January,  1998,  by and
between SNAP-ON INCORPORATED, a Delaware corporation (the "Company"), and ROBERT
A. CORNOG (the "Executive").

WHEREAS,  the Executive  has a Cash Account  under the  Company's  Deferred
Compensation Plan (the "Deferred Compensation Plan Balance"); and

WHEREAS,  the Executive  has  previously  deferred at least Seven  Thousand
Seven  Hundred  Fifty  Dollars  ($7,750)  per month for the period  beginning on
February 27, 1998, and ending on December 31, 1998; and

WHEREAS,  the Executive may earn a bonus for calendar year 1998 which would
be payable in 1999; and

WHEREAS,  the  Company  is  willing  to  establish  the  Split-Dollar  Life
Insurance  Agreement  described  in Section 3 of this  Agreement  ("Split-Dollar
Agreement"); and

WHEREAS,  as of the date of this  Agreement,  the Executive and the Company
believe  that the net  Present  Value of the  Company's  obligations  under  the
Split-Dollar  Agreement are  equivalent to the Present Value of the  Executive's
waiver of rights under Section 1 of this Agreement.

NOW, THEREFORE, in consideration of the respective terms and conditions set
forth herein, the Company and the Executive hereby agree as follows:

1.   Definitions.

a. Waived Deferred Compensation Plan Rights. The estimated payments to
the Executive  attributable to the Executive's  Waived Existing Balance (as
defined in Section 2.a),  the Waived Salary  Amounts (as defined in Section
2.b) and the Waived  Bonus  Amount (as defined in Section  2.c)  calculated
based on the assumptions set forth in Exhibit B to this Agreement.

b.  Change of Control.  This term shall have the  meaning  given in it
Section 1.c. of the Senior Officer Agreement.

c. Committee. The Organization and Compensation Committee of the Board
of Directors of the Company.

d.  Deferred  Compensation  Plan.  The Snap-on  Incorporated  Deferred
Compensation Plan.

e. Present  Value.  The Present Value of a payment shall be determined
based on the assumptions set forth in Exhibit B to this Agreement.

f. Senior Officer  Agreement.  The Restated  Senior Officer  Agreement
dated January 29, 1996, between the Company and the Executive

2.   Executive's Waiver of Rights.

a. The  Executive  hereby  waives any and all  rights to  receive  One
Million  Dollars  ($1,000,000)  of the  Executive's  Cash Account under the
Company's  Deferred  Compensation Plan as of the date of this agreement and
Three Hundred  Thousand  Dollars of the Executive's  Cash Account under the
Company's  Deferred  Compensation Plan as of February 17, 1998 (the "Waived
Existing Balance").

b.  The  Executive  hereby  waives  any and all  rights  to (i)  Seven
Thousand Seven Hundred Fifty Dollars  ($7,750) of his base salary per month
for the period  beginning on February 27, 1998,  and ending on December 31,
1998,  which he has  previously  deferred  and (ii)  Seven  Thousand  Seven
Hundred Fifty Dollars  ($7,750) of his base salary for the period beginning
on January 1, 1999,  and ending on January  31,  1999 (the  "Waived  Salary
Amounts").

c. The Executive hereby waives any and all rights to Two Hundred Seven
Thousand  Dollars  ($207,000) of the bonus which would otherwise be payable
to the Executive in 1999 with respect to the Company's  performance in 1998
(the "Waived Bonus Amount").

d. In the event that the  Executive's  employment  by the  Company (as
defined in the Executive's  Senior Officer Agreement) is terminated for any
reason prior to the time(s) when the Executive would have otherwise  earned
the right to receive some or all of the compensation  waived under Sections
2.b or 2.c of this  Agreement,  the  Executive  hereby  waives a portion of
other  compensation  otherwise payable to him equal to the Present Value of
the  amount  of  compensation  waived  under  Sections  2.b and 2.c of this
Agreement  which the  Executive  did not earn the right to receive prior to
the termination of the Executive's employment, based on the assumptions set
forth in Exhibit B to this Agreement.  This waiver shall first apply to any
compensation otherwise payable to the Executive pursuant to the Executive's
Senior Officer Agreement as a result of the Executive's  termination,  then
to any bonus which would otherwise be payable to the Executive, then to any
salary which would  otherwise be payable to the  Executive  and then to any
amount which would  otherwise be payable to the  Executive  pursuant to the
Company's Supplemental Retirement Plan for Officers.

3.   Split-Dollar Agreement.

a. The Company and the Executive agree to enter into the  Split-Dollar
Agreement  attached as Exhibit A to this  Agreement.  The Company agrees to
pay the first ten (10) annual premium payments of Five Hundred Thirty-Three
Thousand  Six

-2-

Hundred Ten Dollars  ($533,610)  pursuant to Section 3 of the  Split-Dollar
Agreement, subject to adjustment as provided in this Agreement.

b. In the  event  that the  Executive  does not earn the  compensation
waived  under  Sections  2.b and 2.c of this  Agreement  and does not waive
sufficient compensation pursuant to Section 2.d of this Agreement to offset
such unearned compensation, the Company's obligation to make future premium
payments under Section 3 of the Split-Dollar Agreement shall be adjusted so
that the net Present Value of the Company's  premium payments under Section
3 of the  Split-Dollar  Agreement  (as  recovered  under  Section  5 of the
Split-Dollar  Agreement)  plus the net Present  Value of any death  benefit
required to be paid under Section 4 of this Agreement,  shall be equivalent
to the Present Value of the Executive's  Waived Deferred  Compensation Plan
Rights (as adjusted to reflect  compensation  actually waived) based on the
assumptions set forth in Exhibit B to this Agreement.

4.   Payments Upon Death of Executive and Executive's Wife.

a. In the  event of the death of the  survivor  of the  Executive  and
Virginia A. Cornog (the  "Executive's  wife") prior to the repayment to the
Company under Section 5 of the Split-Dollar Agreement, the Company will pay
to the  beneficiary  designated  pursuant  to  Section  4.b or 4.c of  this
Agreement the amount (if any) by which the Present Value of the Executive's
Waived Deferred  Compensation  Plan Rights exceeds the net Present Value of
the  Company's  premium  payments  under  Section  3  of  the  Split-Dollar
Agreement (as recovered  under  Section 5 of the  Split-Dollar  Agreement).
These  calculations  shall be made  based on the  assumptions  set forth in
Exhibit  B to this  Agreement.  The  death  benefits  based  on the  Waived
Deferred  Compensation  Plan  Rights are shown in column 11 of Exhibit B to
this Agreement.

b. The Executive may designate a  beneficiary  or  beneficiaries  who,
upon the death of the survivor of the  Executive and the  Executive's  wife
are to  receive  the  amounts  that  are  paid  under  Section  4.a of this
Agreement. All designations shall be in writing to the Company in such form
as it  requires  or accepts and signed by the  Executive.  The  designation
shall be effective  only if and when  delivered  to the Company  during the
lifetime of the Executive. The Executive also may change his beneficiary or
beneficiaries by a signed, written instrument delivered to the Company. The
payment of amounts shall be in accordance  with the last unrevoked  written
designation  of  beneficiary  that has been  signed  and  delivered  to the
Company.

c. In the event the Executive  does not designate a beneficiary  or if
for any reason such  designation is  ineffective,  in whole or in part, for
any reason  including the death of a beneficiary  prior to the death of the
survivor of the  Executive and the  Executive's  wife,  any amount  payable
under  Section  4.a of this  Agreement  shall be paid to the  estate of the
survivor of the Executive and the Executive's  wife, and in such event, the
term "beneficiary" shall include such estate.

-3-

5.   Equivalence of Benefits.

The  Company  and the  Executive  agree that the net  Present  Value of the
Company's  premium payment  obligation  under Section 3 of the Split-Dollar
Agreement (as recovered under Section 5 of the Split-Dollar Agreement) plus
the net  Present  Value of any  death  benefit  required  to be paid  under
Section 4 of this  Agreement  are  equivalent  to the Present  Value of the
Executive's   Waived  Deferred   Compensation  Plan  Rights  based  on  the
assumptions set forth in Exhibit B to this Agreement.

6.   Funding Upon a Change of Control.

a. In the event that a Change of Control of the  Company  occurs,  the
Company  shall  immediately   transfer  to  an  irrevocable  grantor  trust
established  by the Company which is  substantially  identical to the trust
attached  as  Exhibit  C  to  this   Agreement   and  contains  such  other
supplemental  provisions  as are  required  by the  trustee  which  are not
inconsistent  with  Exhibit  C (the  "Trust")  an  amount  equal to (i) the
aggregate unpaid premiums  required to be paid by the Company under Section
3 of this  Agreement  plus  (ii) an  additional  amount  equal to the death
benefit  required  to be paid under  Section 4.a of this  Agreement  if the
survivor of the Executive and the Executive' wife dies in the year in which
the Company's final premium payment is due.

b.  The  Trust  is an  administrative  and  funding  vehicle  for  the
Company's  general  assets  contributed  to the  Trust for the  purpose  of
ultimately satisfying  obligations under this Agreement.  In the event that
the  Company  transfers  assets  to the Trust for the  express  purpose  of
ultimately satisfying its obligations under this Agreement then, subject to
the terms of the  Trust and  limited  by assets  available  and held by the
Trustees of the Trust for the purpose of funding the  benefits  provided by
this  Agreement,  payments may be made from such Trust in  satisfaction  of
Company's obligations  hereunder.  The transfer of assets by the Company to
the Trust for this purpose shall not increase,  decrease or vary in any way
the rights and obligations of the parties to this Agreement,  nor shall the
Executive,  the Executive's  wife or the owner of the insurance policy held
pursuant  to the  Split-Dollar  Agreement  have any  ownership  rights with
respect  to such  assets nor shall the assets be treated as a trust fund of
any kind for the benefit of any such person;  provided that as and when any
such  person is entitled to receive  payments  hereunder,  such person may,
subject  to the  terms  of the  Trust  and  limited  by the  terms  of this
Agreement,  obtain  such  payments  from  the  Trust.  The  Executive,  the
Executive's  wife or the owner of the insurance policy held pursuant to the
Split-Dollar  Agreement may enforce and obtain satisfaction of such payment
rights  against the assets held by the Trust for the purpose of  satisfying
such obligations of the Company.

7.   Successors and Binding Agreements.

a.  The  Company  shall  require  any  successor  (whether  direct  or
indirect, by purchase, merger, consolidation,  reorganization or otherwise)
to all or  substantially  all 

-4-

of the  business  and/or  assets of the Company  expressly to assume and to
agree to perform  this  Agreement in the same manner and to the same extent
the Company would be required to perform if no succession  had taken place.
This  Agreement  shall be  binding  upon and  inure to the  benefit  of the
Company and any such  successor,  and such  successor  shall  thereafter be
deemed the "Company" for purposes of this Agreement.

b. This Agreement  shall inure to the benefit of and be enforceable by
the  Executive's  respective  personal or legal  representative,  executor,
administrator, successor, heirs, distributees and/or legatees.

c.  Neither  the  Company nor the  Executive  may assign,  transfer or
delegate this  Agreement or any rights or obligations  hereunder  except as
expressly provided in this Agreement.

8.   Notices.

All  communications  provided  for herein  shall be in writing and shall be
deemed to have been duly given when  delivered  or five (5)  business  days
after having been mailed by United  States  registered  or certified  mail,
return receipt requested, postage prepaid, addressed to the Company (to the
attention  of the  Secretary  of the  Company) at its  principal  executive
office and to the  Executive at his principal  residence,  or to such other
address  as any  party  may  have  furnished  to the  other in  writing  in
accordance  herewith,  except that notices of a change of address  shall be
effective only upon receipt.

9.   Governing Law.

The  validity,   interpretation,   construction  and  performance  of  this
Agreement  shall be governed by the laws of the State of Wisconsin  without
giving effect to the  principles of conflict of laws of such state,  except
that  Section  10  shall  be  construed  in  accordance  with  the  Federal
Arbitration Act if arbitration is chosen as the method of resolution.

10.  Settlement of Disputes; Arbitration.

Any  dispute  or  controversy  arising  under or in  connection  with  this
Agreement  shall  be  settled,  at  the  election  of  the  Executive,  the
Executive's  wife or the owner of the insurance policy held pursuant to the
Split-Dollar  Agreement,  either by  arbitration  in  Chicago,  Illinois in
accordance with the rules of the American  Arbitration  Association then in
effect or by litigation.  Judgment may be entered on the arbitrator's award
in any court having jurisdiction.

11.  Certain Limitations.

Nothing in this Agreement  shall grant the Executive any right to remain an
executive,  director or employee of the Company or of any its  subsidiaries
for any period of time. 

-5-

12.  Miscellaneous.

a. Expenses.  All costs and expenses of  administering  this Agreement
shall be borne by the Company.

b. Action by the Company. Any action required or permitted to be taken
under this  Agreement by the Company shall be by resolution of the Board of
Directors,  by the duly authorized Committee of the Board of Directors,  or
by a person or persons  authorized  by resolution of the Board of Directors
or the Committee.

IN WITNESS  WHEREOF the parties have signed and sealed this Agreement as of
the date first above written.

In the presence of                           SNAP-ON INCORPORATED

/s/                                          By   /s/Michael F. Monetmurro
- ---------------------------                       ------------------------
Its  Senior Vice President
------------------------

/s/                                          /s/Robert A. Cornog
- ---------------------------                  -----------------------------
Robert A. Cornog

-6-

EXHIBIT A

SNAP-ON INCORPORATED

SPLIT-DOLLAR INSURANCE AGREEMENT

1. This  Agreement is entered into this 30th day of January,  1998,  by and
between  SNAP-ON  INCORPORATED,  a Delaware  corporation,  and the  CORNOG  1998
INSURANCE TRUST.

2. Definitions.

(a) "Company"  means Snap-on  Incorporated,  a Delaware  corporation,
with offices in Kenosha, Wisconsin.

(b) "Insureds" means Robert A. Cornog and Virginia A. Cornog.

(c) "Insurer" means Northwestern Mutual Life.

(d) "Owner" means the Cornog 1998 Insurance Trust, who may or may not
be the same person as the Insureds.

(e)  "Policy"  means the policy or policies of insurance on the lives
of the Insureds issued by the Insurer and listed on Schedule "A" attached hereto
together with any  supplementary  contracts issued by the Insurer in conjunction
therewith

(f)  "Policy  Interest"  means the  interest  of the  Company  in the
Policy. Policy Interest is an amount equal to the aggregate premiums paid by the
Company.  The existence of the Company's  Policy  Interest shall be evidenced by
filing with the Insurer an assignment in substantially  the form attached hereto
as Schedule "B."

3. Premium Payments.

(a) The Company agrees to pay up to the first ten (10) annual premium
payments  of  Five  Hundred  Thirty-Three   Thousand  Six  Hundred  Ten  Dollars
($533,610)  as they become due.  The Owner shall be  responsible  for paying all
premium payments not paid by the Company.

(b) Policy dividends shall be applied to purchase paid-up  additional
insurance protection.

4. Policy Ownership.

(a) Except as provided in  subparagraph  (b),  the Owner shall be the
sole and exclusive owner of the Policy.  This includes all the rights of "owner"
under the terms of the Policy  except as  otherwise  provided in this Section 4,
including  but not limited to the right to  designate  beneficiaries  and select
settlement options.

(b) Neither the Owner nor the Company  shall have the right to obtain
a cash loan from the  Insurer  in  accordance  with the loan  provisions  of the
Policy.

(c) In exchange for the Company's payment of its premium contribution
under  Section 3, the Owner shall  assign to the Company the  following  limited
ownership rights in the Policy:

(1)        The right to recover its Policy  Interest  from
the cash  value of the  Policy  in the event of
the  termination  of this Agreement as provided
in Section 5.

(2)        The right to recover its Policy  Interest  from
the  proceeds of the Policy in the event of the
death of the survivor of the Insureds.

(d) To secure the  Company's  interest  in the Policy the Owner shall
execute an  Assignment  of the Policy to the Company in  substantially  the form
attached hereto as Schedule B.

(e) It is agreed that  benefits  will be paid under the Policy by the
Insurer only by separate checks to the parties entitled thereto.

5. Termination of Plan.

(a) This Agreement may be terminated by the Owner by giving notice in
writing to the Company.  In the event of termination of this Agreement the Owner
shall, at its election:

(1)        Repay to the Company within 60 days of the date
of termination an amount equal to the Company's
Policy Interest. Or,

(2)        Execute  any and all  instruments  that  may be
required to vest ownership of the Policy in the
Company;  and the Company shall refund to Owner
that part of any  payment  by the  Owner  under
Section  3 for the  premium  payment  period in
which  termination  occurred  representing  the
unexpired  portion of that period.  Thereafter,
Owner  shall  have no further  interest  in the
Policy.

(b) This Plan shall  terminate on the  sixteenth  anniversary  of the
issuance of the Policy.

6. The Insurer shall be bound only by the provisions of and  endorsements
on the  Policy,  and any  payments  made or  action  taken  by it in  accordance
therewith  shall fully 

-2-

discharge it from all claims,  suits and demands of all persons  whatsoever.  It
shall in no way be bound by or be deemed to have  notice  of the  provisions  of
this Agreement.

7. The Company  and the Owner may amend this  Agreement.  Such  amendment
shall be in writing and signed by the Company and Owner.

8. This Agreement  shall bind and inure to the benefit of the Company and
its successors and assigns; Owner and his/her heirs,  executors,  administrators
and assigns; and any Policy beneficiary.

IN WITNESS  WHEREOF the parties have signed and sealed this  Agreement on
the date first above written.

In the presence of                         SNAP-ON INCORPORATED

/s/                                   
- -------------------------                   By  /s/Michael F. Montemurro

Its Senior Vice President

OWNER

Cornog 1998 Insurance Trust

/s/                                        /s/                           Trustee
- -------------------------                  -------------------------------------

/s/                                        /s/                           Trustee
- -------------------------                  -------------------------------------

-3-

SCHEDULE A

LIFE INSURANCE

Initial Face                Insureds' Initial
Policy Number                    Amount                   Economic Benefit
-------------                    ------                   ----------------

14538602                     $17,267,686                     $4,183

SCHEDULE B

COLLATERAL ASSIGNMENT FORM

SNAP-ON INCORPORATED SPLIT-DOLLAR INSURANCE PLAN

Insurer: Northwestern Mutual Life

Insureds:  Robert A. Cornog and Virginia A. Cornog

Policy No. 14538602

FOR VALUE RECEIVED,  THIS ASSIGNMENT is made by the undersigned Owner
effective this 30th day of January, 1998.

1.  Definitions.

(a)   "Assignee"   means   Snap-on   Incorporated,   a   Delaware
corporation, of Kenosha, Wisconsin.

(b) "Insureds" means Robert A. Cornog and Virginia A. Cornog.

(c) "Insurer" means Northwestern Mutual Life.

(d) "Owner" means the Cornog 1998 Insurance Trust.

(e) "Policy" means the following  policy or policies of insurance
issued  by the  Insurer  on  the  lives  of  the  Insureds,  together  with  any
supplementary contracts issued in conjunction therewith:

Policy Number:  14538602           Face Amount:  $17,267,686

(f) "Policy  Interest" means the Assignee's  "Policy Interest" as
set forth in the Split-Dollar Plan. The Insurer shall be entitled to rely on the
Assignee's certification of the amount of its Policy Interest.

(g)  "Split-Dollar  Plan"  means that  certain  plan of even date
herewith,  between the Owner and the  Assignee.  The Insurer is not bound by nor
deemed to have notice of the provisions of the Split-Dollar Plan.

2. Introduction. Under the Split-Dollar Plan, the Assignee has agreed
to assist the Owner in payment of premiums on the Policy.  In  consideration  of
such premium  payments by the Assignee,  the Owner grants herein to the Assignee
certain limited interests in the Policy.

-3-

3. Assignment.  The Owner hereby assigns,  transfers and sets over to
the Assignee,  its successors and assigns,  the following specific rights in the
Policy and subject to the following terms and conditions:

(a) The right to recover its Policy  Interest from the cash value
of the Policy in the event of the Policy's surrender by the Owner.

(b) The right to recover its Policy Interest from the proceeds of
the Policy in the event of the death of the survivor of the Insureds.

4. Insurer.  The Insurer is hereby  authorized  to recognize,  and is
fully protected in recognizing:

(a) The  claims  of the  Assignee  to rights  hereunder,  without
investigating  the reasons for such action by the  Assignee,  or the validity or
the amount of such claims.

(b) The  Owner's  request  for  surrender  of the Policy  with or
without  the  consent of the  Assignee.  Upon  surrender,  the  Policy  shall be
terminated and of no further force or effect.

5. Release of Assignment.  Upon payment to the Assignee of its policy
interest, the Assignee shall execute a written release of this assignment.

IN WITNESS WHEREOF the Owner has executed this assignment on the date
first above written.

Cornog 1998 Insurance Trust

Trustee
- ------------------------            --------------------------------------------

Trustee
- ------------------------            --------------------------------------------

EXHIBIT B

SNAP-ON INCORPORATED
CALCULATION OF NET PRESENT VALUE OF CORPORATE CASH FLOWS
January, 1998

- --------------------------------------------------------------------------------------------------
Corporate Cost of Deferral  Program                  
-----------------------------------------------------------------------------
(1)          (2)           (3)         (4)          (5)           (6)    
63%(3)       63%(2)     NPV Sum (4)
+NPV(3)  
Annual Payment
------------------------ 

Net A/T                
Deferred    End of Year                               Death          Net    
Compen-      Account                     Net        Benefit       Present  
Yr.        Age       sation       Balance        Gross        A/T        Payable       Value   
-------    -------  ------------ ------------- ------------ ----------- ------------- -----------

1,300,000
58       300,000    1,732,740             0            0   1,091,626     1,051,865  
59             0    1,888,686             0            0   1,189,872     1,104,773  
1         60             0    2,058,668             0            0   1,296,961     1,160,342  
1         61             0    2,243,948             0            0   1,413,687     1,218,705  
5         62             0    2,096,251       320,782      202,093   1,320,638     1,271,242  
5         63             0    1,935,262       320,782      202,093   1,219,215     1,317,977  
7         64             0    1,759,783       320,782      202,093   1,108,663     1,358,926  
8         65             0    1,568,511       320,782      202,093     988,162     1,394,095  
9         66             0    1,360,025       320,782      202,093     856,816     1,423,479  
10        67             0    1,132,775       320,782      202,093     713,648     1,447,062  
11        68             0      885,073       320,782      202,093     557,596     1,464,816  
12        69             0      615,077       320,782      202,093     387,499     1,476,705  
13        70             0      320,782       320,782      202,093     202,093     1,482,680  
14        71             0            0       320,782      202,093           0     1,482,680  
15        72             0            0             0            0           0     1,482,680  
73             0            0             0            0           0     1,482,680  
------------                            -----------
1,600,000                          0    2,202,925
============                            ===========

- ----------------------------------------------------------------------------------------      
Corporate Cost of Waiver Program           Survivor Benefit         
-------------------------------------   ------------------------      
(7)          (8)          (9)            (10)           (11)      
Sum(7)     NPV Sum (7)      (6)-(9)        (10)/63%    
+NPV(8)                                   

Net A/T                    
Premium                   Corp. Value                  
Scheduled    Recovery        Net        In Excess of      Lump       
Premium         At        Present         Waived         Sum        
Yr.        Age          Outlay      Death         Value      Compensation     Payable      
-------    -------     ------------   -------    -----------   ------------    ---------     

58          533,610      (533,610)     19,436     1,032,430       1,638,777     
59          533,610    (1,067,220)     56,892     1,047,881       1,663,304     
1         60          533,610    (1,600,830)    111,029     1,049,313       1,665,576     
1         61          533,610    (2,134,440)    180,583     1,038,123       1,647,814     
5         62          533,610    (2,668,050)    264,358     1,006,883       1,598,228     
5         63          533,610    (3,201,660)    361,227       956,749       1,518,650     
7         64          533,610    (3,735,270)    470,125       888,801       1,410,796     
8         65          533,610    (4,268,879)    590,046       804,049       1,276,269     
9         66          533,610    (4,802,489)    720,044       703,435       1,116,564     
10        67          533,610    (5,336,099)    859,224       587,837         933,075     
11        68                0    (5,336,099)    993,336       471,481         748,382     
12        69                0    (5,336,099)  1,122,562       354,143         562,132     
13        70                0    (5,336,099)  1,247,082       235,598         373,966     
14        71                0    (5,336,099)  1,367,066       115,614         183,514     
15        72                0    (5,336,099)  1,482,680             0               0     
73       (5,336,099)            0   1,482,680             0               0     

- --------------------------------------------------------------------------------------------- 
Assumptions
Additional                                                                         
Deferral              300,000                
Initial                                      Tax Rate                           37%  
Deferral            1,300,000                Interest Crediting Rate             9%
Years to Waive              1                NPV Interest Rate                   6%
Years to Defer              4                Year  to  Roll-Out  (End  of          
Year)                               15

- --------------------------------------------------------------------------------------------

19

EXHIBIT C

SNAP-ON INCORPORATED INSURANCE BENEFIT TRUST

(Established pursuant to the Deferred Compensation Waiver and
Insurance Benefit Agreement dated January 30, 1998, between
Snap-on Incorporated and Robert A. Cornog)

(a) This Agreement made this ______ day of December, 1998, by and between
SNAP-ON  INCORPORATED,  a Delaware  Corporation (the "Company") and THE NORTHERN
TRUST COMPANY ("Trustee");

(b) WHEREAS,  Company has entered into a Deferred Compensation Waiver And
Insurance  Benefit  Agreement  with Robert A. Cornog dated January 30, 1998 (the
"Plan").

(c) WHEREAS, Company has incurred liability under the terms of such Plan.

(d)  WHEREAS,  Company  wishes to establish a trust  (hereinafter  called
"Trust")  and to  contribute  to the Trust  assets  that shall be held  therein,
subject to the claims of Company's Insolvency,  as herein defined, until used to
pay  insurance  premiums  as  required by Section 3 of the Plan or used to pay a
death benefit as required by Section 4 of the Plan;

(e) WHEREAS,  all payments  made  pursuant to the Plan are made to or for
the benefit of Robert A. Cornog,  Virginia A. Cornog,  the Robert A. Cornog 1998
Insurance  Trust,  the  beneficiary  designated by Robert A. Cornog  pursuant to
Section 4 of the Plan or the  estate of the  survivor  of Robert A.  Cornog  and
Virginia A. Cornog (the "Plan Beneficiaries");

(f)  WHEREAS,  it is the  intention  of the parties that this Trust shall
constitute an unfunded  arrangement  and shall not affect the status of the Plan
as an unfunded  plan for purposes of Title I of the Employee  Retirement  Income
Security Act of 1974;

(g) WHEREAS,  it is the intention of Company to make contributions to the
Trust to provide  itself  with a source of funds to assist it in the  meeting of
its liabilities under the Plan;

NOW, THEREFORE,  the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:

Section 1. Establishment of Trust.

(a) Company  hereby  deposits  with Trustee in trust One Hundred  Dollars
($100.00) which shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.

(b) The Trust hereby established is revocable by Company; it shall become
irrevocable upon a Change of Control, as defined herein.

(c) The Trust is intended to be a grantor trust,  of which Company is the
grantor,  within the  meaning of subpart  E, part I,  subchapter  J,  chapter 1,
subtitle  A of the  Internal  Revenue  Code of 1986,  as  amended,  and shall be
construed accordingly.

(d)  Company  shall have the right at any time,  and from time to time in
its sole  discretion,  to  substitute  assets of equal fair market value for any
asset held by the Trust.  This right is exercisable by Company in a nonfiduciary
capacity without the approval or consent of any person in a fiduciary capacity.

(e) The principal of the Trust, and any earnings  thereon,  shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of the Plan and general creditors as herein set forth.

(f) No Plan  Beneficiary  shall  have  any  preferred  claim  on,  or any
beneficial  ownership  interest in, any asset of the Trust.  Any rights  created
under the Plan and this  Trust  Agreement  shall be mere  unsecured  contractual
rights of the Plan Beneficiaries  against Company.  Any assets held by the Trust
will be subject to the claims of Company's  general  creditors under federal and
state law in the event of Insolvency, as defined in Section 3(a) herein.

(g)  Upon  a  Change  of  Control,  Company  shall  immediately  make  an
irrevocable  contribution to the Trust as required by Section 5 of the Plan. The
Trustee shall have no duty to enforce any funding obligations of the Company and
the duties of the Trustee  shall be  governed  solely by the terms of this Trust
Agreement.

Section 2. Payments Under the Plan.

(a) Upon a Change of Control, Company shall deliver to Trustee a schedule
(the "Payment  Schedule") that directs the Trustee regarding the amounts payable
under the Plan,  the form in which such amounts are to be paid, and the dates on
which such amounts are payable. Except as otherwise provided herein, the Trustee
shall make payments in accordance with such Payment Schedule.  The Company shall
have  the sole  responsibility  for all tax  withholding,  related  filings  and
reports. The Trustee shall withhold for taxes such amounts from distributions as
the  Company  directs and shall  follow the  instructions  of the  Company  with
respect  to  the  remission  of  such  withheld   amounts  to  the   appropriate
governmental authorities.

(b) Company may make payments directly as they become due under the terms
of the Plan.  Company  shall  notify  Trustee of its  decision to make  payments
directly  prior to the time amounts are payable under the Plan. In addition,  if
the principal of the Trust, and any earnings thereon, are not sufficient to make
payments  in  accordance  with the terms of the  Plan,  Company  shall  make the
balance of each such payment as it falls due. Trustee shall notify Company where
principal and earnings are not sufficient.

(c) The  entitlement  of Plan  Beneficiaries  to benefits  under the Plan
shall be determined  under the Plan,  and any claim for such  benefits  shall be
considered and reviewed under the procedure set out in the Plan.

-2-

Section 3.  Trustee  Responsibility  Regarding  Payments  When Company is
Insolvent.

(a)  Trustee  shall  cease  payments  under  the Plan if the  Company  is
Insolvent.  Company shall be considered  "Insolvent"  for purposes of this Trust
Agreement  if (i) Company is unable to pay its debts as they become due, or (ii)
Company is subject to a pending  proceeding  as a debtor under the United States
Bankruptcy Code.

(b) At all times  during the  continuance  of this Trust,  as provided in
Sections  1(e) and 1(f) hereof,  the  principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and state law as
set forth below.

(1) The Board of  Directors  and the Chief  Executive  Officer  of
Company  shall have the duty to inform  Trustee  in writing of  Company's
Insolvency.  If a person  claiming to be a creditor of Company alleges in
writing to Trustee  that  Company  has become  Insolvent,  Trustee  shall
determine  whether Company is Insolvent and, pending such  determination,
Trustee shall discontinue payment of benefits under the Plan.

(2) Unless Trustee has actual  knowledge of Company's  Insolvency,
or has received notice from Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee shall have no duty to inquire
whether  Company is  Insolvent.  Trustee  may in all events  rely on such
evidence concerning Company's solvency as may be furnished to Trustee and
that provides  Trustee with a reasonable basis for making a determination
concerning  Company's  solvency.  In no event shall "actual knowledge" be
deemed to include  knowledge of Company's  credit  status held by banking
officers or banking employees of The Northern Trust Company which has not
been  communicated  to the Trust  Department of Trustee.  The Trustee may
appoint an  independent  accounting,  consulting  or law firm to make any
determination  of solvency  required by Trustee  under this Section 3. In
such event,  Trustee may conclusively rely upon the determination by such
firm and shall be  responsible  only for the  prudent  selection  of such
firm.

(3)  If at  any  time  Trustee  has  determined  that  Company  is
Insolvent,  Trustee shall  discontinue  payments under the Plan and shall
hold the  assets  of the  Trust  for the  benefit  of  Company's  general
creditors.  Nothing in this Trust Agreement shall in any way diminish any
rights as general creditors of Company with respect to benefits due under
the Plan or otherwise.

(4) Trustee shall resume the payments under the Plan in accordance
with Section 2 of this Trust  Agreement only after Trustee has determined
that Company is not Insolvent (or is no longer Insolvent).

(c) Provided that there are sufficient  assets,  if Trustee  discontinues
the payments  from the Trust  pursuant to Section  3(b) hereof and  subsequently
resumes such payments,  the first payment  following such  discontinuance  shall
include the aggregate amount of all payments due under the terms of the Plan for
the period of such  discontinuance,  less the  aggregate  amount of any payments
made by Company in lieu of the payments  provided for 

-3-

hereunder during any such period of  discontinuance,  all in accordance with the
Payment Schedule.  The Payment Schedule may only be modified by the Company with
the written  consent of all Plan  Beneficiaries  as necessary to comply with the
provisions of this paragraph.  The Company shall be responsible for securing the
written  consent of all Plan  Beneficiaries  and providing  such consents to the
Trustee.

Section 4. Payments to Company.

Except  as  provided  in  Section 3  hereof,  after the Trust has  become
irrevocable, Company shall have no right or power to direct Trustee to return to
Company or to divert to others any of the Trust  assets  before all  payments of
benefits have been made pursuant to the terms of the Plan.  The Trustee shall be
entitled  to rely on the  written  representations  of the  Company and all Plan
Beneficiaries  that all such  payments  have been  made.  The  Company  shall be
responsible for securing the written  representations  of all Plan Beneficiaries
and providing such representations to the Trustee.

Section 5. Disposition of Income.

During the term of this Trust,  all income received by the Trust,  net of
expenses and taxes, shall be accumulated and reinvested.

Section 6. Accounting by Trustee.

Trustee  shall keep  accurate  and detailed  records of all  investments,
receipts,  disbursements,  and  all  other  transactions  required  to be  made,
including  such  specific  records as shall be agreed  upon in  writing  between
Company and  Trustee,  which  records may be audited  annually (or at such other
times as agreed by the Company and the  Trustee) by the Company or anyone  named
by the Company.  Within  thirty (30) days  following  the close of each calendar
year and within thirty (30) days after the resignation of Trustee, Trustee shall
deliver to Company a written account of its  administration  of the Trust during
such year or during the period from the close of the last  preceding year to the
date of such resignation, setting forth all investments, receipts, disbursements
and other transactions effected by it, including a description of all securities
and  investments  purchased  and  sold  with the  cost or net  proceeds  of such
purchases or sales (accrued interest paid or receivable being shown separately),
and showing all cash, securities and other property held in the Trust at the end
of such year or as of the date of such  resignation,  as the case may be. In the
absence of the filing in writing  with the Trustee by the Company of  exceptions
or objections to any such account  within ninety (90) days, the Company shall be
deemed to have approved such account; in such case, or upon the written approval
by the Company of any such account, the Trustee shall be released,  relieved and
discharged  with  respect to all matters and things set forth in such account as
though  such  account  had been  settled by the  decree of a court of  competent
jurisdiction. The Trustee may conclusively rely on determinations of the Company
of valuations for assets of the Trust for which the Trustee deems there to be no
readily determinable fair market value and on the determination of the issuer of
any insurance  contracts with respect to the fair market value of such insurance
contracts.

-4-

Section 7. Responsibility of Trustee.

(a) Trustee shall act with the care, skill, prudence, and diligence under
the circumstances  then prevailing that a prudent person acting in like capacity
and familiar  with such matters  would use in the conduct of an  enterprise of a
like character and with like aims; provided,  however,  that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated  by, and in conformity  with,
the terms of this Trust and is given in writing  by  Company.  In the event of a
dispute between  Company and a party,  Trustee may apply to a court of competent
jurisdiction to resolve the dispute.

(b) If Trustee undertakes or defends any litigation arising in connection
with this Trust,  Company agrees to indemnify  Trustee against  Trustee's costs,
expenses and liabilities  (including,  without  limitation,  attorneys' fees and
expenses)  relating  thereto and to be primarily  liable for such  payments.  If
Company does not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from the Trust.

(c) Trustee may consult  with legal  counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.

(d) Trustee  shall  have,  without  exclusion,  all powers  conferred  on
Trustees by applicable law, unless expressly provided otherwise herein.

(e)  Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the  objective  of  carrying  on a business  and  dividing  the gains
therefrom,  within the  meaning  of  section  301.7701-2  of the  Procedure  and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.

(f) To invest and  reinvest  part or all of the trust fund in any real or
personal  property  (including  investments  in any stocks,  bonds,  debentures,
mutual fund shares  (including  those for which the Trustee or its  affiliate is
advisor), notes, commercial paper, treasury bills, options, commodities, futures
contracts,  partnership  interests,  venture capital  investments,  any interest
bearing  deposits  held by any bank or similar  financial  institution,  and any
other real or personal  property)  and to diversify  such  investments  so as to
minimize the risk of large losses unless under the  circumstances  it is clearly
prudent not to do so;  except  that the Company may from time to time  establish
investment guidelines and the trustee shall follow such investment guidelines.

(g) To retain in cash such amounts as the trustee considers advisable and
as are  permitted by  applicable  law and to deposit any cash so retained in any
depository (including any bank acting as trustee) which the trustee may select.

(h) To manage, sell, insure and otherwise deal with all real and personal
property  held by the trustee on such terms and  conditions as the trustee shall
decide.

-5-

(i) To vote stock and other voting securities personally or by proxy (and
to delegate the trustee's  powers and discretions  with respect to such stock or
other voting securities to such proxy), to exercise subscription, conversion and
other rights and options (and make  payments  from the trust fund in  connection
therewith),  to take any  action  and to abstain  from  taking  any action  with
respect   to   any   reorganization,    consolidation,    merger,   dissolution,
recapitalization,  refinancing  and any other  program or change  affecting  any
property  constituting a part of the trust fund (and in connection  therewith to
delegate   the   trustee's   discretionary   powers  and  to  pay   assessments,
subscriptions  and other  charges from the trust fund),  to hold or register any
property from time to time in the trustee's  name or in the name of a nominee or
to hold it  unregistered  or in such form that title shall pass by delivery and,
with the approval of the  Company,  to borrow from  anyone,  including  any bank
acting as trustee,  to the extent  permitted  by law,  such amounts from time to
time as the trustee considers desirable to carry out this trust (and to mortgage
or pledge all or part of the trust fund as security).

(j) To make  payments  from the trust  fund of amounts  that have  become
payable  under the Plan  pursuant to Section 2 to the extent not already paid by
the  Company or that are  required  to be made to the  creditors  of the Company
pursuant to Section 3.

(k) To employ  counsel and to begin,  maintain  or defend any  litigation
necessary  in  connection  with the  administration  of this trust  except that,
unless  otherwise  required by law, the trustee shall not be obliged or required
to do so unless indemnified to the trustee's satisfaction.

(l) To withhold,  if the trustee considers it advisable,  all or any part
of any payment  required to be made  hereunder as may be necessary and proper to
protect the trustee or the trust fund against any  liability or claim on account
of any estate,  inheritance,  income or other tax or assessment  attributable to
any amount payable hereunder,  and to discharge any such liability with any part
or all of such  payment so  withheld,  provided  that at least ten days prior to
discharging  any such  liability  with any amount so withheld the trustee  shall
notify the Company in writing of the trustee's intent to do so.

(m) The Company  (which has the  authority to do so under the laws of its
state of  incorporation)  shall  indemnify the Trustee and defend it and hold it
harmless  from and against any and all  liabilities,  losses,  claims,  suits or
expenses (including attorneys' fees), of whatsoever kind and nature which may be
imposed upon,  asserted against or incurred by the Trustee at any time by reason
of its provision of services under this Trust Agreement,  its status as Trustee,
or by reason of any act or failure to act under  this  Trust  Agreement,  or any
action taken in accordance  with any directions  which conform with the terms of
this Trust Agreement,  or acts omitted due to absence of such  directions,  from
the Company, except to the extent, such liability,  loss, claim, suit or expense
arises  directly  from the  Trustee's  negligence  or willful  misconduct in the
performance of  responsibilities  specifically  allocated to it under this Trust
Agreement. This paragraph shall survive the termination of the Trust Agreement.

-6-

(n) To  furnish  the  Company  with  such  information  in the  trustee's
possession as the Company may need for tax or other purposes.

(o) To employ agents, attorneys, accountants, actuaries and other persons
(who also may be employed by the  Company,  the Company or others),  to delegate
discretionary powers to such persons and to reasonably rely upon information and
advice  furnished by such persons;  provided that each such  delegation  and the
acceptance thereof by each such person shall be in writing; and provided further
that the trustee may not delegate its  responsibilities  as to the management or
control of the assets of the trust fund.

(p) To  perform  all  other  acts  which in the  trustee's  judgment  are
appropriate for the proper management,  investment and distribution of the trust
fund.

(q) The trustee may invest any part or all of the trust  assets for which
it has investment  responsibility in any common,  collective or commingled trust
fund or pooled  investment  fund that is  maintained  by a bank or trust company
(including a bank or trust company acting as trustee)  provided such investments
are consistent with applicable  investment  requirements and guidelines.  To the
extent that any trust assets are invested in any such fund,  the  provisions  of
the documents  under which such common,  collective or commingled  trust fund or
pooled investment fund are maintained shall govern any investments therein.

Section 8. Compensation and Expenses of Trustee.

Company shall pay all administrative and Trustee's fees and expenses.  If
not so paid, the fees and expenses shall be paid from the Trust.

Section 9. Resignation of Trustee.

(a)  Trustee may resign at any time by written  notice to Company,  which
shall be effective  thirty (30) days after receipt of such notice unless Company
and Trustee agree otherwise.

(b) The Trustee may not be removed by Company.

(c) Upon  resignation of Trustee and appointment of a successor  Trustee,
all assets shall  subsequently  be  transferred  to the successor  Trustee.  The
transfer  shall be completed  within thirty (30) days after receipt of notice of
resignation or transfer,  unless Company  extends the time limit.  The Company's
consent to the  extension  of time for the transfer of trust assets shall not be
unreasonably withheld.

(d) If Trustee  resigns,  a successor  shall be appointed,  in accordance
with Section  10(a)  hereof,  by the  effective  date of the  resignation  under
Section 9(a). If no such appointment has been made, Trustee may apply to a court
of competent  jurisdiction  for appointment of a successor or for  instructions.
All expenses of Trustee in connection  with the  proceeding  shall be allowed as
administrative expenses of the Trust.

-7-

Section 10. Appointment of Successor.

(a) If Trustee  resigns a successor  Trustee  shall be  appointed  by the
written consent of the Company and all Plan Beneficiaries.  The Company shall be
responsible  for  securing  the written  consent of all Plan  Beneficiaries  and
providing  such  consents to the former  Trustee and the new Trustee.  Any third
party  such as a bank  trust  department  or other  party  that  may be  granted
corporate trustee powers under state law may be appointed successor Trustee. The
appointment  of a successor  Trustee shall be effective when accepted in writing
by the new Trustee.  The new Trustee shall have all the rights and powers of the
former Trustee,  including  ownership rights in Trust assets. The former Trustee
shall execute any instrument  necessary or reasonably requested by the successor
Trustee to evidence the transfer.

(b) The  successor  Trustee  need not examine the records and acts of any
prior  Trustee and may retain or dispose of existing  Trust  assets,  subject to
Sections 6 and 7 hereof.  The successor Trustee shall not be responsible for and
Company  shall  indemnify  and defend the  successor  Trustee  from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event,  or any  condition  existing at the time it becomes  successor
Trustee.

Section 11. Amendment or Termination.

(a) This Trust Agreement may be amended by a written instrument  executed
by Trustee and the Company.  Notwithstanding  the  foregoing,  no such amendment
shall  conflict  with the terms of the Plan or shall  make the  Trust  revocable
after it has become  irrevocable  in  accordance  with Section 1(b) hereof.  The
Trustee  be  shall  entitled  to  rely  upon  the  written   determination   and
representation  of the Company and all Plan  Beneficiaries  that such  amendment
does not conflict with the terms of the Plan.  The Company shall be  responsible
for securing the written  determination of all Plan  Beneficiaries and providing
such determinations to the Trustee.

(b) The  Trust  shall  not  terminate  until  the date on which no one is
entitled to payments  pursuant to the terms of the Plan unless sooner revoked in
accordance  with Section 1(b) hereof.  Upon  termination of the Trust any assets
remaining  in the Trust  shall be returned  to  Company.  The  Trustee  shall be
entitled  to rely  upon the  written  determination  and  representation  of the
Company and the Plan Beneficiaries as to such non-entitlement. The Company shall
be responsible for securing the written  determination of all Plan Beneficiaries
and providing such determinations to the Trustee.

(c) Upon  written  approval  of all Plan  Beneficiaries  the  Company may
terminate this Trust prior to the time all benefit  payments under the Plan have
been made. All assets in the Trust at termination shall be returned to Company.

-8-

Section 12. Miscellaneous.

(a) Any  provision  of this Trust  Agreement  prohibited  by law shall be
ineffective  to the extent of any such  prohibition,  without  invalidating  the
remaining provisions hereof.

(b) Amounts  payable under this Trust  Agreement may not be  anticipated,
assigned  (either  at law  or in  equity),  alienated,  pledged,  encumbered  or
subjected  to  attachment,  garnishment,  levy,  execution  or  other  legal  or
equitable process.

(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of Wisconsin.

(d) For purposes of this Trust,  Change of Control shall have the meaning
given it in Section 1.c. of the Restated  Senior Officer  Agreement  between the
Company  and  Robert A.  Cornog  dated  January  29,  1996.  The  Company  shall
immediately  notify the  Trustee  of any  Change of  Control.  The  Trustee  may
conclusively rely upon such notice and shall have no duty to determine whether a
Change of Control has occurred.

(e) Where written approval, consent, determination or other communication
is required of or by the Plan  Beneficiaries  under any  provision of this Trust
Agreement,  the Company  shall certify to the Trustee that the  responding  Plan
Beneficiaries are all of the Plan Beneficiaries  under the terms of the Plan and
this  Trust   Agreement  at  that  time,  and  the  Trustee  may  rely  on  such
certification.

Section 13. Effective Date.

The  effective  date of this Trust  Agreement  shall be the date  written
above.

In the presence of                     SNAP-ON INCORPORATED

______________________________         By  ______________________________

______________________________         Its ______________________________

THE NORTHERN TRUST COMPANY, Trustee

By  ______________________________

Its ______________________________

-9-

EXHIBIT 10.e

DEFERRED COMPENSATION WAIVER
AND INSURANCE BENEFIT AGREEMENT

This  Agreement is entered into this 21st day of December,  1998,  by and
between SNAP-ON INCORPORATED, a Delaware corporation (the "Company"), and BRANKO
M. BERONJA (the "Executive").

WHEREAS,  the Executive  has a Cash Account under the Company's  Deferred
Compensation Plan (the "Deferred Compensation Plan Balance"); and

WHEREAS,  the  Company is  willing to  establish  the  Split-Dollar  Life
Insurance  Agreement  described  in Section 3 of this  Agreement  ("Split-Dollar
Agreement"); and

WHEREAS, as of the date of this Agreement,  the Executive and the Company
believe  that the net  Present  Value of the  Company's  obligations  under  the
Split-Dollar  Agreement are  equivalent to the Present Value of the  Executive's
waiver of rights under Section 2 of this Agreement.

NOW,  THEREFORE,  in consideration of the respective terms and conditions
set forth herein, the Company and the Executive hereby agree as follows:

1.     Definitions.

a.  Waived  Deferred   Compensation  Plan  Rights.  The  estimated
payments to the Executive attributable to the Executive's Waived Existing
Balance (as defined in Section 2.a)  calculated  based on the assumptions
set forth in Exhibit B to this Agreement.

b. Change of Control. This term shall have the meaning given in it
Section 1.c. of the Senior Officer Agreement.

c. Committee.  The Organization and Compensation  Committee of the
Board of Directors of the Company.

d. Deferred  Compensation Plan. The Snap-on Incorporated  Deferred
Compensation Plan.

e.  Present  Value.  The  Present  Value  of a  payment  shall  be
determined  based  on the  assumptions  set  forth in  Exhibit  B to this
Agreement.

f. Senior Officer Agreement. The Restated Senior Officer Agreement
dated January 29, 1996, between the Company and the Executive

2.     Executive's Waiver of Rights.

The  Executive  hereby  waives any and all rights to receive  One Hundred
Fifty Thousand  Dollars  ($150,000) of the Executive's Cash Account under
the Company's Deferred Compensation Plan as of the date of this agreement
(the "Waived Existing Balance").

3.     Split-Dollar Agreement.

The Company agrees to enter into the Split-Dollar  Agreement  attached as
Exhibit A to this Agreement. The Company agrees to pay the first ten (10)
annual premium payments of Forty-One Thousand Three Hundred Seventy-Seven
Dollars ($41,377.00) pursuant to Section 3 of the Split-Dollar Agreement.

4.     Payments Upon Death of Executive and Executive's Wife.

a. In the event of the death of the survivor of the  Executive and
Joanne M. Beronja (the "Executive's  wife") prior to the repayment to the
Company under Section 5 of the Split-Dollar  Agreement,  the Company will
pay to the beneficiary  designated pursuant to Section 4.b or 4.c of this
Agreement  the  amount  (if  any)  by  which  the  Present  Value  of the
Executive's  Waived  Deferred  Compensation  Plan Rights  exceeds the net
Present Value of the Company's  premium  payments  under Section 3 of the
Split-Dollar  Agreement (as recovered under Section 5 of the Split-Dollar
Agreement). These calculations shall be made based on the assumptions set
forth in Exhibit B to this  Agreement.  The death  benefits  based on the
Waived  Deferred  Compensation  Plan  Rights  are  shown in  column 11 of
Exhibit B to this Agreement.

b. The Executive may designate a beneficiary or beneficiaries who,
upon the death of the survivor of the Executive and the Executive's  wife
are to  receive  the  amounts  that are paid  under  Section  4.a of this
Agreement.  All  designations  shall be in writing to the Company in such
form  as it  requires  or  accepts  and  signed  by  the  Executive.  The
designation  shall be effective only if and when delivered to the Company
during the lifetime of the  Executive.  The Executive also may change his
beneficiary or beneficiaries by a signed, written instrument delivered to
the Company.  The payment of amounts shall be in accordance with the last
unrevoked  written  designation of  beneficiary  that has been signed and
delivered to the Company.

c. In the event the Executive  does not designate a beneficiary or
if for any reason such  designation is ineffective,  in whole or in part,
for any reason including the death of a beneficiary prior to the death of
the  survivor  of the  Executive  and the  Executive's  wife,  any amount
payable under Section 4.a of this  Agreement  shall be paid to the estate
of the survivor of the Executive and the  Executive's  wife,  and in such
event, the term "beneficiary" shall include such estate

-2-

5.     Equivalence of Benefits.

The Company  and the  Executive  agree that the net Present  Value of the
Company's premium payment  obligation under Section 3 of the Split-Dollar
Agreement (as recovered  under Section 5 of the  Split-Dollar  Agreement)
plus the net Present Value of any death benefit required to be paid under
Section 4 of this  Agreement  are  equivalent to the Present Value of the
Executive's  Waived  Deferred  Compensation  Plan  Rights  based  on  the
assumptions set forth in Exhibit B to this Agreement.

6.     Funding Upon a Change of Control.

a. In the event that a Change of Control  of the  Company  occurs,
the Company shall  immediately  transfer to an irrevocable  grantor trust
established by the Company which is substantially  identical to the trust
attached  as  Exhibit  C  to  this  Agreement  and  contains  such  other
supplemental  provisions  as are  required by the  trustee  which are not
inconsistent  with  Exhibit C (the  "Trust")  an amount  equal to (i) the
aggregate  unpaid  premiums  required  to be  paid by the  Company  under
Section 3 of this Agreement  plus (ii) an additional  amount equal to the
death benefit  required to be paid under Section 4.a of this Agreement if
the survivor of the Executive and the  Executive's  wife dies in the year
in which the Company's final premium payment is due.

b. The Trust is an  administrative  and  funding  vehicle  for the
Company's  general  assets  contributed  to the Trust for the  purpose of
ultimately satisfying obligations under this Agreement. In the event that
the  Company  transfers  assets to the Trust for the  express  purpose of
ultimately  satisfying its obligations under this Agreement then, subject
to the terms of the Trust and limited by assets available and held by the
Trustees of the Trust for the purpose of funding the benefits provided by
this  Agreement,  payments may be made from such Trust in satisfaction of
Company's obligations hereunder. The transfer of assets by the Company to
the Trust for this purpose  shall not  increase,  decrease or vary in any
way the rights and  obligations  of the  parties to this  Agreement,  nor
shall the Executive,  the Executive's  wife or the owner of the insurance
policy held  pursuant to the  Split-Dollar  Agreement  have any ownership
rights  with  respect to such assets nor shall the assets be treated as a
trust fund of any kind for the benefit of any such person;  provided that
as and when any such person is entitled  to receive  payments  hereunder,
such  person  may,  subject to the terms of the Trust and  limited by the
terms  of this  Agreement,  obtain  such  payments  from the  Trust.  The
Executive, the Executive's wife or the owner of the insurance policy held
pursuant   to  the   Split-Dollar   Agreement   may  enforce  and  obtain
satisfaction  of such payment rights against the assets held by the Trust
for the purpose of satisfying such obligations of the Company.

7.     Successors and Binding Agreements.

a. The Company  shall  require any  successor  (whether  direct or
indirect,   by  purchase,   merger,   consolidation,   reorganization  or
otherwise) to all or  substantially  all 

-3-

of the business  and/or assets of the Company  expressly to assume and to
agree to perform this Agreement in the same manner and to the same extent
the  Company  would be  required  to perform if no  succession  had taken
place.  This Agreement  shall be binding upon and inure to the benefit of
the Company and any such successor,  and such successor shall  thereafter
be deemed the "Company" for purposes of this Agreement.

b. This Agreement shall inure to the benefit of and be enforceable
by the Executive's respective personal or legal representative, executor,
administrator, successor, heirs, distributees and/or legatees.

c. Neither the Company nor the Executive  may assign,  transfer or
delegate this Agreement or any rights or obligations  hereunder except as
expressly provided in this Agreement.

8.     Notices.

All  communications  provided for herein shall be in writing and shall be
deemed to have been duly given when  delivered or five (5) business  days
after having been mailed by United States  registered or certified  mail,
return receipt requested,  postage prepaid,  addressed to the Company (to
the attention of the Secretary of the Company) at its principal executive
office and to the Executive at his principal residence,  or to such other
address  as any  party may have  furnished  to the  other in  writing  in
accordance herewith,  except that notices of a change of address shall be
effective only upon receipt.

9.     Governing Law.

The  validity,  interpretation,  construction  and  performance  of  this
Agreement shall be governed by the laws of the State of Wisconsin without
giving effect to the principles of conflict of laws of such state, except
that  Section  10 shall  be  construed  in  accordance  with the  Federal
Arbitration Act if arbitration is chosen as the method of resolution.

10.    Settlement of Disputes; Arbitration.

Any  dispute or  controversy  arising  under or in  connection  with this
Agreement  shall  be  settled,  at the  election  of the  Executive,  the
Executive's  wife or the owner of the  insurance  policy held pursuant to
the Split-Dollar Agreement, either by arbitration in Chicago, Illinois in
accordance with the rules of the American Arbitration Association then in
effect or by  litigation.  Judgment  may be entered  on the  arbitrator's
award in any court having jurisdiction.

11.    Certain Limitations.

Nothing in this  Agreement  shall grant the Executive any right to remain
an  executive,  director  or  employee  of  the  Company  or of  any  its
subsidiaries for any period of time.

-4-

12.    Miscellaneous.

a.  Expenses.   All  costs  and  expenses  of  administering  this
Agreement shall be borne by the Company.

b. Action by the Company.  Any action  required or permitted to be
taken under this  Agreement by the Company  shall be by resolution of the
Board of  Directors,  by the duly  authorized  Committee  of the Board of
Directors,  or by a person or persons  authorized  by  resolution  of the
Board of Directors or the Committee.

IN WITNESS  WHEREOF the parties have signed and sealed this  Agreement as
of the date first above written.

In the presence of                          SNAP-ON INCORPORATED

/s/Shelly Lange                             By  /s/Michael F. Montemurro
- --------------------------------                --------------------------------
Its  Senior Vice President
--------------------------------

/s/Shelly Lange                             /s/Branko M. Beronja
- --------------------------------            --------------------------------
Branko M. Beronja

-5-

EXHIBIT A

SNAP-ON INCORPORATED

SPLIT-DOLLAR INSURANCE AGREEMENT

1. This Agreement is entered into this 21st day of December, 1998, by
and between SNAP-ON  INCORPORATED,  a Delaware  corporation,  and the BRANKO AND
JOANNE BERONJA 1998 INSURANCE TRUST.

2.     Definitions.

(a) "Company"  means Snap-on  Incorporated,  a Delaware  corporation,
with offices in Kenosha, Wisconsin.

(b) "Insureds" means Branko M. and Joanne M. Beronja.

(c) "Insurer" means Northwestern Mutual Life.

(d) "Owner" means the Branko and Joanne Beronja 1998 Insurance Trust,
who may or may not be the same person as the Insureds.

(e)  "Policy"  means the policy or policies of insurance on the lives
of the Insureds issued by the Insurer and listed on Schedule "A" attached hereto
together with any  supplementary  contracts issued by the Insurer in conjunction
therewith

(f)  "Policy  Interest"  means the  interest  of the  Company  in the
Policy. Policy Interest is an amount equal to the aggregate premiums paid by the
Company.  The existence of the Company's  Policy  Interest shall be evidenced by
filing with the Insurer an assignment in substantially  the form attached hereto
as Schedule "B."

3.     Premium Payments.

(a) The Company agrees to pay up to the first ten (10) annual premium
payments of Forty-one Thousand Three Hundred  Seventy-seven Dollars ($41,377) as
they become due. The Owner shall be responsible for paying all premium  payments
not paid by the Company.

(b) Policy dividends shall be applied to purchase paid-up  additional
insurance protection.

4.     Policy Ownership.

(a) Except as provided in  subparagraph  (b),  the Owner shall be the
sole and exclusive owner of the Policy.  This includes all the rights of "owner"
under the terms of the Policy  except as  otherwise  provided in this Section 4,
including  but not limited to the right to  designate  beneficiaries  and select
settlement options.

(b) Neither the Owner nor the Company  shall have the right to obtain
a cash loan from the  Insurer  in  accordance  with the loan  provisions  of the
Policy.

(c) In exchange for the Company's payment of its premium contribution
under  Section 3, the Owner shall  assign to the Company the  following  limited
ownership rights in the Policy:

(1)        The right to  recover  its Policy  Interest  from the cash
value of the  Policy  in the event of the  termination  of
this Agreement as provided in Section 5.

(2)        The right to recover its Policy Interest from the proceeds
of the Policy in the event of the death of the survivor of
the Insureds.

(d) To secure the  Company's  interest  in the Policy the Owner shall
execute an  Assignment  of the Policy to the Company in  substantially  the form
attached hereto as Schedule B.

(e) It is agreed that  benefits  will be paid under the Policy by the
Insurer only by separate checks to the parties entitled thereto.

5. Termination of Plan.

(a) This Agreement may be terminated by the Owner by giving notice in
writing to the Company.  In the event of termination of this Agreement the Owner
shall, at its election:

(1)        Repay  to the  Company  within  60  days  of the  date  of
termination  an  amount  equal  to  the  Company's  Policy
Interest. Or,

(2)        Execute  any and all  instruments  that may be required to
vest  ownership  of the  Policy  in the  Company;  and the
Company  shall refund to Owner that part of any payment by
the Owner under Section 3 for the premium  payment  period
in which termination  occurred  representing the unexpired
portion of that  period.  Thereafter,  Owner shall have no
further interest in the Policy.

(b) This Plan shall  terminate on the  sixteenth  anniversary  of the
issuance of the Policy.

6. The Insurer shall be bound only by the provisions of and  endorsements
on the  Policy,  and any  payments  made or  action  taken  by it in  accordance
therewith  shall fully  discharge  it from all claims,  suits and demands of all
persons  whatsoever.  It shall in no way be bound by or be deemed to have notice
of the provisions of this Agreement.

7. The Company  and the Owner may amend this  Agreement.  Such  amendment
shall be in writing and signed by the Company and Owner.

-2-

8. This Agreement  shall bind and inure to the benefit of the Company and
its successors and assigns; Owner and his/her heirs,  executors,  administrators
and assigns; and any Policy beneficiary.

IN WITNESS  WHEREOF the parties have signed and sealed this  Agreement on
the date first above written.

In the presence of                         SNAP-ON INCORPORATED

/s/Shelly Lange                            By  /s/Michael F. Montemurro

Its Senior Vice President

OWNER

BRANKO AND JOANNE BERONJA 1998
INSURANCE TRUST

/s/D.B. Bixby                              /s/Gregory P. Beronja
Gregory P. Beronja, Trustee

/s/
-3-

SCHEDULE A

LIFE INSURANCE

Initial Face               Insureds' Initial
Policy Number                       Amount                   Economic Benefit
-------------                       ------                   ----------------
14888630                        $1,239,913                       $948

SCHEDULE B

COLLATERAL ASSIGNMENT FORM

SNAP-ON INCORPORATED SPLIT-DOLLAR INSURANCE PLAN

Insurer:    Northwestern Mutual Life

Insureds:   Branko M. and Joanne M. Beronja

Policy No.  14888630

FOR VALUE  RECEIVED,  THIS  ASSIGNMENT is made by the  undersigned  Owner
effective this 21st day of December, 1998.

1. Definitions.

(a) "Assignee" means Snap-on Incorporated, a Delaware corporation, of
Kenosha, Wisconsin.

(b) "Insureds" means Branko M. and Joanne M. Beronja.

(c) "Insurer" means Northwestern Mutual Life.

(d) "Owner" means the Branko and Joanne Beronja 1998 Insurance Trust.

(e)  "Policy"  means the  following  policy or policies of  insurance
issued  by the  Insurer  on  the  lives  of  the  Insureds,  together  with  any
supplementary contracts issued in conjunction therewith:

Policy Number:  14888630           Face Amount:  $1,239,913

(f) "Policy  Interest" means the Assignee's  "Policy Interest" as set
forth in the  Split-Dollar  Plan.  The Insurer  shall be entitled to rely on the
Assignee's certification of the amount of its Policy Interest.

(g)  "Split-Dollar  Plan"  means  that  certain  plan  of  even  date
herewith,  between the Owner and the  Assignee.  The Insurer is not bound by nor
deemed to have notice of the provisions of the Split-Dollar Plan.

2. Introduction.  Under the Split-Dollar Plan, the Assignee has agreed to
assist the Owner in payment of premiums on the Policy.  In consideration of such
premium  payments  by the  Assignee,  the Owner  grants  herein to the  Assignee
certain limited interests in the Policy.

3. Assignment.  The Owner hereby assigns,  transfers and sets over to the
Assignee,  its  successors  and assigns,  the following  specific  rights in the
Policy and subject to the following terms and conditions:

(a) The right to recover its Policy  Interest  from the cash value of
the Policy in the event of the Policy's surrender by the Owner.

(b) The right to recover its Policy Interest from the proceeds of the
Policy in the event of the death of the survivor of the Insureds.

4. Insurer.  The Insurer is hereby authorized to recognize,  and is fully
protected in recognizing:

(a)  The  claims  of  the  Assignee  to  rights  hereunder,   without
investigating  the reasons for such action by the  Assignee,  or the validity or
the amount of such claims.

(b) The Owner's  request for  surrender of the Policy with or without
the consent of the Assignee. Upon surrender,  the Policy shall be terminated and
of no further force or effect.

5.  Release of  Assignment.  Upon  payment to the  Assignee of its policy
interest, the Assignee shall execute a written release of this assignment.

IN WITNESS  WHEREOF the Owner has executed  this  assignment  on the date
first above written.

BRANKO AND JOANNE BERONJA 1998
INSURANCE TRUST

/s/D.B. Bixby                                 /s/Gregory P. Beronja
Gregory P. Beronja, Trustee

/s/

-2-

EXHIBIT B

SNAP-ON INCORPORATED
SUMMARY OF EXECUTIVE CASH FLOWS AND DEATH BENEFITS
March, 1999

- -----------------------------------------------------------------------------------------------------------------------------------
Deferral  Program                                                                            
-----------------------------------------------------------------------------------------------------------
Defer Compensation                                 Payment to Executive                    
---------------------------------------      -----------------------------------------------------------
(1)            (2)            (3)             (4)            (5)             (6)             (7)     
60%(4)          Cum(5)        60%(3)+(6)  
Cumulative                  
Annual         Accum.        Remaining                         Net           Benefit          Death    
Yr.          Age       Deferral        Benefit       Liability         Gross           A/T         At Interest       Benefit   
-------      -------   ------------    -----------   -------------     ---------      ---------    ---------------   ----------- 

1           64          150,000        150,000        140,127          21,443         12,866         13,561           97,637  
2           65                0                       129,365          21,443         12,866         27,854          105,473  
3           66                0                       117,635          21,443         12,866         42,918          113,499  
4           67                0                       104,849          21,443         12,866         58,796          121,706  
5           68                0                        90,913          21,443         12,866         75,532          130,080  
6           69                0                        75,722          21,443         12,866         93,172          138,605  
7           70                0                        59,164          21,443         12,866        111,763          147,262  
8           71                0                        41,116          21,443         12,866        131,359          156,029  
9           72                0                        21,443          21,443         12,866        152,013          164,879  
10          73                0                             0          21,443         12,866        173,783          173,783  
11          74                0                             0               0              0        183,167          183,167  
12          75                0                             0               0              0        193,058          193,058  
13          76                0                             0               0              0        203,483          203,483  
14          77                0                             0               0              0        214,471          241,471  
15          78                0                             0               0              0        226,053          226,053  
16          79                0                             0               0              0        238,259          238,259  
17          80                0                             0               0              0        251,125          251,125  
18          81                0                             0               0              0        264,686          264,686  
19          82                0                             0               0              0        278,979          278,979  
20          83                0                             0               0              0        294,044          294,044  
21          84                0                             0               0              0        309,923          309,923  
22          85                0                             0               0              0        326,658          326,658  
----------     ----------                                
--------------
150,000                             0         214,431        128,659                                  
==============                                  ==========     ==========                                 

- -----------------------------------------------------------------------------------------
Waiver Program
--------------------------------------------
Second to Die Life Policy 
--------------------------------------------
(8)             (9)              (10)             (11)   
45%(7)                           40%(9)                   
Annual           Income                   
Net to         Gift to            Tax              Death  
Yr.          Age           Heirs           Trust           Payable           Benefits
-------      -------       ---------       ---------       -----------     ------------

1           64             43,937             948             379         1,198,536 
2           65             47,463           1,133             453         1,204,700 
3           66             51,075           1,343             537         1,208,620 
4           67             54,768           1,585             634         1,210,415 
5           68             58,536           1,875             750         1,210,206 
6           69             62,372           2,223             889         1,208,105 
7           70             66,268           2,625           1,050         1,204,222 
8           71             70,213           3,093           1,237         1,198,665 
9           72             74,196           3,635           1,454         1,191,530 
10          73             78,202           4,270           1,708         1,182,909 
11          74             82,425           4,898           1,959         1,146,957 
12          75             86,876           5,618           2,247         1,112,445 
13          76             91,567           6,455           2,582         1,079,270 
14          77             96,512           7,405           2,962         1,047,337 
15          78            101,724           8,488           3,395         1,016,559 
16          79            107,217               0               0           818,970 
17          80            113,006               0               0           790,003 
18          81            119,109               0               0           761,712 
19          82            125,541               0               0           734,043 
20          83            132,320               0               0           706,946 
21          84            139,465               0               0           680,371 
22          85            146,996               0               0           654,270 
---------       --------                 

55,590          22,236                   
=========       ========                   
- ------------------------------------------------------------------------------------------------------------------------------------
Assumptions
Initial Deferral               150,000                 Interest Crediting Rate             9%
Tax Rate - Individual              40%                 Years to Defer                       1
Tax Rate - Corporate               37%                 Year to Roll-Out                    15
Estate Tax Rate                    55%            
- ---------------------------------------------------- ------------------------ ----------- -------- ---------------------------------

EXHIBIT C

SNAP-ON INCORPORATED INSURANCE BENEFIT TRUST

(Established pursuant to the Deferred Compensation Waiver and
Insurance Benefit Agreement dated December 21, 1998, between
Snap-on Incorporated and Branko M. Beronja)

(a) This  Agreement  made this ______ day of  ___________,  1999,  by and
between SNAP-ON  INCORPORATED,  a Delaware  Corporation  (the "Company") and THE
NORTHERN TRUST COMPANY ("Trustee");

(b) WHEREAS,  Company has entered into a Deferred Compensation Waiver And
Insurance  Benefit Agreement with Branko M. Beronja dated December 21, 1998 (the
"Plan").

(c) WHEREAS, Company has incurred liability under the terms of such Plan.

(d)  WHEREAS,  Company  wishes to establish a trust  (hereinafter  called
"Trust")  and to  contribute  to the Trust  assets  that shall be held  therein,
subject to the claims of Company's Insolvency,  as herein defined, until used to
pay  insurance  premiums  as  required by Section 3 of the Plan or used to pay a
death benefit as required by Section 4 of the Plan;

(e) WHEREAS,  all payments  made  pursuant to the Plan are made to or for
the  benefit  of Branko M.  Beronja,  Joanne M.  Beronja,  the Branko and Joanne
Beronja 1998 Insurance  Trust,  the beneficiary  designated by Branko M. Beronja
pursuant  to  Section 4 of the Plan or the estate of the  survivor  of Branko M.
Beronja and Joanne M. Beronja (the "Plan Beneficiaries");

(f)  WHEREAS,  it is the  intention  of the parties that this Trust shall
constitute an unfunded  arrangement  and shall not affect the status of the Plan
as an unfunded  plan for purposes of Title I of the Employee  Retirement  Income
Security Act of 1974;

(g) WHEREAS,  it is the intention of Company to make contributions to the
Trust to provide  itself  with a source of funds to assist it in the  meeting of
its liabilities under the Plan;

NOW, THEREFORE,  the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:

Section 1. Establishment of Trust.

(a) Company  hereby  deposits  with Trustee in trust One Hundred  Dollars
($100.00) which shall become the principal of the Trust to be held, administered
and disposed of by the Trustee as provided in this Trust Agreement.

(b) The Trust hereby established is revocable by Company; it shall become
irrevocable upon a Change of Control, as defined herein.

(c) The Trust is intended to be a grantor trust,  of which Company is the
grantor,  within the  meaning of subpart  E, part I,  subchapter  J,  chapter 1,
subtitle  A of the  Internal  Revenue  Code of 1986,  as  amended,  and shall be
construed accordingly.

(d)  Company  shall have the right at any time,  and from time to time in
its sole  discretion,  to  substitute  assets of equal fair market value for any
asset held by the Trust.  This right is exercisable by Company in a nonfiduciary
capacity without the approval or consent of any person in a fiduciary capacity.

(e) The principal of the Trust, and any earnings  thereon,  shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of the Plan and general creditors as herein set forth.

(f) No Plan  Beneficiary  shall  have  any  preferred  claim  on,  or any
beneficial  ownership  interest in, any asset of the Trust.  Any rights  created
under the Plan and this  Trust  Agreement  shall be mere  unsecured  contractual
rights of the Plan Beneficiaries  against Company.  Any assets held by the Trust
will be subject to the claims of Company's  general  creditors under federal and
state law in the event of Insolvency, as defined in Section 3(a) herein.

(g)  Upon  a  Change  of  Control,  Company  shall  immediately  make  an
irrevocable  contribution to the Trust as required by Section 5 of the Plan. The
Trustee shall have no duty to enforce any funding obligations of the Company and
the duties of the Trustee  shall be  governed  solely by the terms of this Trust
Agreement.

Section 2. Payments Under the Plan.

(a) Upon a Change of Control, Company shall deliver to Trustee a schedule
(the "Payment  Schedule") that directs the Trustee regarding the amounts payable
under the Plan,  the form in which such amounts are to be paid, and the dates on
which such amounts are payable. Except as otherwise provided herein, the Trustee
shall make payments in accordance with such Payment Schedule.  The Company shall
have  the sole  responsibility  for all tax  withholding,  related  filings  and
reports. The Trustee shall withhold for taxes such amounts from distributions as
the  Company  directs and shall  follow the  instructions  of the  Company  with
respect  to  the  remission  of  such  withheld   amounts  to  the   appropriate
governmental authorities.

(b) Company may make payments directly as they become due under the terms
of the Plan.  Company  shall  notify  Trustee of its  decision to make  payments
directly  prior to the time amounts are payable under the Plan. In addition,  if
the principal of the Trust, and any earnings thereon, are not sufficient to make
payments  in  accordance  with the terms of the  Plan,  Company  shall  make the
balance of each such payment as it falls due. Trustee shall notify Company where
principal and earnings are not sufficient.

-2-

(c) The  entitlement  of Plan  Beneficiaries  to benefits  under the Plan
shall be determined  under the Plan,  and any claim for such  benefits  shall be
considered and reviewed under the procedure set out in the Plan.

Section 3.  Trustee  Responsibility  Regarding  Payments  When Company is
Insolvent.

(a)  Trustee  shall  cease  payments  under  the Plan if the  Company  is
Insolvent.  Company shall be considered  "Insolvent"  for purposes of this Trust
Agreement  if (i) Company is unable to pay its debts as they become due, or (ii)
Company is subject to a pending  proceeding  as a debtor under the United States
Bankruptcy Code.

(b) At all times  during the  continuance  of this Trust,  as provided in
Sections  1(e) and 1(f) hereof,  the  principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and state law as
set forth below.

(1) The Board of  Directors  and the Chief  Executive  Officer  of
Company  shall have the duty to inform  Trustee  in writing of  Company's
Insolvency.  If a person  claiming to be a creditor of Company alleges in
writing to Trustee  that  Company  has become  Insolvent,  Trustee  shall
determine  whether Company is Insolvent and, pending such  determination,
Trustee shall discontinue payment of benefits under the Plan.

(2) Unless Trustee has actual  knowledge of Company's  Insolvency,
or has received notice from Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee shall have no duty to inquire
whether  Company is  Insolvent.  Trustee  may in all events  rely on such
evidence concerning Company's solvency as may be furnished to Trustee and
that provides  Trustee with a reasonable basis for making a determination
concerning  Company's  solvency.  In no event shall "actual knowledge" be
deemed to include  knowledge of Company's  credit  status held by banking
officers or banking employees of The Northern Trust Company which has not
been  communicated  to the Trust  Department of Trustee.  The Trustee may
appoint an  independent  accounting,  consulting  or law firm to make any
determination  of solvency  required by Trustee  under this Section 3. In
such event,  Trustee may conclusively rely upon the determination by such
firm and shall be  responsible  only for the  prudent  selection  of such
firm.

(3)  If at  any  time  Trustee  has  determined  that  Company  is
Insolvent,  Trustee shall  discontinue  payments under the Plan and shall
hold the  assets  of the  Trust  for the  benefit  of  Company's  general
creditors.  Nothing in this Trust Agreement shall in any way diminish any
rights as general creditors of Company with respect to benefits due under
the Plan or otherwise.

(4) Trustee shall resume the payments under the Plan in accordance
with Section 2 of this Trust  Agreement only after Trustee has determined
that Company is not Insolvent (or is no longer Insolvent).

-3-

(c) Provided that there are sufficient  assets,  if Trustee  discontinues
the payments  from the Trust  pursuant to Section  3(b) hereof and  subsequently
resumes such payments,  the first payment  following such  discontinuance  shall
include the aggregate amount of all payments due under the terms of the Plan for
the period of such  discontinuance,  less the  aggregate  amount of any payments
made by Company in lieu of the payments  provided for hereunder  during any such
period of  discontinuance,  all in  accordance  with the Payment  Schedule.  The
Payment Schedule may only be modified by the Company with the written consent of
all Plan  Beneficiaries  as  necessary  to comply  with the  provisions  of this
paragraph.  The Company shall be responsible for securing the written consent of
all Plan Beneficiaries and providing such consents to the Trustee.

Section 4. Payments to Company.

Except  as  provided  in  Section 3  hereof,  after the Trust has  become
irrevocable, Company shall have no right or power to direct Trustee to return to
Company or to divert to others any of the Trust  assets  before all  payments of
benefits have been made pursuant to the terms of the Plan.  The Trustee shall be
entitled  to rely on the  written  representations  of the  Company and all Plan
Beneficiaries  that all such  payments  have been  made.  The  Company  shall be
responsible for securing the written  representations  of all Plan Beneficiaries
and providing such representations to the Trustee.

Section 5. Disposition of Income.

During the term of this Trust,  all income received by the Trust,  net of
expenses and taxes, shall be accumulated and reinvested.

Section 6. Accounting by Trustee.

Trustee  shall keep  accurate  and detailed  records of all  investments,
receipts,  disbursements,  and  all  other  transactions  required  to be  made,
including  such  specific  records as shall be agreed  upon in  writing  between
Company and  Trustee,  which  records may be audited  annually (or at such other
times as agreed by the Company and the  Trustee) by the Company or anyone  named
by the Company.  Within  thirty (30) days  following  the close of each calendar
year and within thirty (30) days after the resignation of Trustee, Trustee shall
deliver to Company a written account of its  administration  of the Trust during
such year or during the period from the close of the last  preceding year to the
date of such resignation, setting forth all investments, receipts, disbursements
and other transactions effected by it, including a description of all securities
and  investments  purchased  and  sold  with the  cost or net  proceeds  of such
purchases or sales (accrued interest paid or receivable being shown separately),
and showing all cash, securities and other property held in the Trust at the end
of such year or as of the date of such  resignation,  as the case may be. In the
absence of the filing in writing  with the Trustee by the Company of  exceptions
or objections to any such account  within ninety (90) days, the Company shall be
deemed to have approved such account; in such case, or upon the written approval
by the Company of any such account, the Trustee shall be released,  relieved and
discharged  with  respect to all matters and things set forth in such account as
though  such  account  had been  settled by the  decree of a court of  competent

-4-

jurisdiction. The Trustee may conclusively rely on determinations of the Company
of valuations for assets of the Trust for which the Trustee deems there to be no
readily determinable fair market value and on the determination of the issuer of
any insurance  contracts with respect to the fair market value of such insurance
contracts.

Section 7. Responsibility of Trustee.

(a) Trustee shall act with the care, skill, prudence, and diligence under
the circumstances  then prevailing that a prudent person acting in like capacity
and familiar  with such matters  would use in the conduct of an  enterprise of a
like character and with like aims; provided,  however,  that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated  by, and in conformity  with,
the terms of this Trust and is given in writing  by  Company.  In the event of a
dispute between  Company and a party,  Trustee may apply to a court of competent
jurisdiction to resolve the dispute.

(b) If Trustee undertakes or defends any litigation arising in connection
with this Trust,  Company agrees to indemnify  Trustee against  Trustee's costs,
expenses and liabilities  (including,  without  limitation,  attorneys' fees and
expenses)  relating  thereto and to be primarily  liable for such  payments.  If
Company does not pay such costs, expenses and liabilities in a reasonably timely
manner, Trustee may obtain payment from the Trust.

(c) Trustee may consult  with legal  counsel (who may also be counsel for
Company generally) with respect to any of its duties or obligations hereunder.

(d) Trustee  shall  have,  without  exclusion,  all powers  conferred  on
Trustees by applicable law, unless expressly provided otherwise herein.

(e)  Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the  objective  of  carrying  on a business  and  dividing  the gains
therefrom,  within the  meaning  of  section  301.7701-2  of the  Procedure  and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.

(f) To invest and  reinvest  part or all of the trust fund in any real or
personal  property  (including  investments  in any stocks,  bonds,  debentures,
mutual fund shares  (including  those for which the Trustee or its  affiliate is
advisor), notes, commercial paper, treasury bills, options, commodities, futures
contracts,  partnership  interests,  venture capital  investments,  any interest
bearing  deposits  held by any bank or similar  financial  institution,  and any
other real or personal  property)  and to diversify  such  investments  so as to
minimize the risk of large losses unless under the  circumstances  it is clearly
prudent not to do so;  except  that the Company may from time to time  establish
investment guidelines and the trustee shall follow such investment guidelines.

(g) To retain in cash such amounts as the trustee considers advisable and
as are  permitted by  applicable  law and to deposit any cash so retained in any
depository (including any bank acting as trustee) which the trustee may select.

-5-

(h) To manage, sell, insure and otherwise deal with all real and personal
property  held by the trustee on such terms and  conditions as the trustee shall
decide.

(i) To vote stock and other voting securities personally or by proxy (and
to delegate the trustee's  powers and discretions  with respect to such stock or
other voting securities to such proxy), to exercise subscription, conversion and
other rights and options (and make  payments  from the trust fund in  connection
therewith),  to take any  action  and to abstain  from  taking  any action  with
respect   to   any   reorganization,    consolidation,    merger,   dissolution,
recapitalization,  refinancing  and any other  program or change  affecting  any
property  constituting a part of the trust fund (and in connection  therewith to
delegate   the   trustee's   discretionary   powers  and  to  pay   assessments,
subscriptions  and other  charges from the trust fund),  to hold or register any
property from time to time in the trustee's  name or in the name of a nominee or
to hold it  unregistered  or in such form that title shall pass by delivery and,
with the approval of the  Company,  to borrow from  anyone,  including  any bank
acting as trustee,  to the extent  permitted  by law,  such amounts from time to
time as the trustee considers desirable to carry out this trust (and to mortgage
or pledge all or part of the trust fund as security).

(j) To make  payments  from the trust  fund of amounts  that have  become
payable  under the Plan  pursuant to Section 2 to the extent not already paid by
the  Company or that are  required  to be made to the  creditors  of the Company
pursuant to Section 3.

(k) To employ  counsel and to begin,  maintain  or defend any  litigation
necessary  in  connection  with the  administration  of this trust  except that,
unless  otherwise  required by law, the trustee shall not be obliged or required
to do so unless indemnified to the trustee's satisfaction.

(l) To withhold,  if the trustee considers it advisable,  all or any part
of any payment  required to be made  hereunder as may be necessary and proper to
protect the trustee or the trust fund against any  liability or claim on account
of any estate,  inheritance,  income or other tax or assessment  attributable to
any amount payable hereunder,  and to discharge any such liability with any part
or all of such  payment so  withheld,  provided  that at least ten days prior to
discharging  any such  liability  with any amount so withheld the trustee  shall
notify the Company in writing of the trustee's intent to do so.

(m) The Company  (which has the  authority to do so under the laws of its
state of  incorporation)  shall  indemnify the Trustee and defend it and hold it
harmless  from and against any and all  liabilities,  losses,  claims,  suits or
expenses (including attorneys' fees), of whatsoever kind and nature which may be
imposed upon,  asserted against or incurred by the Trustee at any time by reason
of its provision of services under this Trust Agreement,  its status as Trustee,
or by reason of any act or failure to act under  this  Trust  Agreement,  or any
action taken in accordance  with any directions  which conform with the terms of
this Trust Agreement,  or acts omitted due to absence of such  directions,  from
the Company, except to the extent, such liability,  loss, claim, suit or expense
arises  directly  from the  Trustee's  negligence  or willful  misconduct in the
performance of  responsibilities  specifically  allocated to 

-6-

it under this Trust  Agreement.  This paragraph shall survive the termination of
the Trust Agreement.

(n) To  furnish  the  Company  with  such  information  in the  trustee's
possession as the Company may need for tax or other purposes.

(o) To employ agents, attorneys, accountants, actuaries and other persons
(who also may be employed by the  Company,  the Company or others),  to delegate
discretionary powers to such persons and to reasonably rely upon information and
advice  furnished by such persons;  provided that each such  delegation  and the
acceptance thereof by each such person shall be in writing; and provided further
that the trustee may not delegate its  responsibilities  as to the management or
control of the assets of the trust fund.

(p) To  perform  all  other  acts  which in the  trustee's  judgment  are
appropriate for the proper management,  investment and distribution of the trust
fund.

(q) The trustee may invest any part or all of the trust  assets for which
it has investment  responsibility in any common,  collective or commingled trust
fund or pooled  investment  fund that is  maintained  by a bank or trust company
(including a bank or trust company acting as trustee)  provided such investments
are consistent with applicable  investment  requirements and guidelines.  To the
extent that any trust assets are invested in any such fund,  the  provisions  of
the documents  under which such common,  collective or commingled  trust fund or
pooled investment fund are maintained shall govern any investments therein.

Section 8. Compensation and Expenses of Trustee.

Company shall pay all administrative and Trustee's fees and expenses.  If
not so paid, the fees and expenses shall be paid from the Trust.

Section 9. Resignation of Trustee.

(a)  Trustee may resign at any time by written  notice to Company,  which
shall be effective  thirty (30) days after receipt of such notice unless Company
and Trustee agree otherwise.

(b) The Trustee may not be removed by Company.

(c) Upon  resignation of Trustee and appointment of a successor  Trustee,
all assets shall  subsequently  be  transferred  to the successor  Trustee.  The
transfer  shall be completed  within thirty (30) days after receipt of notice of
resignation or transfer,  unless Company  extends the time limit.  The Company's
consent to the  extension  of time for the transfer of trust assets shall not be
unreasonably withheld.

(d) If Trustee  resigns,  a successor  shall be appointed,  in accordance
with Section  10(a)  hereof,  by the  effective  date of the  resignation  under
Section 9(a). If no such appointment has been made, Trustee may apply to a court
of competent  jurisdiction  for

-7-

appointment  of a  successor  or for  instructions.  All  expenses of Trustee in
connection with the proceeding  shall be allowed as  administrative  expenses of
the Trust.

Section 10. Appointment of Successor.

(a) If Trustee  resigns a successor  Trustee  shall be  appointed  by the
written consent of the Company and all Plan Beneficiaries.  The Company shall be
responsible  for  securing  the written  consent of all Plan  Beneficiaries  and
providing  such  consents to the former  Trustee and the new Trustee.  Any third
party  such as a bank  trust  department  or other  party  that  may be  granted
corporate trustee powers under state law may be appointed successor Trustee. The
appointment  of a successor  Trustee shall be effective when accepted in writing
by the new Trustee.  The new Trustee shall have all the rights and powers of the
former Trustee,  including  ownership rights in Trust assets. The former Trustee
shall execute any instrument  necessary or reasonably requested by the successor
Trustee to evidence the transfer.

(b) The  successor  Trustee  need not examine the records and acts of any
prior  Trustee and may retain or dispose of existing  Trust  assets,  subject to
Sections 6 and 7 hereof.  The successor Trustee shall not be responsible for and
Company  shall  indemnify  and defend the  successor  Trustee  from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event,  or any  condition  existing at the time it becomes  successor
Trustee.

Section 11. Amendment or Termination.

(a) This Trust Agreement may be amended by a written instrument  executed
by Trustee and the Company.  Notwithstanding  the  foregoing,  no such amendment
shall  conflict  with the terms of the Plan or shall  make the  Trust  revocable
after it has become  irrevocable  in  accordance  with Section 1(b) hereof.  The
Trustee  be  shall  entitled  to  rely  upon  the  written   determination   and
representation  of the Company and all Plan  Beneficiaries  that such  amendment
does not conflict with the terms of the Plan.  The Company shall be  responsible
for securing the written  determination of all Plan  Beneficiaries and providing
such determinations to the Trustee.

(b) The  Trust  shall  not  terminate  until  the date on which no one is
entitled to payments  pursuant to the terms of the Plan unless sooner revoked in
accordance  with Section 1(b) hereof.  Upon  termination of the Trust any assets
remaining  in the Trust  shall be returned  to  Company.  The  Trustee  shall be
entitled  to rely  upon the  written  determination  and  representation  of the
Company and the Plan Beneficiaries as to such non-entitlement. The Company shall
be responsible for securing the written  determination of all Plan Beneficiaries
and providing such determinations to the Trustee.

(c) Upon  written  approval  of all Plan  Beneficiaries  the  Company may
terminate this Trust prior to the time all benefit  payments under the Plan have
been made. All assets in the Trust at termination shall be returned to Company.

-8-

Section 12. Miscellaneous.

(a) Any  provision  of this Trust  Agreement  prohibited  by law shall be
ineffective  to the extent of any such  prohibition,  without  invalidating  the
remaining provisions hereof.

(b) Amounts  payable under this Trust  Agreement may not be  anticipated,
assigned  (either  at law  or in  equity),  alienated,  pledged,  encumbered  or
subjected  to  attachment,  garnishment,  levy,  execution  or  other  legal  or
equitable process.

(c) This Trust Agreement shall be governed by and construed in accordance
with the laws of Wisconsin.

(d) For purposes of this Trust,  Change of Control shall have the meaning
given it in Section 1.c. of the Restated  Senior Officer  Agreement  between the
Company  and Branko M.  Beronja  dated  January  29,  1996.  The  Company  shall
immediately  notify the  Trustee  of any  Change of  Control.  The  Trustee  may
conclusively rely upon such notice and shall have no duty to determine whether a
Change of Control has occurred.

(e) Where written approval, consent, determination or other communication
is required of or by the Plan  Beneficiaries  under any  provision of this Trust
Agreement,  the Company  shall certify to the Trustee that the  responding  Plan
Beneficiaries are all of the Plan Beneficiaries  under the terms of the Plan and
this  Trust   Agreement  at  that  time,  and  the  Trustee  may  rely  on  such
certification.

Section 13. Effective Date.

The  effective  date of this Trust  Agreement  shall be the date  written
above.

In the presence of                      SNAP-ON INCORPORATED

By  
- --------------------------                  --------------------------
Its 
- --------------------------                  --------------------------
THE NORTHERN TRUST COMPANY, Trustee

By  
--------------------------
Its 
--------------------------

Exhibit (12)

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(amounts in thousands)

1998       1997       1996
----       ----       ----
Net Earnings (Loss)                               (4,779)   150,366    131,451

Add (Deduct):
Income taxes                             15,619     88,310     77,202
Minority interest in earnings of
consolidated subsidiaries               4,228      4,461        - 
---------  ---------  --------
Net Earnings as Defined                           15,068    243,137    208,653

Fixed Charges:
Interest on debt                         21,254     17,654     12,649
Interest element of rentals               3,595      3,630      3,276
---------  ---------  --------
Total Fixed Charges                               24,849     21,284     15,925

Total Adjusted Earnings Available for
For Payment of Fixed Charges                   39,917    264,421    224,578
---------  ---------  --------
Ratio of Earnings to Fixed Charges                   1.6       12.4       14.1
=========  =========  ========

For  purpose of  computing  this  ratio,  "earnings"  consist of (a) income from
continuing  operations before income taxes (adjusted for minority  interest) and
(b) "fixed  charges"  consist of  interest  on debt and the  estimated  interest
portion of rents.

Management's  Discussion  and Analysis of Results of  Operations  and  Financial
Condition

Results of Operations

All  analyses  for  1998  include  the  effects  of   restructuring   and  other
non-recurring  charges  and  inventory  adjustments  ("1998  charges"),   unless
otherwise indicated.

The  Corporation  manufactures,  markets and  distributes  tools,  equipment and
related  services for  automotive and industrial  service  customers  around the
world using multiple brands sold through multiple  channels of distribution.  In
some instances, it also finances the purchase of those products.

Restructuring  and other charges:  In the third quarter of 1998, the Corporation
recorded  restructuring and other  non-recurring  charges related to its Project
Simplify   initiative,   a   broad   program   of   internal   rationalizations,
consolidations and reorganizations  intended to make the Corporation's  business
operations  simpler  and  more  effective.   Of  an  expected  total  charge  of
approximately  $185  million to be recorded  through the first  quarter of 2000,
$133.1  million in pre-tax  charges were taken in the third  quarter of 1998 and
$16.8 million were taken in the 1998 fourth quarter. Of the total $149.9 million
in pre-tax  charges  recorded in 1998  ($107.6  million or $1.82 per share after
taxes),  $75.6 million is  restructuring  charges and $74.3  million  represents
other non-recurring  charges.  The Corporation expects that approximately 50% of
the total  charges will be  non-cash,  with the  remaining  50%  requiring  cash
outflows.

The $75.6 million of restructuring  charges includes  severance,  non-cancelable
lease agreements on facilities to be closed and other exit costs associated with
the  simplification  initiative in the amount of $23.1 million.  The Corporation
has adjusted  property,  plant and equipment and other assets to net  realizable
value through an additional $6.3 million  restructuring  charge.  As part of the
restructuring  efforts,  the Corporation also has written off impaired  goodwill
and other intangible assets of certain discontinued  business units and incurred
a charge of $36.5  million.  This amount  relates to the write-down of remaining
intangible balances recorded at the time those business units were acquired.  As
part of the  elimination of these  business  units and their product lines,  the
Corporation  has  recorded a reserve  in the  amount of $9.7  million to provide
additional warranty support, at no cost, for products already sold. The warranty
charge has been included in Cost of Goods Sold -  Discontinued  Products,  while
all  other  restructuring  charges  recorded  to  date  have  been  included  in
Restructuring and Other Non-recurring  Charges on the accompanying  Consolidated
Statements of Earnings.

The other  non-recurring  charges  of $74.3  million  include  $50.9  million to
re-value  discontinued  stock  keeping  units  ("SKUs") of  inventory,  costs to
conclude certain  non-recurring legal matters in the amount of $18.7 million and
other transitional costs in the amount of $4.7 million. The reduction of SKUs is
an effort to reduce  transaction  costs and  working  capital  intensity  of the
Corporation's  product offering and refocus on high-volume growth products.  The
non-recurring  charge related to the reduction of SKUs has been included as part
of Cost of Goods Sold -  Discontinued  Products,  while the other  non-recurring
charges  recorded  to  date  have  been  included  in  Restructuring  and  Other
Non-recurring Charges on the accompanying  Consolidated  Statements of Earnings.
The composition of the restructuring reserves is presented in Note 14.

Shown  in the  table  below  is a  breakdown  of  the  restructuring  and  other
non-recurring charges by segment:

(Amounts in thousands)        Restructuring    Non-recurring       Total
North America Transportation    $ 9,661           $13,576         $ 23,237
North America Other              51,810            51,046          102,856
Europe                            7,900             4,789           12,689
International                     2,836             4,841            7,677
Financial Services                3,400                 4            3,404
-------           -------         --------
Total                           $75,607           $74,256         $149,863
=======           =======         ========

The  actions of Project  Simplify  are  expected  to lead to the  closing of six
manufacturing facilities, seven warehouses and 47 small offices in North America
and Europe;  the  elimination of more than 1,100  positions;  the elimination of
nearly 12,000 SKUs; and the  consolidation of certain business units. By the end
of 1998, 509 positions were  eliminated,  including 100 of the 150 field manager
positions identified for elimination. Of those field managers,  approximately 50
are converting to franchised dealers. In addition, eight facilities were closed,
the  SKU-reduction  activities were on schedule and the European  operations had
begun their staff reductions and facilities closures.

The  Corporation  expects to realize  annual cost savings of  approximately  $60
million  from the  initiative.  On an annual  run-rate  basis,  the  Corporation
expects to achieve half of these savings in 1999,  with the full amount achieved
in 2000.

The  decision to  restructure  was based on the  complexity  that had  developed
within  the  organization  during the  decade.  In the early  1990s,  management
determined that the increased  computerization of the systems contained in motor
vehicles  could  result  in broad  changes  in the  approach  to  servicing  and
repairing such vehicles. Over time, the diagnosing of vehicle problems has grown
much more  complicated  and requires a broader array of tools and equipment than
was  necessary in the past.  In addition,  the  continuing  growth in the global
vehicle population  resulted in opportunities for companies to expand worldwide.
Since  1992,  the  Corporation  has  made 21  acquisitions  and has  grown  from
primarily a single-product,  single-channel  company to an organization  serving
multiple customers with multiple  capabilities through multiple channels.  It is
also operating in more regions of the world.

The complexity  created by this growth added costs,  slowed decision making, and
diffused  responsibility  and  accountability.   The  organizational   structure
contained  too  many  individual  business  units  with  overlapping  functional
disciplines. Each had its own product, brand and channel identity.

In  order to  combine  businesses  into  larger,  more  integrated  units,  with
operating  responsibility  assigned by brands and  channels,  and to implement a
shared-function  format in areas such as engineering,  research,  manufacturing,
finance and administration,  a more sophisticated  computer system was required.
The  anticipated  completion  of the  implementation  of the  Corporation's  new
enterprise-wide  computer  system in 1998  enabled the  Corporation  to begin to
execute its plans to simplify its operations.

[17 Snap-on Incorporated 1998 Annual Report]

Management's Discussion and Analysis (continued)

Fourth  Quarter  Results:  Net  earnings in the 1998 fourth  quarter  were $12.6
million,  a  decrease  of 69.9%  from the same  period of 1997,  because  of the
remaining   difficulties   related  to  the  process   issues   connected   with
implementation of the  Corporation's new computer system,  and the 1998 charges.
Reported   earnings  per  share  -  diluted  were  $.21.  On  a  pre-tax  basis,
restructuring  and  transition  costs related to Project  Simplify  totaled $6.8
million ($.09 per share after tax) in the quarter. In addition, a portion of the
charge  taken  in the  third  quarter  for the  reduction  of SKUs  included  an
estimated $10 million  ($.10 per share after tax) LIFO benefit.  The benefit was
not realized and was reversed in the fourth  quarter.  Cost of goods sold in the
quarter  included  a $14.1  million  ($.15 per share  after  tax)  reduction  in
inventory  discussed in the "Cost and Profit Margins"  section.  Earnings in the
fourth  quarter of 1998  included a $3.1  million gain on the sale of a European
facility,  gains  related to the sale of  installment  receivables  and  pension
curtailment benefits related to the Corporation's restructuring initiatives.

Overview:  Net sales in 1998 increased 6.0%. Sales from  acquisitions and growth
in the North America  Transportation  segment were primarily responsible for the
increase.  The  translation  of  foreign-currency-denominated  results into U.S.
dollars  negatively  affected  sales  by  approximately  one  percentage  point.
Excluding  the  results  of  acquisitions  completed  in  1998,  sales  declined
approximately   1%.   The   unanticipated   difficulties   encountered   in  the
implementation of the Corporation's new computer system,  continued  weakness in
the economies in the Asia/Pacific region and difficult comparisons against 1997,
which contained an unusually high level of emissions-testing equipment sales and
was a 53-week  year,  affected  sales.  In 1997,  net  sales  rose  12.6%,  with
increases  recorded  in all  segments.  Sales  excluding  acquisitions  advanced
approximately 7% in 1997.

In 1998,  the  Corporation  reported a net loss of $4.8  million,  following  an
increase in earnings of 14.4% in 1997.  The reported  loss per share in 1998 was
$.08, after 1997's earnings per share grew 14.4% and 14.6% for basic and diluted
earnings,  respectively.  The  loss in 1998  was  related  to  several  factors:
restructuring and other non-recurring charges of $149.9 million ($1.82 per share
after tax) in connection with the  implementation of the  Corporation's  Project
Simplify  initiative;  costs and lost sales  associated  with the  unanticipated
difficulty  of  aligning   internal   processes  with  the   Corporation's   new
enterprise-wide  computer  system;  and  costs  related  to  the  organizational
complexity that developed as the Corporation made numerous acquisitions over the
last six  years.  Excluding  the 1998  charges,  earnings  per share - basic and
earnings per share - diluted were $1.89 and $1.87, respectively. The increase in
net  earnings  and earnings per share in 1997 was the result of higher sales and
improvement in operating expenses as a percent of sales.

(Amounts in thousands,
except per share data)          1998               1997               1996

Sales                           $1,772,637         $1,672,215         $1,485,279
Net earnings (loss)                 (4,779)           150,366            131,451
Earnings (loss) per common 
share - basic                 $     (.08)        $     2.47         $     2.16
Earnings (loss) per common 
share - diluted               $     (.08)        $     2.44         $     2.13

The 1998 and 1996 years contained 52 weeks; 1997 was a 53-week year.

Cost and profit margins:  The gross profit margin was 43.1% in 1998 and 50.5% in
both 1997 and 1996.  The decline in 1998's  gross  margin was due to a change in
business mix resulting from several acquisitions, and a less favorable sales mix
and additional  costs related to the  difficulties in shipping hand tools as the
Corporation resolved process issues in connection with the implementation of its
new  computer  system.  In the fourth  quarter of 1998,  cost of goods sold also
included a $14.1 million reduction in inventory related to the conversion to the
new enterprise- wide computer system.  The new system provides for much improved
visibility at an item level on field inventory.

Total  operating  expenses as a percent of net sales  increased to 39.8% in 1998
after successive  decreases in 1997 and 1996. The 1997 and 1996 percentages were
38.9% and 40.0%, respectively.  The 1998 performance was affected by the process
difficulties  encountered in implementing the Corporation's new computer system.
Costs for additional labor and freight,  and lower  productivity  were primarily
responsible for the results. In 1997 and 1996,  improvements in processes and in
productivity,  and a change in business mix  contributed to the declines in both
years.  Total operating expenses in 1998 were $55.6 million higher than in 1997,
compared  with  increases  of $55.7  million in 1997 and $56.5  million in 1996.
Acquisitions contributed to the increases in all years.

[Three  bar  graphs  follow  this  text.   The  first  is  titled   "Research  &
Development."  It shows the dollars  spent on research  and  development  by the
Corporation (in millions) in each of fiscal years 1994 through 1998, as follows:

94       -       $31
95       -       $34
96       -       $42
97       -       $47
98       -       $49

The second  graph is titled  "Operating  Expenses as a Percent of Net Sales." It
shows the  Corporation's  operating  expenses  as a percent of its net sales for
each of fiscal years 1994 through 1998, as follows:

94       -       42.7%
95       -       41.6%
96       -       40.0%
97       -       38.9%
98       -       39.8%

The third  graph is  titled  "Margin  Analysis."  It  shows,  side-by-side  in a
horizontal  presentation for each fiscal year, the  Corporation's  net sales (in
millions of dollars),  gross profit margin and operating  income margin for each
of fiscal years 1994 through 1998, as follows:

NET SALES      GROSS PROFIT MARGIN     OPERATING INCOME MARGIN
94       -     $ 1,194                51.0%                    13.3%
95       -     $ 1,292                51.3%                    14.6%
96       -     $ 1,485                50.5%                    14.8%
97       -     $ 1,672                50.5%                    15.9%
98       -     $ 1,773                43.1%                     1.9%]

[18 Snap-on Incorporated 1998 Annual Report]

The operating  income margin declined to 1.9% in 1998 because of the lower gross
margin and the higher  operating  expense margin.  In 1997, the operating margin
increased  to 15.9%  from  14.8% in 1996  because of a  reduction  in  operating
expenses as a percent of sales.

Segment Results:  The Corporation has adopted Statement of Financial  Accounting
Standards  ("SFAS") No. 131,  "Disclosures  about  Segments of an Enterprise and
Related  Information."  The following review reflects the new segment  structure
and does not include the allocation by reportable  segment of the  restructuring
and  other  non-recurring  charges.  See  Note  13 for  additional  information,
including a description of the segments.

(Amounts in thousands)              1998               1997               1996
Sales
North America Transportation    $  845,828         $  836,032         $  786,609
North America Other                457,255            468,692            341,194
Europe                             393,460            279,684            271,957
International                       76,094             87,807             85,519
----------         ----------         ----------
Total                           $1,772,637         $1,672,215         $1,485,279
==========         ==========         ==========

Operating income
North America Transportation    $   34,176         $   70,205         $   48,592
North America Other                 70,909             98,143             84,764
Europe                               3,205             16,539             11,800
International                        9,775              8,759             11,101
Financial Services                  65,933             71,891             64,269
Restructuring and other 
non-recurring charges           (149,863)                 -                  -
----------         ----------         ----------
Operating income                $   34,135         $  265,537         $  220,526
==========         ==========         ==========

Net sales in North America  Transportation in 1998 increased 1.2%. New products,
including "soft-grip"  screwdrivers,  battery testers and software upgrades, and
continued  strength in the U.S.  dealer  channel  offset  difficult  comparisons
against 1997,  which  benefited from  above-average  sales of  emissions-testing
equipment through the channel and from an additional week in the reporting year.
The  difficulty in shipping  tools during 1998 because of process issues related
to the Corporation's  computer  conversion  constrained sales growth.  Operating
income  declined 51.3% because of the increased costs incurred to operate during
the computer conversion.  These costs included additional labor and freight, and
lower  productivity.  In 1997,  net sales in North America  Transportation  rose
6.3%.  Several large  emissions  programs,  improved sales  productivity  in the
dealer organization,  the introduction of new products, an additional accounting
week, and price increases all contributed to the 1997 growth.  Operating  income
increased 44.5% because of growth in sales,  and improvements in expense control
and productivity.

Net sales in North  America  Other  declined  2.4% in 1998,  as the  Corporation
experienced  difficult  comparisons  against 1997, when a significant  amount of
emissions-testing  equipment was sold to distributors and national accounts.  In
addition, sales were constrained by difficulties in shipping tools to industrial
customers  because of the computer  conversion.  Acquisitions  and new products,
such as a line of palm  sanders,  additional  cordless  power tools and new shop
management  software,  offset part of the decline.  Operating  income  decreased
27.7% in 1998. Lower total sales and the higher expense  structure and increased
operating  complexity  resulting  from  acquisitions  in this  segment  affected
profitability. In 1997, North America Other net sales increased 37.4%, with high
levels  of  emissions-testing  equipment  sales;  new  products;  growth  in the
Equipment   Solutions   equipment   facilitation  and   distribution   business;
acquisitions;  and an additional accounting week all contributing to the growth.
Operating  income in 1997  increased  15.8% on higher  sales.  Operating  income
growth was lower  than sales  growth  because  of  changes  in the  product  and
business mix. Sales excluding  acquisitions in 1998 were approximately 4% lower,
following an increase of approximately 19% in 1997.

Net sales in Europe rose 40.7% in 1998.  Acquisitions  were  responsible for the
increase.  Higher tool sales were  offset by lower  equipment  sales  because of
significantly  reduced exports to the  Asia/Pacific  and Eastern Europe regions.
The translation of foreign  currencies  into U.S.  dollars  negatively  affected
sales.  Operating  income declined 80.6%, as lower than expected  performance by
several  acquisitions,  changes  in  the  business  and  product  mix,  and  the
short-term  effects of the  Corporation's  restructuring  activities  negatively
affected  results.  In 1997, Europe net sales rose 2.8%. Sales of both tools and
equipment increased,  while currency translation rates and a sluggish economy in
many of the countries in the segment slowed the growth rate.  Acquisitions  also
contributed to sales in 1997.  Operating  income in 1997 increased 40.2% because
of strong  growth  in tools and the  impact  of  expense  reduction  activities.
Excluding  acquisitions and the translation  effects of foreign  currency,  1998
sales rose approximately 1%, while 1997 sales increased approximately 4%.

Net sales in the  International  segment  decreased 13.3% in 1998,  following an
increase  of  2.7% in  1997.  Sales  in 1998  were  negatively  affected  by the
translation of foreign currencies into the U.S. dollar. The continuing  weakness
in the economies of the  Asia/Pacific  region  slowed tools sales growth,  while
equipment  sales  declined.  Operating  income  increased  11.6%  because of the
reduced  allocation  of  shared  service  expenses.  Excluding  the  allocation,
operating  income  was  approximately  even with 1997.  The 1997 sales  advanced
despite  difficulties  presented by many of the  economies  in the  Asia/Pacific
region.  Both  tool and  equipment  sales  in the  segment  rose  for the  year.
Operating  income  decreased  21.1% as a less  favorable  product mix and higher
expenses  in the  region  affected  results.  Excluding  the  effects of foreign
currency  translation  rates,  sales  decreased  approximately  2% in  1998  and
increased approximately 11% in 1997.

The Corporation  uses its financing  programs to facilitate  sales. In 1998, net
finance income (defined as income from the Corporation's  financing programs net
of  administrative  costs,  but without  any  allocation  of  interest  expense)
decreased 8.3% to $65.9 million,  from $71.9 million in 1997. Net finance income
in 1997 increased  11.9% from $64.3 million in 1996. The decrease in net finance
income  in 1998 was  because  of the  increased  securitization  of  installment
receivables,  which is discussed in further  detail in the following  paragraph.
The higher net finance  income in 1997 was the result of  increases  in extended
credit receivables and benefits from programs to control related costs.

[19 Snap-on Incorporated 1998 Annual Report]

Management's Discussion and Analysis (continued)

The Corporation seeks to reduce the asset intensity of its balance sheet,  which
is the result of its financing  activities.  During the second  quarter of 1998,
the Corporation sold $48.5 million in extended credit receivables.  In 1997, the
Corporation  sold $25.0 million in each of the first three  quarters,  and $50.0
million in the fourth quarter, of its extended credit receivables. The effect of
the  asset  securitizations  is a decline  in net  finance  income  offset by an
equivalent  decline in interest expense.  During 1998, the Corporation also sold
an aggregate of $29.4  million of dealer  finance  receivables  in the third and
fourth  quarters.  In the fourth  quarter of 1997,  the  Corporation  sold $73.7
million of net lease  receivables.  In both years, the proceeds were used to pay
down short-term debt and for working capital and general corporate purposes.

Subsequent to the end of 1998, the Corporation  and Newcourt  Financial USA Inc.
("Newcourt") formed a new joint venture entity,  Snap-on Credit LLC ("the LLC"),
on January 3, 1999. The LLC will be the preferred provider of financial services
to the  Corporation's  global  dealer and  customer  network.  It  combines  the
operations and  commitments of the  Corporation's  captive  finance program with
Newcourt's  expertise in providing  tailored,  flexible  financing  solutions to
industry leaders. The operations were established initially in the United States
and will be expanded  globally  later in 1999.  The joint venture has an initial
term of five  years,  with an  option  for the  Corporation  to extend it for an
additional five years.

As part of the transition,  the Corporation  reversed the  securitization of its
previously  securitized  installment  receivables and sold them to Newcourt.  In
addition,  a new $79.2 million of on-balance-sheet  installment  receivables and
the remaining $17.6 million of related  long-term  assets were  eliminated.  The
Corporation  received cash proceeds of $141.1  million from these  transactions,
resulting in a pre-tax gain of approximately $44 million. Newcourt has the right
to put  back to the  Corporation  the  unpaid  portion  of the  extended  credit
customer accounts  receivable  portfolio based on the same pricing formula. As a
result, this gain will be recognized over a two-year period.

Participation  in the LLC will enable the  Corporation  to expand its  financial
services product  offerings,  customer base and geographic  reach. The effect of
the transaction on the Corporation's  financial  statements includes a reduction
in assets on its balance  sheet and lower  reported  finance  income,  offset by
income from growth in financings,  from  recognition of the deferred gain on the
sale of receivables  and from the  application  of the cash  proceeds,  and by a
reduction in credit loss expense. The Corporation expects the transaction,  at a
minimum,  to be neutral to earnings per share in 1999. On an economic basis, the
Corporation  expects its return on net assets and  economic  profit to be higher
under the new structure.

During the year, the Corporation  increased prices by varying degrees in many of
its  product  groups.  Promotional  activities  negated  the effects of the 1998
increases, and reduced the revenue realization in 1997 to approximately 1%.

Other income and expenses: Interest expense for 1998 was $21.3 million, compared
with  $17.7  million  in 1997  and  $12.6  million  in  1996.  The 1998 and 1997
increases were due to higher average levels of debt outstanding.  The decline in
other  expense in 1998 is  attributable  to a $7.5 million gain on the sale of a
European  manufacturing  facility and lower foreign currency transaction losses.
The increase in other expense in 1997 was primarily  because of the deduction of
minority  interest income in connection with the  Corporation's 50% ownership of
Mitchell Repair  Information  Company,  LLC ("MRIC") and an increase in the loss
from foreign currency transactions.

(Amounts in thousands)             1998              1997              1996

Interest expense                $(21,254)         $(17,654)         $(12,649) 
Interest income                    1,169             1,163             2,134
Other expense                     (3,210)          (10,370)           (1,358)
---------         ---------         ---------
Total other expense             $(23,295)         $(26,861)         $(11,873)
=========         =========         =========

Income  taxes:  The  Corporation's   effective  tax  rate  in  1998,   excluding
restructuring and other non-recurring charges, was 36.0%, compared with 37.0% in
1997 and 1996.  The  decrease in the tax rate was due to the  implementation  of
several programs that increased the Corporation's  tax efficiency.  The reported
effective tax rate for 1998 was 144.1%.  For  additional  information  about the
Corporation's tax position and activities, see Note 6.

Foreign  currency:  The Corporation  operates in a number of countries and, as a
result,  is exposed to changes in exchange  rates.  Most of these  exposures are
managed on a  consolidated  basis to take advantage of natural  offsets  through
netting. To the extent that the net exposures are hedged,  forward contracts are
used. Refer to Note 7 for a discussion of the Corporation's  accounting policies
for the use of derivative instruments.

In 1998, the Corporation adopted SFAS No. 130, "Reporting Comprehensive Income";
SFAS  No.  131,  "Disclosures  about  Segments  of  an  Enterprise  and  Related
Information";  and SFAS No. 132, "Employers' Disclosures about Pension and Other
Postretirement Benefits." The adoption of these standards had no material impact
on the consolidated financial statements.  The Corporation intends to adopt SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," in 2000
and is currently evaluating the impact of this statement.

[Two bar  graphs  follow  this text.  The first is titled  "Return on Net Assets
Employed   Before   Interest  and  Taxes."  It  shows  the  percentages  of  the
Corporation's  return on net assets  employed before interest and taxes for each
of fiscal years 1994 through 1998, as follows:

94             -            18.7%
95             -            21.1%
96             -            24.4%
97             -            25.1%
98             -            16.5%*
* Excludes 1998 charges.

The second  graph is titled  "Sales per  Employee."  It shows the  Corporation's
sales per  employee  (in  thousands  of dollars)  for each of fiscal  years 1994
through 1998, as follows:

94             -             $129
95             -             $137
96             -             $142
97             -             $149
98             -             $153]

Financial Condition

Overview: At the end of 1998, the ratio of total debt to total capital increased
to 30.8%  from 16.4% at  year-end  1997.  The higher  debt ratio in 1998 was the
result  of  acquisitions,   share  repurchases  and  increased  working  capital
requirements during the year.

Liquidity:  The Corporation's working capital in 1998 decreased by $47.4 million
following  a  decrease  of  $6.8  million  in  1997.  The  sale  of  installment
receivables  during both 1998 and 1997 more than offset the negative  effects of
several  other  components of working  capital,  primarily  inventories,  and of
acquisitions. The ratio of current assets to current liabilities was 2.4 to 1 at
the end of  1998,  compared  with  2.9 to 1 at the end of  1997.  Cash  and cash
equivalents  were $15.0  million at the end of 1998, a decrease of $10.7 million
from year-end 1997's $25.7 million.

Accounts  receivable  increased  $15.1  million to $554.7  million at the end of
1998.  The  increase  was the  result of  acquisitions  partially  offset by the
installment receivables  securitization program discussed previously and in Note
4.  Exclusive  of  the  asset  securitizations  effected  in  1998,  receivables
increased by $14.2 million  primarily due to  acquisitions.  At the end of 1998,
installment receivables represented approximately 29% of the Corporation's total
accounts  receivable.  The  majority of  accounts  receivable  at year-end  1998
included  those  from  dealers,  industrial  customers  and  governments.  Total
write-offs  for bad debts  represented  2.1% of average  accounts  receivable in
1998,  an  increase  from 2.0% in 1997,  reflecting  a slightly  more  difficult
environment for credit collections.  Trends,  however, did improve in the second
half of 1998. The Corporation's  ratio remains  significantly  below that of the
credit industry.

Inventories  increased  by $2.2  million  to $375.4  million  at the end of 1998
primarily  because of  acquisitions.  Excluding  acquisitions and including 1998
charges,  inventories  were  $19.8  million  lower at the close of 1998 than the
$373.2 million reported at year-end 1997.

(Amounts in thousands)                1998                    1997

Current assets                    $1,079,832              $1,021,709
Current liabilities                  458,053                 352,530
- ---------------------------------------------------------------------
Working capital                   $  621,779              $  669,179
Current ratio                       2.4 to 1                2.9 to 1
- ---------------------------------------------------------------------

Short-term debt at the end of 1998 was $93.1 million, an increase over the $24.0
million at the 1997 year end. Current maturities of long-term debt at the end of
1998 and 1997 were $2.2 million and $0.4 million,  respectively. In addition, at
year-end 1998, the Corporation had $100.0 million in short-term commercial notes
payable  outstanding  that  were  classified  as  long-term,  since  it  is  the
Corporation's  intent,  and it has the  ability,  to  refinance  this  debt on a
long-term basis,  supported by its $100.0 million revolving credit facility. The
Corporation  has on file a $300.0  million  shelf  registration  that allows the
Corporation  to  issue  from  time to time up to  $300.0  million  of  unsecured
indebtedness.  Of this amount,  $100.0 million aggregate principal amount of its
notes has been issued to the public.

These sources of borrowing, coupled with cash from operations, are sufficient to
support  working  capital  requirements,   finance  capital  expenditures,  make
acquisitions,  repurchase common stock and pay dividends. The Corporation's high
credit rating over the years has ensured that external  funds are available at a
reasonable cost. At the end of 1998, the Corporation's  long-term debt was rated
Aa3 and AA- by Moody's Investor Service and Standard & Poor's, respectively. The
Corporation  believes the strength of its balance  sheet  provides the financial
flexibility to respond to both internal growth  opportunities and those existing
through acquisition.

[Two bar graphs  follow  this  text.  The first is titled  "Total  Debt to Total
Capital."  It shows the  percentages  of the  Corporation's  total debt to total
capital for each of fiscal years 1994 through 1998, as follows:

94             -            13.5%
95             -            18.5%
96             -            17.3%
97             -            16.4%
98             -            30.8%

The second graph is titled "Capital  Expenditures."  It shows the  Corporation's
capital  expenditures  (in  millions of dollars)  for each of fiscal  years 1994
through 1998, as follows:

94             -             $42
95             -             $32
96             -             $52
97             -             $55
98             -             $47]

Capital  expenditures/Depreciation  and amortization:  Capital  expenditures for
1998 were $46.8  million,  a decrease  of $8.6  million  from the $55.4  million
recorded in 1997.  Investments for the year included the upgrade and integration
of the Corporation's computer systems, and the normal addition,  replacement and
upgrade  of  manufacturing  and  distribution  facilities  and  equipment.   The
Corporation anticipates that capital expenditures in 1999 will total $40 million
to $45 million.

Depreciation  for 1998 was $34.8  million,  up $5.1  million  from 1997's  $29.7
million.  The growth was driven by  increased  capital  spending  in 1997 and by
acquisitions.  Amortization  expense in 1998 was $10.2  million,  an increase of
$1.5 million from 1997's $8.7  million.  Acquisitions  accounted  for the higher
expense.

(Amounts in thousands)                            1998            1997

Capital expenditures                            $46,779         $55,442
Depreciation                                     34,801          29,724 
Amortization                                     10,184           8,653

Dividends:  At its June 1998  meeting,  the board of  directors  declared a 4.8%
increase in the quarterly  dividend on the Corporation's  common stock,  raising
the annual dividend rate to $.88 per share. The Corporation has paid consecutive
quarterly dividends since 1939.

1998                    1997

Cash dividends paid (in thousands)             $50,977                 $49,888
Cash dividends per common share                $   .86                 $   .82
Cash dividends as a % of net income                N/M                    33.2%
N/M = not meaningful.                              

[21 Snap-on Incorporated 1998 Annual Report]

Management's Discussion and Anaylsis (continued)

Stock  repurchase  program:  At its June 1998  meeting,  the board of  directors
authorized the repurchase of up to $100.0  million of the  Corporation's  common
stock;  this action followed the board's  authorization for repurchase of $100.0
million  of common  stock in 1997.  At the end of 1998,  the 1997  authorization
essentially  had  been  exhausted,  and all of the 1998  authorization  remained
available.  In addition, an authorization by the board of directors is currently
in effect to repurchase common shares of the Corporation in an amount equivalent
to the number of shares  issued in  connection  with the  exercise  of  options,
employee and dealer stock purchase programs,  and other similar  issuances.  The
intent of this  authorization is to prevent dilution of shareholders'  interests
arising from such  issuances.  In 1998, the  Corporation  repurchased  2,279,400
shares of its common stock; 986,333 shares were repurchased in 1997. Since 1995,
the Corporation has repurchased 8,077,283 shares.

Subsequent  to the end of the year,  at its January 1999  meeting,  the board of
directors  authorized the repurchase of up to an additional $50.0 million of the
Corporation's common stock.

Other Matters

Acquisitions: During 1998, the Corporation acquired full or partial ownership of
five new business  operations  and an  additional  interest in a business for an
aggregate  cash  purchase  price  of  $79.5  million.  Each of the  acquisitions
provides  the  Corporation  with a  complementary  product  line,  new  customer
relationships,  access to additional  distribution  and/or  extended  geographic
reach.  These  acquisitions  were 100% interests in White Industries  ("White"),
Hein-Werner  Corporation   ("Hein-Werner"),   Nationwide   International  L.L.C.
("Nationwide"),  and  G.S.  S.r.l.  ("G.S.");  a 55%  interest  in  Cartec  GmbH
("Cartec"); and an additional 10% interest in MRIC. Subsequent to the end of the
year,  the  Corporation  announced  that it had  exercised  its call  option  to
purchase from its venture partner, The Thomson  Corporation,  a further stake in
MRIC. The purchase will result in Snap-on's  owning 99% of MRIC. The transaction
is expected to be modestly accretive in 1999.

White manufactures  equipment used to recover,  recycle and recharge refrigerant
in vehicle  air-conditioning  systems.  Hein-Werner is a leading manufacturer of
collision  repair  products  in  North  America  and  Europe.  Nationwide  is  a
franchisor  of vehicle  service and repair  facilities.  G.S. is an  Italy-based
manufacturer  and  distributor  of wheel service  equipment.  Cartec is a German
manufacturer  of test and safety  lane  equipment.  MRIC is a major  provider of
print and electronic versions of vehicle mechanical and electrical system repair
information and of shop management software to repair and service establishments
throughout North America.

Year 2000  Compliance:  The  Corporation is engaged in a  comprehensive  project
involving its products,  information  systems,  embedded systems and third-party
systems.  The objective of this project is to identify,  develop,  implement and
test any  modifications  that are required so that these  systems will achieve a
Year 2000 date  conversion  with no  disruption  to the  Corporation's  business
operations.  A committee has been established and given the  responsibility  for
achieving this objective.

For the  Corporation's  information  systems,  the committee  has  substantially
completed the first two phases of this project,  identification and development,
and is proceeding  with the  implementation  and testing  phases of the required
modifications.  In North America, the implementation of the Baan enterprise-wide
system,  which is Year  2000  compliant,  has been  completed.  In  Europe,  the
Corporation has begun to upgrade or replace all mission critical systems.  These
projects are expected to be completed by the end of the second  quarter of 1999,
and no significant issues have been identified.

For third-party systems, the committee has communicated with suppliers, dealers,
financial  institutions and others with whom the Corporation does business,  and
has received  responses  from more than 90% of those  contacted that they either
are or plan on a timely basis to be Year 2000 compliant.  For the  Corporation's
currently  manufactured  products,  the  committee has worked with most business
units in the  testing of their  products  for  compliance  and in most cases has
found no indication that these products create  date-related issues when used in
customary  applications.  It is  expected  that  any  remaining  issues  will be
compliant  by  December  1999.  The  committee  also has been  working  with its
third-party vendors to test and resolve issues regarding embedded systems. Based
on testing completed to date, no significant issues have been identified.

The Corporation is currently  conducting risk assessments of embedded systems at
its  facilities  and  manufacturing  plants in North  America and  Europe.  This
assessment  is more than 80%  complete in North  America and is 50%  complete in
Europe. These assessments are expected to be completed during the second quarter
of 1999. No significant issues have been identified.

The Corporation has begun,  but not yet completed,  a comprehensive  analysis of
the costs and  operational  problems that may occur if the  Corporation or third
parties fail to achieve Year 2000 compliance on a timely basis.  The Corporation
is also in the process of establishing a contingency  plan in order to deal with
the most reasonably likely worst-case  scenario,  although such scenario has not
yet been identified. The Corporation expects to have the analysis complete and a
contingency plan in place by the end of the third quarter of 1999.

The Corporation expects to be fully Year 2000 compliant by the end of the fourth
quarter of 1999. The Corporation has implemented,  over the last five years, its
enterprise-wide  computer  system in North  America,  which is already Year 2000
compliant.  The  costs  for  the  remaining  compliance  activities,  which  are
primarily outside North America,  approximate  between $5 million and $7 million
through  December 1999.  Through the end of 1998, the Corporation has spent $1.6
million on these Year 2000  issues,  with funding  being  provided by cash flows
from operations. None of the Corporation's other information technology projects
have been delayed as a result of these issues.

Value  at  Risk:  The  Corporation   uses   derivative   instruments  to  manage
well-defined  interest  rate and  foreign  currency  exposures  and to limit the
impact of interest  rate and foreign  currency rate changes on earnings and cash
flows. The Corporation does not use derivative instruments for trading purposes.

[22 Snap-on Incorporated 1998 Annual Report]

The  Corporation  utilizes a  "Value-at-Risk"  ("VAR")  model to  determine  the
potential  one-day  loss in the fair  value  of its  interest  rate and  foreign
exchange sensitive financial instruments from adverse changes in market factors.
The VAR model  estimates were made assuming  normal market  conditions and a 95%
confidence   level.   The   Corporation's   computations   are   based   on  the
interrelationships  among  movements in various  currencies  and interest  rates
(variance/co-variance  technique).  These  interrelationships were determined by
observing  interest rate and foreign  currency market changes over the preceding
quarter.

The  Corporation  has  operations in a number of countries and has  intercompany
transactions  among  them and,  as a result,  is  exposed  to changes in foreign
currency  exchange rates.  The Corporation  manages most of these exposures on a
consolidated  basis, which allows netting certain exposures to take advantage of
any  natural  offsets.  To the  extent the net  exposures  are  hedged,  forward
contracts  are  used.  The  Corporation  also  enters  into  interest  rate swap
agreements to manage interest costs and risks associated with changing  interest
rates.

The estimated maximum potential one-day loss in fair value, calculated using the
VAR model, at January 2, 1999, was $833,000 on interest rate sensitive financial
instruments and $626,000 on foreign currency sensitive financial instruments.

The VAR model is a risk tool and does not purport to represent  actual losses in
fair value that will be incurred by the  Corporation,  nor does it consider  the
potential effect of favorable changes in market factors.

Euro  Conversion:  On January 1, 1999,  certain member countries of the European
Union  established  fixed  conversion  rates between their  existing  currencies
("legacy  currencies")  and one common  currency - the euro.  The euro trades on
currency  exchanges  and may be  used in  business  transactions.  Beginning  in
January 2002, the new euro-denominated  bills and coins will be used, and legacy
currencies  will be withdrawn  from  circulation.  The  Corporation's  operating
subsidiaries affected by the euro conversion are developing plans to address the
systems and business  issues  affected by the euro  currency  conversion.  These
issues include,  among others, (i) the need to adapt computer and other business
systems and equipment to accommodate euro-denominated transactions, and (ii) the
competitive impact of cross-border price transparency,  which may affect pricing
strategies.  The Corporation  does not expect this conversion to have a material
impact on its financial condition or results of operations.

Outlook:  Subsequent to the end of 1998, the Corporation stated that it believed
that the lower half of the range of  published  analyst  estimates  for  diluted
earnings  per share for 1999,  which at that date ranged from $2.60 per share to
$2.95 per share, was more  appropriate at that time, as the Corporation  takes a
more  conservative  approach due to the economic  uncertainty in some regions of
the world. The Corporation also said it currently anticipated first quarter 1999
earnings  to  be  approximately  even  with  last  year's  first  quarter.   The
Corporation's  comments  about  earnings  exclude the  effects of the  remaining
anticipated non-recurring charges related to its Project Simplify initiative.

"Safe  Harbor":  Statements  in this  document  that are not  historical  facts,
including   statements  (i)  that  include  the  words  "believes,"   "expects,"
"anticipates,"  or "estimates" or words of similar  importance with reference to
the Corporation or management;  (ii) specifically identified as forward-looking;
or (iii) describing the Corporation's or management's  future plans,  objectives
or goals, are forward-looking statements. The Corporation or its representatives
may also make similar forward-looking  statements from time to time orally or in
writing.  The Corporation  cautions the reader that these statements are subject
to risks,  uncertainties  and other  factors that could cause (and in some cases
have caused) actual  results to differ  materially  from those  described in any
such statement.  Some of those factors are discussed below, as well as elsewhere
in this document,  and in the Corporation's  Securities and Exchange  Commission
filings.  These factors may not  constitute  all factors that could cause actual
results  to  differ  materially  from  those  discussed  in any  forward-looking
statement.  The Corporation's ability to meet its performance  objectives and to
achieve  results  that may be  described  in any  forward-looking  statement  is
dependent upon both macro-environmental factors and factors related specifically
to the  Corporation or the industries in which it  participates.  These include,
but are not limited to, the following:  the  Corporation's  ability to withstand
external  negative  factors,  including  changes in trade,  monetary  and fiscal
policies,  laws and  regulations,  or other  activities of  governments or their
agencies;  significant changes in the current competitive  environment;  general
economic  weakness;  inflation;  currency exchange  fluctuations or the material
worsening of the  economic or political  situation in Asia or other parts of the
world;  the  degree of the  Corporation's  success  in  executing  its  multiple
brands/multiple  channels  strategy  on a global  basis and in  integrating  its
acquisitions;   the  maintenance  of  the  positive   relationship  between  the
Corporation and its franchisees that currently exists;  the timing or speed with
which the  Corporation  can implement the Project  Simplify  initiatives and the
rollout  of  Snap-on  Credit  LLC  without  unanticipated   complications;   the
continuation   of  good  relations  with  the   Corporation's   employees;   the
Corporation's  ability  to  manufacture,  distribute  and/or  record the sale of
products  during  any  computer  systems-related  changes or  upgrades;  and the
ability to grow through successful  identification,  negotiation and integration
of new acquisitions, joint ventures or strategic alliances.

The Corporation operates in a continually changing business environment, and new
factors emerge from time to time. The  Corporation  cannot predict such factors,
nor can it assess the impact,  if any, of such factors on the Corporation or its
results. Accordingly,  forward-looking statements should not be relied upon as a
prediction of actual results.  The Corporation  disclaims any  responsibility to
update any forward-looking statement provided in this document.

[23 Snap-on Incorporated 1998 Annual Report]

Consolidated Statements of Earnings

(Amounts in thousands except share data)                1998            1997            1996
- ----------------------------------------------------------------------------------------------

Net sales                                           $1,772,637      $1,672,215      $1,485,279
Cost of goods sold                                     948,761         828,387         734,495
Cost of goods sold - discontinued products              60,562               -               -
- ----------------------------------------------------------------------------------------------
Gross profit                                           763,314         843,828         750,784
Operating expenses                                     705,811         650,182         594,527
- ----------------------------------------------------------------------------------------------
Operating profit                                        57,503         193,646         156,257
Net finance income                                      65,933          71,891          64,269
Restructuring and other non-recurring charges          (89,301)              -               -
- ----------------------------------------------------------------------------------------------
Operating income                                        34,135         265,537         220,526
Interest expense                                       (21,254)        (17,654)        (12,649
Other income (expense) - net                            (2,041)         (9,207)            776
- ----------------------------------------------------------------------------------------------
Earnings before income taxes                            10,840         238,676         208,653
Income taxes                                            15,619          88,310          77,202
- ----------------------------------------------------------------------------------------------
Net earnings (loss)                                 $   (4,779)     $  150,366      $  131,451
==============================================================================================
Earnings (loss) per weighted average 
common share - basic                              $     (.08)     $     2.47      $     2.16
- ----------------------------------------------------------------------------------------------
Earnings (loss) per weighted average 
common share - diluted                            $     (.08)     $     2.44      $     2.13
- ----------------------------------------------------------------------------------------------
Weighted average common shares 
outstanding - basic                               59,219,564      60,845,467      60,967,865
Common stock equivalents                                     -         840,841         624,947
- ----------------------------------------------------------------------------------------------
Weighted average common shares 
outstanding - diluted                             59,219,564      61,686,308      61,592,812
- ----------------------------------------------------------------------------------------------

The accompanying Notes are an integral part of these statements.

[24 Snap-on Incorporated 1998 Annual Report]

Consolidated Balance Sheets

(Amounts in thousands except share data)             Jan. 2, 1999   Jan. 3, 1998
- --------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents                            $   15,041      $   25,679
Accounts receivable, less allowance for 
doubtful accounts of $29.2 million in 1998
and $20.6 million in 1997                             554,703         539,589
Inventories                                             375,436         373,155
Prepaid expenses and other assets                       134,652          83,286
- --------------------------------------------------------------------------------
Total current assets                                  1,079,832       1,021,709

Property and equipment - net                            272,030         265,765
Deferred income tax benefits                             60,139          55,699
Intangible and other assets                             262,919         298,184
- --------------------------------------------------------------------------------
Total assets                                         $1,674,920      $1,641,357
================================================================================
Liabilities and shareholders' equity
Current liabilities
Accounts payable                                     $   89,442      $   91,553
Notes payable and current maturities 
of long-term debt                                      93,117          23,951
Accrued compensation                                     42,105          43,712
Dealer deposits                                          42,421          43,848
Deferred subscription revenue                            34,793          29,265
Accrued restructuring reserves                           26,165               -
Other accrued liabilities                               130,010         120,201
- --------------------------------------------------------------------------------
Total current liabilities                               458,053         352,530

Long-term debt                                          246,644         151,016
Deferred income taxes                                     9,587          11,824
Retiree health care benefits                             89,124          86,936
Pension and other long-term liabilities                 109,245         146,914
- --------------------------------------------------------------------------------
Total liabilities                                       912,653         749,220

Shareholders' equity
Preferred stock - authorized 15,000,000 
shares of $1 par value; none outstanding                    -               -
Common stock - authorized 250,000,000 
shares of $1 par value; issued 66,685,169
and 66,472,127 shares                                  66,685          66,472
Additional paid-in capital                              117,384          82,758
Retained earnings                                       883,207         938,963
Accumulated other comprehensive income (loss)           (30,231)        (30,385)
Grantor stock trust at fair market value - 
6,924,019 and 0 shares                               (241,042)              -
Treasury stock at cost - 1,016,224 and 
5,956,313 shares                                      (33,736)       (165,671)
- --------------------------------------------------------------------------------
Total shareholders' equity                              762,267         892,137
- --------------------------------------------------------------------------------
Total liabilities and shareholders' equity           $1,674,920      $1,641,357
================================================================================

The accompanying Notes are an integral part of these statements.

[25 Snap-on Incorporated 1998 Annual Report]

Consolidated Statements of Shareholders' Equity and Comprehensive Income

Accumulated                              Total
Additional                        Other     Grantor                 Share-
Common      Paid-in     Retained   Comprehensive       Stock    Treasury     holders'
(Amounts in thousands Except share data)        Stock      Capital     Earnings    Income(Loss)       Trust       Stock     Equity
- ----------------------------------------------------------------------------------------------------------------------------------

Balance at December 30, 1995                  $43,571      $74,250     $753,356        $(10,758)    $    -    $(109,687)  $750,732

Comprehensive income:                                                                              
Net earnings for 1996                                           131,451                    
Foreign currency translation                                                     (3,172)   
Total comprehensive income                                                                                                128,279
Cash dividends - $.76 per share                                         (46,323)                                          (46,323)
Three-for-two stock split net                                                                      
of fractional shares (common                                                               
21,969,677, treasury 1,523,600)        21,971      (21,971)                                                             -
Issuance of 20,216 shares under                                                                    
dividend reinvestment plan                 20          760                                                            780
Issuance of 410,661 shares under                                                                   
stock purchase and option plans           410       12,436                                                         12,846
Purchase of 615,750 shares for treasury                                                                         (19,184)  (19,184)
Tax benefit from certain                                                                           
stock options and other items                        1,031                                                          1,031
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996                   65,972       66,506       838,484        (13,930)         -     (128,871)  828,161

Comprehensive income:                                                                              
Net earnings for 1997                                            150,366                   
Foreign currency translation                                                    (16,455)   
Total comprehensive income                                                                                                133,911
Cash dividends - $.82 per share                                          (49,887)                                         (49,887)
Issuance of 19,764 shares under                                                                    
dividend reinvestment plan                 20          804                                                            824
Issuance of 480,446 shares under stock                                                             
purchase and option plans                 480       10,940                                                         11,420
Purchase of 986,333 shares for treasury                                                                         (42,324)  (42,324)
Reissuance of 216,570 shares from treasury                   2,380                                                5,524     7,904
Tax benefit from certain                                                                           
stock options and other items                        2,128                                                          2,128
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 3, 1998                     66,472       82,758       938,963        (30,385)         -     (165,671)  892,137

Comprehensive income:                                                                              
Net loss for 1998                                                 (4,779)                  
Foreign currency translation                                                      2,694    
Minimum pension liability                                                        (2,540)   
Total comprehensive income (loss)                                                                                         (4,625)
Cash dividends - $.86 per share                                          (50,977)                                        (50,977)
Issuance of 33,620 shares under                                                                    
dividend reinvestment plan                 34          839                                                           873
Issuance of 179,422 shares under stock                                                             
purchase and option plans                 179        6,055                                                         6,234
Issuance of 175,981 shares from                                                                    
grantor stock trust under stock                                                            
purchase and option plans                                                                    3,774                 3,774
Purchase of 2,279,400 shares for treasury                                                                       (90,357) (90,357)
Reissuance of 119,489 shares from treasury                     336                                                3,683    4,019
Establishment of grantor stock trust                                                               
with 7,100,000 shares                               36,547                                (255,156)     218,609        -
Tax benefit from certain stock                                                                     
options and other items                              1,189                                                         1,189
Adjustment of grantor stock trust                                                                  
to fair market value                               (10,340)                                 10,340                     -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at January 2, 1999                    $66,685     $117,384      $883,207      $(30,231)  $(241,042)    $(33,736) $762,267
- ---------------------------------------------------------------------------------------------------------------------------------

The accompanying Notes are an integral part of these statements.                                 

[26 Snap-on Incorporated 1998 Annual Report]

Consolidated Statements of Cash Flows

Amounts in thousands)                                                    1998             1997             1996
Operating activities

Net earnings (loss)                                                 $   (4,779)         $150,366         $131,451
Adjustments to reconcile net earnings (loss) to net cash 
provided by operating activities:
Depreciation                                                         34,801            29,724           26,644
Amortization of intangibles                                         10,184             8,653            5,235
Deferred income tax provision                                       13,125            11,814            8,398
(Gain) loss on sale of assets                                       (7,312)              114             (876)
Charges due to restructuring and other non-recurring charges       107,628                 -                -
Changes in operating assets and liabilities, 
net of effects of acquisitions:
(Increase) decrease in receivables                                   11,789           133,171          (29,591)
(Increase) in inventories                                           (28,937)          (87,502)         (10,543)
(Increase) decrease in prepaid and other assets                      35,775           (21,188)         (59,524)
Increase (decrease) in accounts payable                             (13,400)          (16,562)          12,069
Increase (decrease) in accruals and other liabilities               (83,843)          (13,696)          53,137
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                               75,031           194,894          136,400

Investing activities
Capital expenditures                                                   (46,779)          (55,442)         (52,333)
Acquisitions of businesses                                             (79,543)          (62,947)         (38,553)
Disposal of property and equipment                                      16,680             2,159            3,317
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                 (109,642)         (116,230)         (87,569)

Financing activities
Payment of long-term debt                                               (3,543)           (7,802)          (9,902)
Increase in long-term debt                                              48,221                 -            3,205
Increase in short-term borrowings - net                                104,165            10,579            7,888
Purchase of treasury stock - net                                       (86,674)          (36,800)         (19,184)
Proceeds from stock purchase and option plans                           12,405            16,752           14,656
Cash dividends paid                                                    (50,977)          (49,888)         (46,323)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                     23,597           (67,159)         (49,660)

Effect of exchange rate changes on cash                                    376            (1,176)             (32)
Increase (decrease) in cash and cash equivalents                       (10,638)           10,329             (861)
Cash and cash equivalents at beginning of year                          25,679            15,350           16,211
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                            $   15,041          $ 25,679         $ 15,350
- ------------------------------------------------------------------------------------------------------------------

The accompanying Notes are an integral part of these statements.

[27 Snap-on Incorporated 1998 Annual Report]

Notes to Consolidated Financial Statements

Note 1 - Summary of Accounting Policies
A summary of significant  accounting  policies applied in the preparation of the
accompanying consolidated financial statements follows:

a.  Nature  of  operations:  The  Corporation  is a  leading  global  developer,
manufacturer and distributor of hand tools,  power tools, tool storage products,
shop equipment, under-hood diagnostics equipment, under-car equipment, emissions
and safety equipment,  collision repair equipment,  vehicle service  information
and  business  management  systems and  services.  The  Corporation's  customers
include professional  automotive  technicians,  shop owners,  franchised service
centers,  national accounts,  original equipment  manufacturers,  and industrial
tool and equipment users worldwide.

b. Use of estimates:  The preparation of financial statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amounts  of  revenues  and  expenses  during the
reporting period. Actual results could differ from those estimates.

c. Principles of consolidation:  The consolidated  financial  statements include
the accounts of the  Corporation and its  subsidiaries,  all of which are wholly
owned with the exception of Mitchell Repair Information  Company,  LLC ("MRIC"),
Edge Diagnostic Systems, Texo S.r.l., Cartech GmbH, and Snap-on Tools/PST Africa
(Pty)  Ltd.  Significant   intercompany  accounts  and  transactions  have  been
eliminated.

d. Accounting period:  The Corporation's  accounting period ends on the Saturday
nearest  December  31. The 1998,  1997 and 1996 years  ended on January 2, 1999,
January 3, 1998,  and December 28,  1996.  The 1998 and 1996 years  contained 52
weeks; 1997 was a 53-week year.

e. Cash  equivalents:  The Corporation  considers all highly liquid  investments
with an original maturity of three months or less to be cash  equivalents.  Cash
equivalents are stated at cost, which approximates market value.

f. Inventories: Inventories, consisting of manufactured products and merchandise
for  resale,  are stated at the lower of cost or market.  Manufactured  products
include the costs of materials,  labor and manufacturing  overhead.  Inventories
accounted for using the last-in,  first-out  (LIFO) method  approximated 60% and
65% of total inventory as of year-end 1998 and 1997.  Remaining  inventories are
generally  determined  using the  first-in,  first-out  (FIFO) cost method.  For
detailed inventory information, refer to Note 2.

g.  Property  and  equipment:  Property  and  equipment  is  stated at cost less
accumulated  depreciation  and  amortization.  Depreciation and amortization are
provided on a  straight-line  basis over  estimated  useful  lives.  Accelerated
depreciation  methods  are used for income tax  purposes.  Capitalized  software
included  in  property  and  equipment  reflects  costs  related  to  internally
developed or  purchased  software  for  internal  use that are  capitalized  and
amortized on a straight-line  basis over periods not exceeding seven years.  For
detailed property and equipment information, refer to Note 3.

h. Intangibles:  During 1998, the Corporation acquired full or partial ownership
of five new business  operations and an additional interest in a business for an
aggregate  cash purchase price of $79.5  million.  During 1997, the  Corporation
acquired  full or  partial  ownership  of six new  business  operations  with an
aggregate cash purchase price of $62.9 million.  Pro forma results of operations
are not presented, as the effect of these acquisitions is not material. Goodwill
arising from business acquisitions is included in Intangible and Other Assets in
the accompanying  Consolidated Balance Sheets and is being amortized principally
over 20 years on a straight-line  basis. The Corporation  continually  evaluates
the  existence  of goodwill  impairment  on the basis of whether the goodwill is
fully  recoverable  from projected,  undiscounted  net cash flows of the related
business unit. Should an impairment be identified, the loss would be measured as
the  difference  between  the current  fair value of the asset and the  carrying
value. For information on goodwill impairment during 1998, refer to Note 14.

In the first  quarter of 1997,  the  Corporation  acquired a 50% interest in The
Thomson  Corporation's  Mitchell Repair Information business at a purchase price
of $40.2  million.  In the first quarter of 1998,  the  Corporation  acquired an
additional 10% interest in MRIC at a purchase price of $10.1 million. Subsequent
to year-end 1998, the  Corporation  announced its exercise of its call option to
purchase  an  additional  39%  interest  in  MRIC,  which  will  result  in  the
Corporation's  owning 99% of MRIC. The  Corporation is obligated to purchase the
remainder of MRIC within the next three years.

Goodwill, net of accumulated amortization, was $131.5 million and $121.3 million
at the end of 1998  and  1997.  Goodwill  amortization  was $8.5  million,  $6.9
million and $4.8 million for 1998,  1997 and 1996.  Accumulated  amortization of
goodwill was $27.6 million and $25.0 million at the end of 1998 and 1997.

i.  Research  and  engineering:  Research and  engineering  costs are charged to
expense in the year incurred.  For 1998,  1997 and 1996,  these costs were $48.6
million, $46.5 million and $42.4 million.

j. Income taxes:  Deferred  income taxes are provided for temporary  differences
arising  from  differences  in  bases  of  assets  and  liabilities  for tax and
financial  reporting  purposes.  Deferred income taxes are recorded on temporary
differences  at the  tax  rate  expected  to be in  effect  when  the  temporary
differences reverse. For detailed tax information, refer to Note 6.

[28 Snap-on Incorporated 1998 Annual Report]

k. Foreign currency  translation:  The financial statements of the Corporation's
foreign  subsidiaries  are  translated  into U.S.  dollars  in  accordance  with
Statement of Financial  Accounting  Standards ("SFAS") No. 52, "Foreign Currency
Translation."  Net assets of certain  foreign  subsidiaries  are  translated  at
current rates of exchange,  and income and expense  items are  translated at the
average  exchange rate for the year. The resulting  translation  adjustments are
recorded  directly into a separate  component of shareholders'  equity.  Certain
other  translation  adjustments and transaction gains and losses are reported in
net income and were not material in any year.

l. Revenue  recognition:  The Corporation  recognizes  revenues at the time that
products are shipped or the time that  services  are  performed.  Franchise  fee
revenue is recognized as the fees are earned.  Revenue from  franchise  fees was
not material in any year.  Subscription  revenue is recognized  over the life of
the subscription.  The total amount of subscription  revenue was not material in
any year.

m. Net finance  income:  Net finance  income  consists of  installment  contract
income, dealer start-up loan receivable income, gains on the sale of receivables
and lease income, net of related administrative expenses.

n.  Advertising  and  promotion  expense:   Production  costs  of  future  media
advertising are deferred until the advertising occurs. All other advertising and
promotion costs are generally expensed when incurred.

o. Warranty  expense policy:  The Corporation  provides  product  warranties for
specific  product lines and accrues for estimated  future  warranty costs in the
period in which the sale was recorded.

p.  Accounting  standards:  In 1998,  the  Corporation  adopted  SFAS  No.  130,
"Reporting  Comprehensive  Income"; SFAS No. 131, "Disclosures about Segments of
an  Enterprise  and  Related   Information";   and  SFAS  No.  132,  "Employers'
Disclosures  about Pension and Other  Postretirement  Benefits." The adoption of
these standards had no material impact on the consolidated financial statements.
In  1998,  the  Financial  Accounting  Standards  Board  issued  SFAS  No.  133,
"Accounting  for  Derivative  Instruments  and  Hedging  Activities,"  which the
Corporation is required to adopt no later than January 1, 2000. The  Corporation
is currently evaluating the impact of this statement.

q.  Reclassified  prior-year  amounts:  Certain  prior-year  amounts  have  been
reclassified to conform with current-year presentation.

r. Per share  data:  Basic  earnings  per share  calculations  were  computed by
dividing net earnings by the  corresponding  weighted  average  number of common
shares outstanding for the period. The dilutive effect of the potential exercise
of  outstanding  options  to  purchase  common  shares is  calculated  using the
treasury stock method.  Diluted  earnings per share is the same as presented for
basic earnings per share in periods where the effect is  antidilutive  (that is,
the calculation  results in increased earnings per share or reduces net loss per
share).  The dilutive effect of stock options as of January 2, 1999, was 576,000
shares. These shares,  however, are not included in the 1998 calculations due to
their  antidilutive  nature. In June of 1996, the board of directors  approved a
three-for-two split of the Corporation's  common stock, which was distributed on
September 10, 1996, to shareholders of record on August 20, 1996. All prior-year
per  share  and  weighted  average  share  information  has  been  retroactively
restated.

Note 2 - Inventories
The components of the Corporation's inventory were as follows:

(Amounts in thousands)                   1998                1997
Finished stock                        $ 359,358            $366,324
Work in process                          38,357              42,384
Raw materials                            74,192              66,008
Excess of current cost over LIFO cost   (96,471)           (101,561)
- --------------------------------------------------------------------
Total inventory                       $ 375,436            $373,155
====================================================================

Note 3 - Property and Equipment 
The Corporation's property and equipment values, which are carried at cost, were
as follows:

(Amounts in thousands)                    1998                1997
Land                                  $  19,572           $ 23,980
Buildings and improvements              175,385             163,596
Machinery and equipment                 388,862             341,875
- --------------------------------------------------------------------
583,819             529,451
Less: accumulated depreciation         (311,789)           (263,686)
- --------------------------------------------------------------------
Property and equipment - net          $ 272,030           $ 265,765
====================================================================

The  estimated  service  lives of property  and  equipment  are  principally  as
follows:

Buildings and improvements                      3 to 50 years
Machinery and equipment                         2 to 15 years
Computer software                                2 to 7 years
Transportation vehicles                          2 to 6 years

Note 4 - Receivables
Accounts receivable include  installment  receivable amounts that are due beyond
one year from  balance  sheet dates.  These  amounts  were  approximately  $16.5
million  and  $15.6  million  at the end of 1998  and  1997.  Gross  installment
receivables amounted to $176.9 million and $174.0 million at the end of 1998 and
1997. Of these  amounts,  $16.8 million and $14.6 million  represented  unearned
finance charges at the end of 1998 and 1997.

[29 Snap-on Incorporated 1998 Annual Report]

In  1997,  the  Corporation  created  CreditCorp  SPC,  LLC  ("CreditCorp"),   a
bankruptcy-remote,  special-purpose entity, the sole purpose of which is to sell
to various  financial  institutions  dealer loan  receivables,  extended  credit
customer accounts receivable and equipment lease receivables.  These receivables
are secured by the underlying inventory, tools or equipment financed. CreditCorp
is a separate  corporate  entity with its own  separate  creditors  that will be
entitled to be  satisfied  out of its assets  prior to the  distribution  of any
value to its shareholders.

CreditCorp has an agreement with a third-party financial institution to sell, on
an ongoing basis and with full recourse to the Corporation,  up to $70.0 million
of secured  dealer  loan  receivables  in the United  States and up to  Cdn$10.0
million of secured dealer loan  receivables  in Canada.  These  receivables  are
created through the financing of franchised dealer operations.

During 1998 and 1997, the Corporation sold the U.S.  equivalent of $29.4 million
and $31.5 million of these receivables to the third-party financial institution.
During  December 1998, the U.S. dealer finance loan  receivables  outstanding of
$68.3 million were repurchased from the third-party  financial  institution and,
along with other dealer finance receivables, were sold to Newcourt Financial USA
Inc. ("Newcourt").

CreditCorp  has also entered into a facility  that  provides for the sale,  with
limited recourse,  of an undivided interest in a pool of secured extended credit
customer accounts receivable to a third-party financial institution.  At the end
of 1998  and  1997,  $337.0  million  and  $300.0  million  of  interest-bearing
installment  receivables were sold under this facility on a revolving basis. The
agreement for revolving purchases terminates in January 1999.

In December  1997,  CreditCorp  sold,  with limited  recourse,  $73.7 million of
equipment lease receivables to a third-party financial  institution.  At the end
of 1998, $35.8 million of equipment lease receivables remained outstanding.

Generally, the recourse provisions for the above securitizations as they existed
at year end require the Corporation to provide for the deficiency,  if any, that
results from the  repossession  and  subsequent  sale of collateral in a default
situation.  The Corporation maintains credit reserves pursuant to these recourse
provisions that are based on the Corporation's best estimates of probable losses
under such provisions. The reserves were not material as of January 2, 1999, and
January 3, 1998. The Corporation  does not receive  collateral from any party to
the securitizations, nor does it have any risk of counterparty non-performance.

In December 1996, the Corporation made the determination to sell equipment lease
receivable  originations  to a third-party  financial  institution on an ongoing
basis.  During 1998 and 1997,  the  Corporation  sold,  with no recourse,  $54.1
million and $50.9 million of these lease receivables.  The Corporation also sold
lease  receivables  with limited  recourse of $27.6 million and $13.0 million in
1998 and 1997.

All  transactions  are  reflected  as  sales  of  accounts   receivable  in  the
accompanying  Consolidated  Balance  Sheets and as increases  to operating  cash
flows in the  accompanying  Consolidated  Statements of Cash Flows. The gains on
these sales are included in net finance income on the accompanying  Consolidated
Statements of Earnings.

Subsequent  to year end,  CreditCorp  repurchased  and then sold to Newcourt the
entire pool of $337.0 million of  interest-bearing  installment  receivables and
the  outstanding  $35.8  million of equipment  lease  receivables.  In addition,
subsequent to year end,  CreditCorp  sold to Newcourt  certain  equipment  lease
receivables  and dealer loan  receivables  that were held by the  Corporation at
year end. For more information, see Note 15.

Note 5 - Short-term and Long-term Debt
Notes  payable to banks  under bank lines of credit  totaled  $34.9  million and
$23.6 million at the end of 1998 and 1997.

Commercial  notes payable totaled $156.0 million and $51.0 million at the end of
1998 and 1997.  The first $100.0  million of  commercial  paper  outstanding  is
classified as long-term debt,  since it is the  Corporation's  intent and it has
the ability (supported by a $100.0 million long-term  revolving credit facility)
to refinance the debt on a long-term  basis.  Commercial  paper  outstanding  in
excess of $100.0 million is considered  short-term debt, as it is supported by a
$75.0 million short-term revolving credit facility.

For  both  the  long-term  and  short-term  revolving  credit  facilities,   the
Corporation  must maintain a specific level of  consolidated  tangible net worth
and meet  certain  leverage and  subsidiary  indebtedness  ratios.  In addition,
certain capital transactions are restricted. At the end of 1998, the Corporation
was in  compliance  with  all  covenants  of  both  commitments.  The  long-term
commitment  terminates  on  September  5, 2002,  and the  short-term  commitment
terminates  on March  22,  1999.  At the end of 1998  and  1997,  there  were no
borrowings under either revolving credit commitment.

Maximum  short-term debt  outstanding at the end of any month was $237.5 million
in 1998 and $177.4 million in 1997. The average  short-term debt outstanding was
$165.2 million in 1998 and $117.6 million in 1997. The weighted average interest
rates on  short-term  debt  were  5.6% in 1998 and  5.5% in 1997.  The  weighted
average  interest rates on long-term and short-term debt  outstanding at January
2, 1999, and January 3, 1998, were 6.4% and 6.3%.

The Corporation's long-term debt consisted of the following:

(Amounts in thousands)                    1998            1997
Senior unsecured indebtedness           $100,000        $100,000
Borrowings supported by a
revolving credit commitment     100,000           51,000
Canadian long-term debt                  39,210                -
Other long-term debt                      9,679              368
- ----------------------------------------------------------------
248,889          151,368
Less: current maturities                 (2,245)            (352)
- ----------------------------------------------------------------
Total long-term debt                   $246,644         $151,016
================================================================

[30 Snap-on Incorporated 1998 Annual Report]

The annual maturities of the  Corporation's  long-term debt due in the next five
years are $2.2  million in 1999,  $2.2  million in 2000,  $1.5  million in 2001,
$102.1 million in 2002, and $39.5 million in 2003.

In September  1994,  the  Corporation  filed a  registration  statement with the
Securities  and Exchange  Commission  that allows the  Corporation to issue from
time to time up to $300.0  million of unsecured  indebtedness.  In October 1995,
the  Corporation  issued  $100.0  million of its notes to the public.  The notes
require payment of interest on a semiannual basis at a rate of 6.625% and mature
in their entirety on October 1, 2005. The proceeds of this issuance were used to
repay a  portion  of the  Corporation's  outstanding  commercial  paper  and for
working capital and general corporate purposes.

At the end of 1998, the Corporation has a Cdn$60.0  million  (equivalent of U.S.
$39.2  million)  five-year  floating  rate loan  outstanding.  The loan requires
payment of interest quarterly based on the Canadian Bankers Acceptance Rate plus
17.5 basis points. The loan matures in its entirety on June 5, 2003.

Interest payments on debt and on other interest-bearing obligations approximated
$20.9 million, $17.5 million and $13.2 million for 1998, 1997 and 1996.

Note 6 - Income Taxes
Earnings before income taxes consisted of the following:

(Amounts in thousands)         1998            1997            1996
- ---------------------------------------------------------------------
U.S.                        $(12,128)       $210,966        $172,553
Foreign                       22,968          27,710          36,100
- ---------------------------------------------------------------------
Total                       $ 10,840        $238,676        $208,653 
=====================================================================

The provision for income taxes consisted of the following:

(Amounts in thousands)                    1998            1997            1996
- --------------------------------------------------------------------------------
Current:                              
Federal                                $31,516         $60,551         $55,949
Foreign                                  8,078           7,555          13,803
State                                    3,701           8,390           8,997
- --------------------------------------------------------------------------------
Total current                            43,295          76,496          78,749

Deferred:                             
Federal                                (25,067)          8,493            (615)
Foreign                                    769           1,865            (428)
State                                   (3,378)          1,456            (504)
- --------------------------------------------------------------------------------
Total deferred                          (27,676)         11,814          (1,547)
- --------------------------------------------------------------------------------
Total income tax provision              $15,619         $88,310         $77,202
================================================================================

A reconciliation of the Corporation's effective income tax rate to the statutory
federal tax rate follows:

1998            1997            1996
- --------------------------------------------------------------------------------
Statutory federal income tax rate         35.0%           35.0%           35.0%
Increase (decrease) in tax rate
resulting from:
State income taxes, net of 
federal benefit                        3.0             2.8             2.4
Foreign sales corporation tax benefit  (1.7)           (1.2)           (1.5)
Restructuring and other 
non-recurring charges               108.1               -               -
Other                                  (0.3)            0.4             1.1
- --------------------------------------------------------------------------------
Effective tax rate                       144.1%           37.0%           37.0%
================================================================================

Temporary  differences  that give rise to the net  deferred  tax  benefit are as
follows:

(Amounts in thousands)                    1998            1997            1996
- --------------------------------------------------------------------------------
Current deferred income tax benefits:
Inventories                            $21,309         $18,294         $14,599
Accruals and reserves not 
currently deductible                   24,702          26,820          36,372
Restructuring and other 
non-recurring accruals                 23,379               -               - 
Other                                   (2,551)           (491)             56
- --------------------------------------------------------------------------------
Total current (included in 
prepaid expenses)                66,839          44,623          51,027

Long-term deferred income tax benefits:
Employee benefits                       61,870          61,017          57,299
Net operating losses                    38,300          23,277          23,585
Depreciation                           (21,721)        (22,363)        (13,409)
Restructuring and other 
non-recurring accruals                 2,638               -               -
Other                                   (1,163)         (3,398)         (6,528)

Valuation allowance                    (29,372)        (14,658)        (12,561)
- --------------------------------------------------------------------------------
Total long-term                          50,552          43,875          48,386
- --------------------------------------------------------------------------------
Net deferred income 
tax benefit                           $117,391        $ 88,498        $ 99,413
================================================================================

At January 2, 1999, the  Corporation  had tax net operating  loss  carryforwards
("NOLs") totaling $103.6 million as follows:

(Amounts in millions)                      U.S.          Foreign           Total
Year of expiration:
1999 - 2002                             $    -          $  8.7         $   8.7
2003 - 2006                               33.2             5.3            38.5
2007 - 2011                                4.9             1.8             6.7
Indefinite                                   -            49.7            49.7
- --------------------------------------------------------------------------------
$ 38.1          $ 65.5         $ 103.6
================================================================================

[31 Snap-on Incorporated 1998 Annual Report]

In accordance with current accounting standards,  a valuation allowance totaling
$29.4 million,  $14.7 million and $12.6 million in 1998,  1997 and 1996 has been
established for deferred income tax benefits related to certain  subsidiary loss
carryforwards that may not be realized.  Included in this valuation allowance is
$6.7 million that relates to the deferred tax assets recorded from acquisitions.
Any tax benefits  subsequently  recognized for these deferred tax assets will be
allocated to goodwill.

Realization of the net deferred tax assets is dependent on generating sufficient
taxable income prior to their expiration.  Although  realization is not assured,
management  believes it is more likely than not that the net  deferred tax asset
will  be  realized.  The  amount  of  the  net  deferred  tax  asset  considered
realizable,  however,  could be reduced in the near term if  estimates of future
taxable income during the carryforward period are reduced.

The  undistributed  earnings of all  subsidiaries  were $121.7  million,  $117.0
million and $120.3 million at the end of 1998,  1997 and 1996.  The  Corporation
does not  expect  that  additional  income  taxes  will be  incurred  on  future
distributions of such earnings and,  accordingly,  no deferred income taxes have
been provided for the distribution of these earnings to the parent company.

The  Corporation  made income tax payments of $66.2  million,  $76.0 million and
$69.7 million in 1998, 1997 and 1996.

Note 7 - Financial Instruments

The Corporation uses derivative instruments to manage well-defined interest rate
and  foreign  currency  exposures.  The  Corporation  does  not  use  derivative
instruments  for trading  purposes.  The  criteria  used to  determine  if hedge
accounting  treatment is appropriate  are (i) the designation of the hedge to an
underlying exposure, (ii) whether or not overall risk is being reduced and (iii)
if there is a correlation between the value of the derivative instrument and the
underlying obligation.

Foreign  Currency  Derivative  Instruments:  The Corporation has operations in a
number of countries  and has  intercompany  transactions  among them,  and, as a
result,   is  exposed  to  changes  in  foreign  currency  exchange  rates.  The
Corporation  manages most of these  exposures  on a  consolidated  basis,  which
allows netting certain  exposures to take advantage of any natural  offsets.  To
the extent the net  exposures  are hedged,  forward  contracts  are used.  Gains
and/or  losses on these  foreign  currency  hedges are included in income in the
period in which the exchange  rates  change.  Gains and/or  losses have not been
material to the consolidated financial statements.

At January 2, 1999, the  Corporation had outstanding  foreign  exchange  forward
contracts  in  Australian  dollars,  British  pounds,  Canadian  dollars,  Dutch
guilders,  French francs,  German marks,  Irish punts,  Italian lira,  Singapore
dollars and Spanish pesetas  totaling  $113.9  million.  At January 3, 1998, the
Corporation had outstanding  foreign exchange forward  contracts  totaling $79.8
million.

Interest Rate Swap  Agreements:  The Corporation  enters into interest rate swap
agreements to manage interest costs and risks associated with changing  interest
rates.  The  differentials  paid or  received on interest  rate  agreements  are
accrued and  recognized as  adjustments  to interest  expense.  Gains and losses
realized  upon  settlement  of these  agreements  are deferred and  amortized to
interest  expense  over a period  relevant to the  agreement  if the  underlying
hedged instrument remains  outstanding,  or immediately if the underlying hedged
instrument is settled.

The Corporation has interest rate swap agreements in place to pay fixed interest
rates in exchange for floating  interest rate payments.  At January 2, 1999, and
January 3, 1998, the notional  principal amount  outstanding of these agreements
was $167.0 million and $32.1 million.

Credit Concentrations:  The Corporation is exposed to credit losses in the event
of  non-performance  by the counterparties to its interest rate swap and foreign
exchange contracts.  The Corporation does not anticipate  non-performance by the
counterparties.  The Corporation does not obtain collateral or other security to
support  financial  instruments  subject to credit risk but  monitors the credit
standing of the  counterparties  and enters into  agreements only with financial
institution counterparties with a credit rating of A- or better.

While the  Corporation  sells  primarily to  professional  technicians  and shop
owners,  the  Corporation's  accounts  receivable do not  represent  significant
concentrations of credit risk because of the diversified portfolio of individual
customers and geographic areas.

Fair Value of Financial Instruments: Statement of Financial Accounting Standards
No. 107,  "Disclosure about Fair Value of Financial  Instruments,"  requires the
Corporation to disclose the fair value of financial instruments for both on- and
off-balance sheet assets and liabilities for which it is practicable to estimate
that value.  The following  methods and assumptions  were used in estimating the
fair value for financial instruments:

Installment  contracts:  A discounted  cash flow analysis was performed over
the average life of a contract using a discount rate currently  available to
the Corporation adjusted for credit quality,  cost and profit factors. As of
January 2, 1999,  and  January  3,  1998,  the fair value was  approximately
$168.9  million and $168.2 million versus a book value of $159.6 million and
$159.4 million.

Interest rate swap agreements: The fair value of the agreements was based on
a quote from the financial  institution with which the Corporation  executed
the  transactions.  As of January 2, 1999,  and January 3, 1998, the cost to
terminate the agreements was $6.1 million and $1.0 million.

All other financial instruments: The carrying amounts approximate fair value
based on quoted  market  prices or  discounted  cash flow  analysis for cash
equivalents,   debt,   forward   exchange   contracts  and  other  financial
instruments.

[32 Snap-on Incorporated 1998 Annual Report]

Note 8 - Pension Plans

The  Corporation  has  several  non-contributory  pension  plans  covering  most
employees,  including  certain  employees  in  foreign  countries,  as well as a
contributory  plan covering  certain  salaried  employees in Canada.  Retirement
benefits are generally provided based on employees' years of service and average
earnings or stated  amounts for years of service.  Normal  retirement age is 65,
with provisions for earlier retirement.  The Corporation  recognizes  retirement
plan expenses in accordance with Statement of Financial Accounting Standards No.
87, "Employers'  Accounting for Pensions," and contributes amounts to the plans,
with most using the  actuarially  computed  entry age normal cost method,  which
includes,  in certain  defined  retirement  benefit plans,  amortization of past
service cost over a maximum of 30 years.

The status of the Corporation's North American pension plans was as follows:

(Amounts in thousands)                             1998            1997
- --------------------------------------------------------------------------
Change in projected benefit obligation      
Benefit obligation at beginning of year         $ 405,666       $364,353
Service cost                                       15,865         14,630
Interest cost                                      29,653         28,047
Plan amendments                                     1,159            216
Benefits paid                                     (19,264)       (16,570)
Plan participant contributions                        461            437
Curtailment gain                                   (2,731)             -
Actuarial loss                                     61,267         14,553
- --------------------------------------------------------------------------
Benefit obligation at end of year                 492,076        405,666
- --------------------------------------------------------------------------
Change in plan assets                       
Fair value of plan assets at beginning of year    467,835        395,997
Actual return on plan assets                       48,212         84,155
Contributions by employer                           6,718          3,816
Contributions by plan participants                    461            437
Benefits paid                                     (19,264)       (16,570)
- --------------------------------------------------------------------------
Fair value of plan assets at end of year          503,962        467,835
- --------------------------------------------------------------------------
Funded status                                      11,886         62,169
Unrecognized net assets at year-end                (4,757)        (6,697)
Unrecognized net gain from 
experience different than assumed                (76,530)      (123,881)
Unrecognized prior service cost                     9,272          9,173
- --------------------------------------------------------------------------
Net amount recognized                            $(60,129)      $(59,236)
==========================================================================

(Amounts in thousands)                             1998            1997
- --------------------------------------------------------------------------
Amounts recognized in the statement 
of financial position consist of:
Prepaid benefit cost                         $  16,383       $ 10,491
Accrued benefit liability                      (79,532)       (70,280)
Intangible asset                                   480            553
Additional minimum liability                     2,540              -
- --------------------------------------------------------------------------
Net amount recognized                           $ (60,129)      $(59,236)
==========================================================================

The Corporation's net pension expense included the following components:

(Amounts in thousands)                  1998            1997           1996
- -----------------------------------------------------------------------------
Service cost - benefits 
earned during year                    $15,865        $14,630        $13,191 
Interest cost on projected benefits     29,653         28,047         25,657  
Less: actual return on plan assets     (39,551)       (76,768)       (40,788)
Curtailment gain                        (2,731)             -              - 
Net amortization and deferral:
Actual return on plan assets in 
excess of projected return            5,532         46,641         14,226 
Amortization of net 
assets at transition                 (1,268)        (1,193)        (1,084) 
Other                                   1,096          1,170            865 
- -----------------------------------------------------------------------------
Net pension expense                    $ 8,596        $12,527        $12,067 
=============================================================================

Related  to  the  Corporation's  restructuring  initiatives,  the  Corporation's
actuaries have estimated future pension curtailment gains to be $10 million. The
Corporation will recognize these gains as the initiatives are completed.

The  assumptions  used in  determining  pension costs and the projected  benefit
obligation were:

1998                  1997
-------------------------------------------
U.S.    Canada        U.S.    Canada
- ----------------------------------------------------------------------------
Discount rate                       7.0%     8.5%         7.5%     8.5%
Expected long-term rate 
of return on plan assets    9.0%     8.5%         9.0%     8.5%
Expected rate of
increase in future
compensation levels         5.0%     7.0%         5.0%     7.0%
- ----------------------------------------------------------------------------

Plan  assets  are stated at market  value and  primarily  consist  of  corporate
equities and various debt securities.

The pension  liability for 1998 consists of a current  liability of $4.5 million
and a long-term liability of $55.6 million.  The long-term liability  represents
pension  obligations  that are not  expected  to be  funded  during  the next 12
months.

The  Corporation  has pension  plans in which the projected  benefit  obligation
exceeds the fair value of plan assets.  At the end of 1998, the  Corporation had
three such plans with an aggregate projected benefit obligation of $49.4 million
and an aggregate fair value of plan assets of $32.0 million. At the end of 1997,
the  Corporation  had  two  such  plans  with  an  aggregate  projected  benefit
obligation of $13.6 million and no plan assets.

Note 9 - Retiree Health Care
The  Corporation  provides  certain  health care  benefits for most retired U.S.
employees.  The majority of the Corporation's U.S. employees become eligible for
those  benefits  if they  reach  early  retirement  age  while  working  for the
Corporation; however, the age and service requirements for eligibility under the
plans have been  increased for certain  employees  hired on and after  specified
dates since 1992. Generally, most plans pay stated percentages of

[33 Snap-on Incorporated 1998 Annual Report]

Notes to Consolidated Financial Statements (continued)

covered expenses after a deductible is met. There are several plan designs, with
more recent retirees being covered under a comprehensive  major medical plan. In
determining benefits, the plans take into consideration payments by Medicare and
other coverages.

For  employees   retiring   under  the   comprehensive   major  medical   plans,
contributions  are  required,  and these plans contain  provisions  allowing for
benefit and coverage  changes.  The plans require retirees to contribute  either
the full cost of the  coverage  or  amounts  estimated  to  exceed a capped  per
retiree annual cost  commitment by the  Corporation.  Most employees hired since
1994  are  required  to pay the full  cost.  The  Corporation  does not fund the
retiree health care plans.

The Corporation recognizes postretirement health care expense in accordance with
Statement of Financial Accounting Standards No. 106, "Employers'  Accounting for
Postretirement Benefits Other than Pensions."

The  components  of the expense for  postretirement  health care benefits are as
follows:

(Amounts in thousands)                         1998       1997       1996
- ---------------------------------------------------------------------------
Net periodic cost 
Service cost - benefits attributed 
to service during the period         $ 1,966    $ 1,945    $ 2,012
Interest cost on accumulated
postretirement benefit obligation      5,494      5,467      5,273
Curtailment gain                                (403)         -          -  
Amortization of unrecognized 
net gain                                (572)      (527)      (487)
- ---------------------------------------------------------------------------
Net postretirement health 
care expense                         $ 6,485    $ 6,885    $ 6,798
===========================================================================

The status of the Corporation's U.S. postretirement plans was 
as follows:

(Amounts in thousands)                             1998          1997
- -----------------------------------------------------------------------
Change in benefit obligation                
Benefit obligation at beginning of year         $ 77,780      $ 73,015
Service cost                                       1,966         1,945
Interest cost                                      5,494         5,467
Plan participants' contributions                     656           543
Benefits paid                                     (4,378)       (4,690)
Curtailment gain                                    (403)            -
Actuarial loss                                     2,436         1,500
- -----------------------------------------------------------------------
Benefit obligation at end of year                 83,551        77,780
- -----------------------------------------------------------------------
Change in plan assets                    
Fair value of plan assets at beginning of year         -             -
Plan participants' contributions                     656           543
Contributions by employer                          3,722         4,147
Benefits paid                                     (4,378)      ( 4,690)
- -----------------------------------------------------------------------
Fair value of plan assets at end of year                -            -
- -----------------------------------------------------------------------
Funded status                                    (83,551)      (77,780)
Unrecognized actuarial gain                      (10,032)      (13,040)
- -----------------------------------------------------------------------
Postretirement liability                       $ (93,583)    $ (90,820)
=======================================================================

The accumulated postretirement benefit obligation at the end of 1998 consists of
a current liability of $4.5 million and a long-term  liability of $89.1 million.
The  weighted   average  discount  rate  used  in  determining  the  accumulated
postretirement  benefit  obligation  was 7.0% at the end of 1998 and 7.5% at the
end of 1997.

The actuarial  calculation  assumes a health care trend rate of 7.5% in 1998 for
benefits paid on pre-Medicare retirees, decreasing gradually to 4.0% in the year
2007 and thereafter.  For benefits paid on Medicare-eligible  retirees, a health
care trend rate of 7.3% was assumed in 1998, decreasing to 4.0% in the year 2007
and thereafter.

As of January 2, 1999, a one percentage point increase or decrease in the health
care  cost  trend  rate  for  future  years  would  not  materially  affect  the
accumulated  postretirement  benefit obligation or the service cost and interest
cost components.

Related  to  the  Corporation's  restructuring  initiatives,  the  Corporation's
actuaries  have  estimated  future  postretirement  curtailment  gains  to be $2
million.  The  Corporation  will recognize  these gains as the  initiatives  are
completed.

Note 10 - Stock Option and Purchase Plans

On June 28, 1996, the board of directors approved a three-for-two stock split of
the  Corporation's  common stock.  Distribution of shares in connection with the
stock split was made on September 10, 1996. All  share-related  amounts in these
financial statements reflect that split.

The  Corporation  has a  stock  option  plan  for  directors,  officers  and key
employees,  with expiration  dates on the options ranging from 1999 to 2008. The
plan provides  that options be granted at exercise  prices equal to market value
on the date the option is granted.

The  Corporation  offers   shareholders  a  convenient  way  to  increase  their
investment in the Corporation through a no-commission  dividend reinvestment and
stock purchase plan.  Participating  shareholders  may invest the cash dividends
from all or a  portion  of their  common  stock to buy  additional  shares.  The
program also permits new investors and current  shareholders  to invest cash for
additional  shares that are  purchased for them each month.  For 1998,  1997 and
1996,  shares  issued under the dividend  reinvestment  and stock  purchase plan
totaled 33,620,  19,764 and 24,283.  At January 2, 1999,  1,945,470  shares were
available for purchase under this plan.

Employees of the  Corporation  are eligible to  participate in an employee stock
ownership plan. The purchase price of the common stock is the lesser of the mean
of the high and low price of the stock on the beginning  date (May 15) or ending
date (May 14) of each plan year.  The board of directors may terminate this plan
at any time.  For 1998,  1997 and 1996,  shares issued under the employee  stock
ownership plan totaled 81,114,  120,978 and 131,432.  At January 2, 1999, shares
totaling  709,491 were reserved for issuance to employees  under this plan,  and
the  Corporation  held  contributions  of  approximately  $1.5  million  for the
purchase of common stock.

[34 Snap-on Incorporated 1998 Annual Report]

Franchised dealers are eligible to participate in a dealer stock ownership plan.
The purchase price of the common stock is the lesser of the mean of the high and
low price of the stock on the beginning date (May 15) or ending date (May 14) of
each plan year.  The board of directors may terminate this plan at any time. For
1998, 1997 and 1996, shares issued under the dealer stock ownership plan totaled
117,825,  133,679 and 117,902.  At January 2, 1999, 513,159 shares were reserved
for issuance to franchised  dealers under this plan,  and the  Corporation  held
contributions of approximately $1.9 million for the purchase of common stock.

Non-employee  directors  receive  a  mandatory  minimum  of 50% and an  elective
maximum of up to 100% of their fees and retainer in shares of the  Corporation's
stock.  Directors may elect to defer receipt of all or part of these shares. For
1998, 1997 and 1996,  shares issued under the Directors' Fee Plan totaled 5,060,
3,008 and  3,140.  Additionally,  receipt of 3,951,  3,226 and 6,327  shares was
deferred  in 1998,  1997 and 1996.  At  January  2, 1999,  259,085  shares  were
reserved for issuance to directors under this plan.

The Corporation adopted Statement of Financial Accounting Standards ("SFAS") No.
123,  "Accounting  for  Stock-Based  Compensation,"  effective  January 1996. As
permitted,  the  Corporation  continued  its current  method of  accounting  for
stock-based  compensation  plans in accordance with Accounting  Principles Board
Opinion No. 25.

In  accordance  with  SFAS No.  123,  the fair  value of each  option  grant was
estimated as of the date of grant using an option pricing model. The Corporation
used the following weighted average assumptions,  under the Black-Scholes option
pricing  model,  for  options  granted  in 1998,  1997 and  1996,  respectively:
expected volatility of 21.2%, 17.9% and 21.6%; risk-free interest rates of 5.5%,
6.4% and 5.7%;  dividend yield of 2.5%, 2.8% and 3.1%; and expected option lives
of 5.8  years,  5.8 years and 6.9  years.  If the  Corporation  had  elected  to
recognize  compensation  cost for stock-based  compensation  consistent with the
methodology  prescribed by SFAS No. 123, net earnings and net earnings per share
for 1998, 1997 and 1996, would have changed to the following pro forma amounts:

(Amounts in thousands except per share data)    1998       1997        1996
- -----------------------------------------------------------------------------
Net earnings (loss):
As reported                          $(4,779)    $150,366   $131,451
Pro forma                             (7,896)     148,354    130,595
Earnings (loss) per share - diluted:
As reported                          $  (.08)    $   2.44   $   2.13
Pro forma                               (.13)        2.41       2.12
- -----------------------------------------------------------------------------

Stock option activity was as follows:

1998                      1997                         1996 
---------------------------------------------------------------------------------------------
Weighted                      Weighted                        Weighted  
Average                       Average                          Average 
Options     Exercise Price     Options     Exercise Price      Options     Exercise Price 
- -----------------------------------------------------------------------------------------------------------------------------------

Outstanding at beginning of period     2,114,228        $25.37        2,007,423        $21.90         2,498,742        $21.54
Granted                                  585,950         39.77          480,125         37.13            72,000         30.52
Exercised                               (280,020)        21.84         (364,802)        21.64          (370,146)        20.78
Canceled                                 (22,022)        34.74           (8,518)        31.24          (193,173)        22.56
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of period           2,398,136        $29.21        2,114,228        $25.37         2,007,423        $21.90
===================================================================================================================================
Exercisable at end of period           1,641,296        $24.71        1,663,253        $22.18         1,792,859        $21.88
Available for grant at end of period   2,507,818                      3,071,746                       3,543,353       
- -----------------------------------------------------------------------------------------------------------------------------------

As calculated using the Black-Scholes option pricing model, the weighted average
fair value of options granted during the years ended January 2, 1999, January 3,
1998, and December 28, 1996,  were $8.92,  $7.86 and $6.99.  The following table
summarizes information about stock options outstanding as of January 2, 1999:

1998 Options Outstanding                              1998 Options Exercisable
- ----------------------------------------------------------------------------------------------------------------------------
Weighted                        
Average              Weighted                             Weighted
Number      Remaining               Average            Number            Average
Range of Exercise Prices        Outstanding     Contractual Life  Exercise Price       Exercisable     Exercise Price 
- ----------------------------------------------------------------------------------------------------------------------------

$19 to $25                       1,274,222            4.1           $ 21.48             1,274,222       $ 21.48
$25 to $31                          60,789            6.5             29.47                60,789         29.47
$31 to $38                         495,675            8.0             36.79               282,285         36.65
$38 to $46                         567,450            9.0             39.94                24,000         43.69
- ----------------------------------------------------------------------------------------------------------------------------
Totals                           2,398,136            6.2           $ 29.21             1,641,296       $ 24.71
============================================================================================================================

[35 Snap-on Incorporated 1998 Annual Report]

Notes to Consolidated Financial Statements (continued)

Note 11 - Capital Stock

In 1996, the Corporation's board of directors approved an ongoing  authorization
to  repurchase  stock in an  amount  equivalent  to that  necessary  to  prevent
dilution  created by shares issued for stock options,  employee and dealer stock
purchase  plans,   and  other  corporate   purposes.   On  June  27,  1997,  the
Corporation's board of directors  authorized the repurchase of $100.0 million of
the  Corporation's  common stock over a two-year  period.  On June 26, 1998, the
Corporation's  board of directors  authorized  an  additional  share  repurchase
program  aggregating $100.0 million of the Corporation's  common stock. In 1998,
the Corporation  repurchased  2,279,400 shares of its common stock at an average
price of $39.64.  In 1997,  the  Corporation  repurchased  986,333 shares of its
common stock at an average  price of $42.91.  Subsequent to year-end  1998,  the
Corporation's  board of directors  authorized  an  additional  share  repurchase
program of $50.0 million.

The board of directors  declared on August 22, 1997, a dividend  distribution of
one  preferred  stock  purchase  right  for  each  share  of  the  Corporation's
outstanding  common stock.  The rights are exercisable only if a person or group
acquires 15% or more of the Corporation's  common stock ("Acquiring  Person") or
publicly announces a tender offer to become an Acquiring Person.  Each right may
then be exercised to purchase one one-hundred-and- fiftieth of a share of Series
A Junior Preferred Stock for $190, but if a person or group becomes an Acquiring
Person,  then each right entitles the holder (other than an Acquiring Person) to
acquire common stock of the Corporation  having a market value equivalent to two
times the current  purchase price. If the Corporation is acquired in a merger or
other  business  combination  not approved by the board of directors,  then each
holder of a right will be  entitled to purchase  common  stock of the  surviving
company  having a market  value  equivalent  to two times the  current  purchase
price.  The effect of the rights is to cause  ownership  dilution to a person or
group   attempting  to  acquire  the   Corporation   without   approval  of  the
Corporation's board of directors. The rights expire on November 3, 2007, and may
be  redeemed  by the  Corporation  at a price of $.01 per  right  under  certain
circumstances.

At the end of the second  quarter  of 1998,  the  Corporation  created a Grantor
Stock  Trust  ("GST").  In  conjunction  with  the  formation  of the  GST,  the
Corporation  sold 7.1 million  shares of treasury  stock to the GST. The sale of
these shares had no net impact on shareholders'  equity or on the  Corporation's
Consolidated  Statements of Earnings. The GST is a funding mechanism for certain
benefit  programs and compensation  arrangements,  including the incentive stock
program and employee and franchised  dealer stock purchase  plans.  The Northern
Trust Company, as trustee of the GST, will vote the common stock held by the GST
based on the  directions of  non-director  employees  holding vested options and
certain employees and dealer  participants in those stock purchase plans, as set
forth in the GST  agreement.  The GST is recorded as Grantor Stock Trust at Fair
Market Value on the accompanying  Consolidated  Balance Sheets.  Shares owned by
the GST are accounted for as a reduction to  shareholders'  equity until used in
connection with employee benefits.  Each period, the shares owned by the GST are
valued at the  closing  market  price,  with  corresponding  changes  in the GST
balance reflected in additional paid-in capital.

Note 12 - Commitments and Contingencies

The  Corporation  has  entered  into  certain   operating  lease  agreements  on
facilities and computer equipment, which extend for varying amounts of time.

The Corporation's lease commitments require future payments as follows:

Year Ending             (Amounts in thousands)
- -----------------------------------------------
1999                            $24,331
2000                             17,304
2001                             10,425
2002                              5,316
2003                              4,252
2004 and thereafter               2,875
- -----------------------------------------------

Rent  expenses  for  worldwide  facilities  and  computer  equipment  were $22.7
million, $18.6 million and $18.0 million in 1998, 1997 and 1996.

Tejas Testing  Technology One, L.C. and Tejas Testing  Technology Two, L.C. (the
"Tejas Companies"),  former subsidiaries of the Corporation,  previously entered
into  contracts  with  the  Texas  Natural  Resources  Conservation   Commission
("TNRCC"),  an agency of the State of Texas,  to  perform  automotive  emissions
testing  services.  The Corporation  guaranteed  payment (the "Guaranty") of the
Tejas Companies' obligations under a seven-year lease agreement in the amount of
approximately $98.8 million plus an interest factor, pursuant to which the Tejas
Companies leased the facilities necessary to perform the contracts. The Guaranty
was assigned to the lessor's  lenders.  The Tejas Companies  agreed to indemnify
the Corporation for any payments it must make under the Guaranty.

The State of Texas  subsequently  terminated the emissions  program described in
the contracts. The Tejas Companies filed for bankruptcy and commenced litigation
in state  and  federal  court  against  the  TNRCC  and  related  entities.  The
Corporation  has  recorded  as assets the net amounts  paid under the  Guaranty,
which  are  expected  to be  received  from the  State of  Texas  pursuant  to a
settlement   agreement  approved  by  the  U.S.  Bankruptcy  Court.  Under  this
settlement agreement, the obligation under the Guaranty previously recorded as a
contingent  liability in the amount of $38.5 million was  satisfied,  leaving an
expected  receivable of $55.2 million.  In 1998, the Corporation  received $18.2
million,  leaving a net  receivable  balance  of $37.0  million as of January 2,
1999. This amount is included in Intangible

[36 Snap-on Incorporated 1998 Annual Report]

and  Other  Assets  on  the  accompanying   Consolidated   Balance  Sheets.  The
Corporation  expects to receive  further  payments  in an amount  sufficient  to
satisfy the balance of the net receivable by August 31, 2001, which payments are
subject to legislative  appropriation.  The  Corporation  believes that ultimate
recovery of the net receivable is probable.

In April  1996,  the  Corporation  filed a  complaint  against  SPX  Corporation
alleging infringement of the Corporation's patents and asserting claims relating
to  SPX's  hiring  of  the  former  president  of  Sun  Electric.  SPX  filed  a
counterclaim,   alleging  infringe-  ment  of  certain  SPX  patents.  Upon  the
Corporation's  request for  reexamination,  the U.S. Patent and Trademark Office
initially  rejected  SPX's patents as invalid,  but recently  reconfirmed  them.
Document and deposition discovery is proceeding.  The Court has set a trial date
of April 5, 1999, for the non-patent  claims. No trial date has yet been set for
the patent claims. The Corporation believes it has numerous meritorious defenses
to SPX's claims,  including defenses of patent invalidity and  non-infringement,
and  intends to  vigorously  prosecute  the claims it has  raised.  Neither  the
complaint  nor  the  counterclaim  contains  specific  allegations  of  damages;
however,  the parties' claims could involve multiple millions of dollars.  It is
not possible at this time to assess the outcome of any of the claims.

The  Corporation is involved in various legal matters,  which are being defended
and handled in the ordinary  course of business.  Although it is not possible to
predict the outcome of these matters,  management believes that the results will
not have a material impact on the Corporation's financial statements.

Note 13 - Segments

In 1998, the Corporation adopted Statement of Financial Accounting Standards No.
131,  "Disclosures  about  Segments of an Enterprise  and Related  Information,"
which changes the way the Corporation  reports  information  about its operating
segments.  The  information  for 1997 and 1996 has been  restated from the prior
years' presentation in order to conform to the 1998 presentation.

The Corporation's  segments are based on the organization structure that is used
by management for making  operating and  investment  decisions and for assessing
performance.  Based  on this  management  approach,  the  Corporation  has  five
reportable segments: North America Transportation,  North America Other, Europe,
International and Financial Services.  The North America  Transportation segment
consists of the Corporation's  business operations serving the franchised dealer
channel in the  United  States  and  Canada.  The North  America  Other  segment
consists of the Corporation's  business  operations serving the direct sales and
distributor   channels  in  the  United  States  and  Canada,  as  well  as  the
Corporation's exports from the United States. The Europe segment consists of the
Corporation's  operations  in  Europe  and  Africa.  The  International  segment
consists of the  Corporation's  operations in the Asia/Pacific  region and Latin
America.  These four segments derive  revenues  primarily from the sale of tools
and equipment.  The Financial Services segment provides financing to technicians
and shop owners, as well as to dealers.

The  accounting  policies  of the  reportable  segments  are the  same as  those
described in Note 1. The Corporation  evaluates the performance of its operating
segments based on operating  income.  The Corporation  accounts for intersegment
sales and  transfers  based on  established  sales prices  between the segments,
which represent cost plus an  intercompany  markup.  The  Corporation  allocates
shared  service  expenses to those  segments that utilize the services  based on
their percentages of revenues from external sources. The Corporation has charged
license fees to its North America segments based on their percentages of certain
North America  sales.  Corporate  expenses  related to  restructuring  and other
non-recurring charges are not allocated to the reportable segments.

Neither the Corporation nor any of its segments  depends on any single customer,
small group of customers or government for more than 10% of its sales.

Financial data by segment is as follows:

(Amounts in thousands)                  1998           1997           1996
- -----------------------------------------------------------------------------
Revenues from external customers                                
North America Transportation        $  845,828    $  836,032      $  786,609
North America Other                    457,255       468,692         341,194
Europe                                 393,460       279,684         271,957
International                           76,094        87,807          85,519
- -----------------------------------------------------------------------------
Total from reportable segments      $1,772,637    $1,672,215      $1,485,279
=============================================================================

(Amounts in thousands)                  1998           1997           1996
- -----------------------------------------------------------------------------
Intersegment revenues 
North America Transportation        $       11    $       71      $       6
North America Other                    285,157       317,962        221,625 
Europe                                   8,932         3,539            764
International                           37,280        27,937         25,812
- -----------------------------------------------------------------------------
Total from reportable segments         331,380       349,509        248,207
Elimination of 
intersegment revenue                 (331,380)     (349,509)      (248,207)
- -----------------------------------------------------------------------------
Total consolidated 
intersegment revenue              $         -    $        -      $       -
=============================================================================

[37 Snap-on Incorporated 1998 Annual Report]

(Amounts in thousands)                   1998          1997           1996
- -----------------------------------------------------------------------------
Operating income
North America Transportation        $   34,176    $   70,205     $   48,592
North America Other                     70,909        98,143         84,764
Europe                                   3,205        16,539         11,800
International                            9,775         8,759         11,101
Financial Services                      65,933        71,891         64,269 
- -----------------------------------------------------------------------------
Total from reportable segments         183,998       265,537        220,526
Corporate restructuring and
other non-recurring charge    (149,863)            -              -
- -----------------------------------------------------------------------------
Consolidated operating income           34,135       265,537        220,526
Interest expense                       (21,254)      (17,654)       (12,649)
Other income (expense) - net            (2,041)       (9,207)           776
- -----------------------------------------------------------------------------
Total consolidated earnings
before taxes                $   10,840    $  238,676     $  208,653
=============================================================================

(Amounts in thousands)                   1998          1997           1996
- -----------------------------------------------------------------------------
Total assets 
North America Transportation        $  517,334    $  523,342     $  436,101
North America Other                    565,174       618,813        395,742
Europe                                 406,257       288,899        213,912
International                           37,012        39,012         39,293
Financial Services                     231,092       254,903        420,931
- -----------------------------------------------------------------------------
Total from reportable segments       1,756,869     1,724,969      1,505,979
Elimination of
intersegment receivables             (145,065)     (168,910)      (121,112)
Unallocated corporate assets            63,116        85,298        135,921
- -----------------------------------------------------------------------------
Total consolidated net assets       $1,674,920    $1,641,357     $1,520,788
=============================================================================

(Amounts in thousands)                   1998          1997           1996
- -----------------------------------------------------------------------------
Depreciation and amortization 
North America Transportation        $   16,530    $   11,824     $   12,864
North America Other                     18,161        18,884         11,781
Europe                                   8,453         5,391          5,609
International                            1,314         1,973          1,434
Financial Services                         527           305            191
- -----------------------------------------------------------------------------
Total from reportable segments      $   44,985    $   38,377     $   31,879
=============================================================================

(Amounts in thousands)                   1998          1997           1996
- -----------------------------------------------------------------------------
Capital expenditures 
North America Transportation        $    7,155    $    6,643     $    5,704  
North America Other                     14,193        25,202          3,361   
Europe                                   6,398         9,058         11,741
International                            1,841         1,929            831
Financial Services                       1,229         2,113              3
- -----------------------------------------------------------------------------
Total from reportable segments          30,816        44,945         21,640
Unallocated corporate 
capital expenditures                   15,963        10,497         30,693
- -----------------------------------------------------------------------------
Total consolidated 
capital expenditures               $   46,779    $   55,442     $   52,333
=============================================================================

(Amounts in thousands)                   1998          1997           1996
- -----------------------------------------------------------------------------
Geographic information 
Revenues*
United States                     $1,239,970    $1,221,790     $1,051,587
All other countries                  532,667       450,425        433,692
- -----------------------------------------------------------------------------
Total revenues                    $1,772,637    $1,672,215     $1,485,279
=============================================================================

Long-lived assets       
United States                     $  445,987    $  491,514     $  384,375
All other countries                   88,962        72,435         63,676
- -----------------------------------------------------------------------------
Total long-lived assets           $534,949      $  563,949     $  448,051
=============================================================================

*Revenues are attributed to countries based on the origin of the sale.

Products and  services:  The  Corporation  derives  revenue from a broad line of
products and complementary  services that can be divided into two groups:  tools
and equipment. The following table shows the consolidated sales of these product
groups in the last three years:

1998          1997           1996
- ---------------------------------------------------------------------------
Tools                               $  918,492    $  918,238     $  857,083
Equipment                              854,145       753,977        628,196
- ---------------------------------------------------------------------------
Total                               $1,772,637    $1,672,215     $1,485,279
===========================================================================

Note 14 - Restructuring

In  1998,  the  Corporation  announced  a  simplification  initiative  ("Project
Simplify"),   which   is  a  broad   program   of   internal   rationalizations,
consolidations  and  reorganizations.  The  goal  is to make  the  Corporation's
business operations simpler and more effective.  Project Simplify will result in
the  closing of six  manufacturing  facilities,  seven  warehouses  and 47 small
offices in North America and Europe;  the  elimination of 1,100  positions;  the
discontinuance  of 12,000 stock  keeping units  ("SKUs") of  inventory;  and the
consolidation of certain business units.  Total charges for Project Simplify are
composed  of  restructuring  charges,  other  non-recurring  charges and related
transitional costs.

During 1998, the Corporation  recorded  pre-tax charges of $149.9 million.  This
amount consists of $75.6 million of  restructuring  charges and $74.3 million of
other non-recurring charges.

[38 Snap-on Incorporated 1998 Annual Report]

The composition of the Corporation's $75.6 million  restructuring  charges is as
follows:

Original                      Write-down                           Restructuring
Restructuring     Additions         of Assets                          Reserves as of
(Amounts in thousands)                         Reserves   to Reserves     to Fair Value       Cash Payments     January 2, 1999
- ----------------------------------------------------------------------------------------------------------------------------------
Expenditures for      

severance and other exit costs             $   21,105         $1,969       $        -       $      (6,569)       $   16,505 
Loss on the write-down 
of intangibles and goodwill                    36,240            298          (36,538)                  -                 - 
Charges for warranty provisions                   9,660              -                -                   -             9,660 
Loss on the write-down of assets                  5,978            357           (6,335)                  -                 - 
- ----------------------------------------------------------------------------------------------------------------------------------
Total restructuring reserves                 $  72,983          $2,624       $  (42,873)      $      (6,569)       $   26,165
==================================================================================================================================

The  Corporation  has  recorded  restructuring  charges  of  $15.5  million  for
severance and of $7.6 million for non-cancelable  lease agreements on facilities
to be closed and other exit costs  associated with Project  Simplify.  Severance
costs provided for worldwide  salaried and hourly  employees  relate to facility
closures,  duplicate position  eliminations and streamlining  operations.  As of
January  2,  1999,  509  employees  have  separated  from the  Corporation,  and
severance  payments of $4.4 million have been made. The Corporation has adjusted
property,  plant and equipment and other assets to net realizable  value through
an additional $6.3 million restructuring charge.

As part of the  restructuring  efforts,  the  Corporation  has also written down
impaired goodwill and other intangible assets of certain  discontinued  business
units by $36.5  million.  The  majority of this  write-down  relates to Computer
Aided Services,  Inc. and Edge Diagnostic  Systems.  No net realizable value was
assessed for these intangible  assets due to the closure of these operations and
the  discontinuance  of their product lines. As part of the elimination of these
business units and their product lines, the Corporation has recorded a charge in
the amount of $9.7 million to provide additional warranty support, at no cost to
the customer,  for products already sold. The warranty reserve has been included
in Cost of Goods Sold - Discontinued Products, while all remaining restructuring
charges have been included in Restructuring and Other  Non-recurring  Charges on
the accompanying Consolidated Statements of Earnings.

As part of Project  Simplify,  the Corporation has recorded other  non-recurring
charges in the amount of $74.3 million.  These charges  include $50.9 million to
re-value discontinued SKUs of inventory,  costs to resolve certain legal matters
in the amount of $18.7  million  and other  transitional  costs in the amount of
$4.7 million. The reduction of SKUs is an effort to reduce the transaction costs
and working capital intensity of the Corporation's product offering, and refocus
on high-volume  growth  products.  The charge for certain legal matters includes
legal costs to conclude these issues.  The  non-recurring  charge related to the
reduction of SKUs has been included as part of Cost of Goods Sold - Discontinued
Products,  while the  remaining  non-recurring  charges  have been  included  in
Restructuring and Other Non-recurring  Charges on the accompanying  Consolidated
Statements of Earnings.

Shown below is a breakdown  of charges by segment;  these  charges have not been
allocated to reportable segments:

(Amounts in thousands)         Restructuring        Non-recurring      Total
- -------------------------------------------------------------------------------
North America Transportation     $ 9,661              $13,576        $ 23,237
North America Other               51,810               51,046         102,856 
Europe                             7,900                4,789          12,689
International                      2,836                4,841           7,677
Financial Services                 3,400                    4           3,404  
- -------------------------------------------------------------------------------
Total                            $75,607              $74,256        $149,863
================================================================================

Note 15 - Subsequent Events

On January 3, 1999,  the  Corporation  established a joint venture with Newcourt
Financial  USA  Inc.   ("Newcourt")  to  provide   financial   services  to  the
Corporation's  global dealer and customer  network  through a limited  liability
company known as Snap-on Credit LLC ("the LLC"). The entity is 50% owned by each
company. As a result of the establishment of the joint venture,  the Corporation
effectively  outsourced  to the LLC its  captive  credit  function.  The captive
credit  function  was  previously  managed  by the  Corporation's  wholly  owned
subsidiary Snap-on Credit Corporation.

The  LLC  will  be  the  preferred   provider  of  financial   services  to  the
Corporation's  global dealer and customer network.  The Corporation will receive
income  from fees paid by the LLC.  The fees  will be based  primarily  upon the
volume of installment  receivables  originated by the LLC. Newcourt will provide
services and exper-tise to the LLC with a view to increasing originations by the
LLC.  Newcourt will be paid a fee by the LLC for such  services.  The management
fee paid to Newcourt also will be based  primarily on the volume of  installment
receivables  originated  by the  LLC.  Newcourt  will  receive  warehousing  and
securitization fees from the LLC in connection with the purchased receivables.

On January  4, 1999,  in a separate  transaction,  CreditCorp  SPC,  LLC sold to
Newcourt its entire portfolio of U.S. installment accounts receivable, including
existing   extended  credit  customer  accounts   receivable,   equipment  lease
receivables and dealer loan  receivables,  for an aggregate sale price of $141.1
million,  resulting in a pre-tax gain of approximately $44 million. Newcourt has
the right to put back to the  Corporation  the unpaid  portion  of the  extended
credit customer accounts receivable portfolio based on the same pricing formula.
As a result, this gain will be recognized over a two-year period.

[39 Snap-on Incorporated 1998 Annual Report]

Quarterly Financial Information

Unaudited

(Amounts in thousands except per share data)    1998         1997         1996
- --------------------------------------------------------------------------------
Net sales
First quarter                               $  426,429   $  375,299   $  344,364
Second quarter                                 442,176      409,231      384,554
Third quarter                                  427,272      391,162      347,202
Fourth quarter                                 476,760      496,523      409,159
- --------------------------------------------------------------------------------
$1,772,637   $1,672,215   $1,485,279
================================================================================

Gross profit
First quarter                               $  211,545   $  192,967   $  173,829
Second quarter                                 204,690      207,667      194,129
Third quarter                                  151,526      199,294      176,478
Fourth quarter                                 195,553      243,900      206,348
- --------------------------------------------------------------------------------
$  763,314   $  843,828   $  750,784
================================================================================

Net earnings (loss)
First quarter                               $   33,926   $   33,854   $   29,650
Second quarter                                  22,661       38,971       34,528
Third quarter                                  (73,997)**    35,514       30,765
Fourth quarter                                  12,631***    42,027       36,508
- --------------------------------------------------------------------------------
$(4,779)    $150,366     $131,451
================================================================================

Earnings (loss) per weighted 
average common share - basic*              
First quarter                               $      .57   $      .56   $      .49
Second quarter                                     .38          .64          .56
Third quarter                                    (1.24)**       .58          .51
Fourth quarter                                     .21***       .69          .60
- --------------------------------------------------------------------------------
$     (.08)  $     2.47   $     2.16
================================================================================

Earnings (loss) per weighted 
average common share - diluted*            
First quarter                               $      .56   $      .55   $      .48
Second quarter                                     .38          .63          .56
Third quarter                                    (1.24)**       .58          .50
Fourth quarter                                     .21***       .68          .59
- --------------------------------------------------------------------------------
$     (.08)  $     2.44   $     2.13
================================================================================

* Adjusted  for the  three-for-two  stock split in 1996.  Earnings per share are
calculated  on a  quarterly  basis  and,  as such,  the  amounts  may not  total
calculated full-year earnings (loss) per share.
** Third quarter 1998 results  include $133.1  million of pre-tax  restructuring
and other  non-recurring  charges  ($96.5  million after  taxes).  The aggregate
earnings per share impact of these items was $1.62 after taxes.
*** Fourth quarter 1998 results  include $16.8 million of pre-tax  restructuring
and other non-recurring  charges ($11.2 million after taxes) and a $14.1 million
reduction in inventory  ($9.0 million after taxes).  The aggregate  earnings per
share impact of these items was $.34 per diluted share and $.35 per basic share.

[Two bar graphs follow this text. The first is titled  "Shareholders' Equity per
Share." It shows the shareholders'  equity per share of the Corporation's common
stock (in dollars) for each of fiscal years 1994 through 1998, as follows:

94              -            $11.91
95              -            $12.35
96              -            $13.62
97              -            $14.74
98              -            $12.98

The second graph is titled  "Common Stock Price Range." It shows the price range
of the  Corporation's  common  stock (in  dollars) for each of fiscal years 1994
through 1998, as follows:

94              -        $29.58 - 19.33
95              -        $31.50 - 20.67
96              -        $38.25 - 27.33
97              -        $46.31 - 34.25
98              -        $46.44 - 25.50

The  information  in  both of the  preceding  two  graphs  is  adjusted  for the
two-for-one stock split in 1996.]

Six-year Data

Amounts in thousands except share data)      1998          1997          1996           1995           1994         1993
- ------------------------------------------------------------------------------------------------------------------------
Summary of operations

Net sales                              $1,772,637    $1,672,215    $1,485,279     $1,292,125     $1,194,296   $1,132,010
Gross profit                              763,314       843,828       750,784        663,491        608,837      595,728 
Operating expenses                        705,811       650,182       594,527        538,021        510,361      509,910 
Net finance income                         65,933        71,891        64,269         63,174         60,458       61,115  
Operating income                           34,135       265,537       220,526        188,644        158,934      146,933
Interest expense                           21,254        17,654        12,649         13,327         10,806       11,198  
Other income (expense) - net               (2,041)       (9,207)          776          4,572          5,541          756 
Pre-tax earnings                           10,840       238,676       208,653        179,889        153,669      136,491 
Income taxes                               15,619        88,310        77,202         66,559         55,355       50,679  
Net earnings (loss)                        (4,779)      150,366       131,451        113,330         98,314       85,812
- ------------------------------------------------------------------------------------------------------------------------
Financial position
Current assets                         $1,079,832    $1,021,709    $1,017,324     $  946,689     $  873,020    $ 854,598
Current liabilities                       458,053       352,530       341,371        336,075        237,869      308,037
Working capital                           621,779       669,179       675,953        610,614        635,151      546,561 
Accounts receivable                       554,703       539,589       651,739        610,064        568,378      539,949
Inventories                               375,436       373,155       269,750        250,434        229,037      249,102 
Property and equipment - net              272,030       265,765       245,294        220,067        209,142      224,810 
Total assets                            1,674,920     1,641,357     1,520,788      1,360,973      1,234,905    1,218,933 
Long-term debt                            246,644       151,016       149,804        143,763        108,980       99,683 
Shareholders' equity                      762,267       892,137       828,161        750,732        766,398      701,663 
- ------------------------------------------------------------------------------------------------------------------------
Common share summary*
Net earnings (loss) per share - basic  $     (.08)   $     2.47    $     2.16     $     1.84     $     1.53    $    1.34       
Cash dividends paid per share                 .86           .82           .76            .72            .72          .72     
Shareholders' equity per share              12.98         14.74         13.62          12.35          11.91        10.99 
Weighted average 
shares outstanding - basic     59,219,564    60,845,467    60,967,865     61,510,500     64,187,874    63,856,175      
- ------------------------------------------------------------------------------------------------------------------------
Other financial statistics
Cash dividends paid                    $   50,977    $   49,888    $   46,323     $   44,113     $   46,197    $  45,942       
Dividends paid as a percent 
of net earnings                       N/M          33.2%         35.2%          38.9%          47.0%        53.5%
Capital expenditures                 46,779        55,442        52,333         31,581         41,788       33,248  
Depreciation and amortization              44,985        38,377        31,879         31,534         29,632       32,131  
Current ratio                                 2.4           2.9           3.0            2.8            3.7          2.8     
Percent of total debt to total capital       30.8%         16.4%         17.3%          18.5%          13.5%        19.3%   
Effective tax rate                          144.1%         37.0%         37.0%          37.0%          36.0%        37.1%    
Operating income as a percent
of net sales                          1.9%         15.9%         14.8%          14.6%          13.3%        13.0%   
Net earnings (loss) as a percent
of net sales                                (0.3)%         9.0%          8.9%           8.8%           8.2%         7.6%     
Return on average 
shareholders' equity                        (0.6)%        17.5%         16.7%          14.9%          13.4%        12.6%   
Shareholders of record                     11,514        10,738        10,556          9,657          9,292        9,047   
Common stock price range*             46.44-25.50   46.31-34.25   38.25-27.33    31.50-20.67    29.58-19.33  29.67-20.33     
- ------------------------------------------------------------------------------------------------------------------------
*Adjusted for the three-for-two stock split in 1996.
1998  results  include  $149.9  million  of  pre-tax   restructuring  and  other
non-recurring charges ($107.6 million after taxes) and a $14.1 million reduction
in inventory ($9.0 million after taxes). The aggregate earnings per share impact
of these items was $1.95 after taxes.
N/M = not meaningful.

[41 Snap-on Incorporated 1998 Annual Report]

Investor Information

Common Stock High/Low Prices

Quarter             1998                 1997
- ---------------------------------------------------
First          $46.22-$37.19        $42.38-$34.25
Second          46.44- 34.38         41.00- 35.25
Third           37.50- 25.50         44.88- 39.19
Fourth          36.00- 28.88         46.31- 41.50
- ---------------------------------------------------

Dividends Paid per Common Share

Quarter             1998                 1997
- ---------------------------------------------------
First               $.21                $.20
Second               .21                 .20
Third                .22                 .21
Fourth               .22                 .21
- ---------------------------------------------------
Total               $.86                $.82
===================================================

Exchange Listing
Snap-on  Incorporated's  common  stock is listed on the New York Stock  Exchange
under the ticker symbol SNA.

Transfer Agent and Registrar
First Chicago Trust Company of New York
P. O. Box 2500
Jersey City, New Jersey 07303-2500
or
525 Washington Boulevard
Jersey City, New Jersey 07310

Shareholder Inquiries
Shareholders  with  questions may call the Transfer  Agent,  First Chicago Trust
Company of New York, toll-free at 1-800-446-2617 or e-mail at fctc@em.fcnbd.com.
The deaf and hearing-impaired may call 201-222-4955.

Dividend Record and Pay Dates for 1999
Quarter         Record Date             Pay Date
- -----------------------------------------------------
First           February 17             March 10
Second          May 20                  June 10
Third           August 20               September 10
Fourth          November 19             December 10
- -----------------------------------------------------

Dividend Reinvestment 
and Direct Stock Purchase Plan
Investors  may  purchase  stock  directly  from the company and  increase  their
investment  through a  no-commission  dividend  reinvestment  and  direct  stock
purchase plan. For information write to:

First Chicago Trust Company of New York
Snap-on Dividend Reinvestment and Direct Stock Purchase Plan
P. O. Box 2598
Jersey City, New Jersey 07303-2598
Or call: 1-800-446-2617

Form 10-K and Other Financial Publications
These  publications are available  without charge.  Contact the public relations
department at P. O. Box 1430, Kenosha,  Wisconsin 53141-1430,  call 414-656-4808
(recorded message), e-mail financials@snapon.com, or visit our web site.

Web Site
Snap-on's  web site  contains  the most  recent  10-Qs,  10-Ks,  news  releases,
quarterly  reports,  annual report  financials,  and information about Snap-on's
dividend   reinvestment   and  direct  stock   purchase  plan.  Our  address  is
www.snapon.com.

Analyst Contact
Securities   analysts  and  other  investors   seeking   information  about  the
corporation should contact the investor relations department at 414-656-6488.

Independent Auditors
Arthur Andersen LLP
33 West Monroe Street
Chicago, Illinois 60603
312-580-0033

Annual Meeting
The  Annual  Meeting  of  Shareholders  will  be held  at the  Radisson  Hotel &
Conference Center Kenosha, 11800 - 108th Street, Pleasant Prairie, Wisconsin, at
10 a.m. on Friday, April 23, 1999.

Exhibit (21)

SUBSIDIARIES OF THE CORPORATION
As of March 1, 1999

State or other jurisdiction
Name                                              of organization  
- ----------------------------------------          ----------------------------
Cartec GmbH                                       Germany
CreditCorp SPC, LLC                               Wisconsin
G.S. S.r.l.                                       Italy
Hein-Werner Corporation                           Wisconsin
Herramientas Eurotools, S.A.                      Spain
Hoffman Werkstatt-Technik GmbH                    Germany
IDMC, Inc.                                        Wisconsin
IDSC Holdings, Inc.                               Wisconsin
Mitchell Repair Information Company, LLC          Delaware
Nationwide International L.L.C.                   Australia
Nu-Tech Industries, Inc.                          Kentucky
Sioux Tools, Inc.                                 Iowa
Snap-on Equipment Europe                          Ireland
Snap-on Equipment France, S.A.                    France
Snap-on Financial Services, Inc.                  Nevada
Snap-on Global Holdings, Inc.                     Delaware
Snap-on International Finance Company             Ireland
Snap-on Technologies, Inc.                        Illinois
Snap-on Tools (Australia) Pty. Ltd.               Australia
Snap-on Tools Company                             Wisconsin
Snap-on Tools International, Ltd.                 Virgin Islands
Snap-on Tools Japan, K.K.                         Japan
Snap-on Tools Limited                             United Kingdom
Snap-on Logistics Company                         Wisconsin
Snap-on Tools Manufacturing Company               Wisconsin
Snap-on Tools of Canada Ltd.                      Canada
Sun Electric Deutschland GmbH                     Germany
Sun Electric do Brasil                            Brazil
Sun Electric Europe B.V.                          Netherlands
Sun Electric Nederland B.V.                       Netherlands
Sun Electric U.K. Limited                         England
Wheeltronic Ltd.                                  Ontario

Exhibit 23

The Consent of the Independent Public Accountants of Snap-on Incorporated is
contained along with the Report of Independent Accountants on Financial
Statement Schedule on page 13 of this Form 10-K.

<ARTICLE>                     5
<LEGEND>
THE  SCHEDULE  CONTAINS  SUMMARY  FINANCIAL   INFORMATION   EXTRACTED  FROM  THE
CONSOLIDATED FINANCIAL STATEMENTS OF SNAP-ON INCORPORATED AS OF AND FOR THE YEAR
ENDED  JANUARY 2, 1999 AND IS  QUALIFIED  IN ITS  ENTIRETY BY  REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER>                                   1,000

<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                              JAN-02-1999
<PERIOD-START>                                 JAN-04-1998
<PERIOD-END>                                   JAN-02-1999
<CASH>                                         15,041
<SECURITIES>                                   0
<RECEIVABLES>                                  583,934
<ALLOWANCES>                                   29,231
<INVENTORY>                                    375,436
<CURRENT-ASSETS>                               1,079,832
<PP                                         583,819
<DEPRECIATION>                                 311,789
<TOTAL-ASSETS>                                 1,674,920
<CURRENT-LIABILITIES>                          458,053
<BONDS>                                        246,644
<PREFERRED-MANDATORY>                          0
<PREFERRED>                                    0
<COMMON>                                       66,685
<OTHER-SE>                                     695,582
<TOTAL-LIABILITY-AND-EQUITY>                   1,674,920
<SALES>                                        1,772,637
<TOTAL-REVENUES>                               1,772,637
<CGS>                                          948,761
<TOTAL-COSTS>                                  1,009,323
<OTHER-EXPENSES>                               705,811
<LOSS-PROVISION>                               0
<INTEREST-EXPENSE>                             21,254
<INCOME-PRETAX>                                10,840
<INCOME-TAX>                                   15,619
<INCOME-CONTINUING>                            (4,779)
<DISCONTINUED>                                 0
<EXTRAORDINARY>                                0
<CHANGES>                                      0
<NET-INCOME>                                   (4,779)
<EPS-PRIMARY>                                  (0.08)
<EPS-DILUTED>                                  (0.08)