EXECUTION COPY

 

GOLDMAN, SACHS & CO. | 85 BROAD STREET | NEW YORK, NEW YORK 10004 | TEL:
212-902-1000

Opening Transaction

To:

 

W.W. Grainger, Inc.

100 Grainger Parkway

Lake Forest, IL 60045-5201

A/C:

028705432

From:

Goldman, Sachs & Co.

Re:

Accelerated Stock Buyback

Ref. No:

As provided in the Supplemental Confirmation

Date:

August 20, 2007

 

 

This master confirmation (this “Master Confirmation”), dated as of August 20,
2007 is intended to set forth certain terms and provisions of certain
Transactions (each, a “Transaction”) entered into from time to time between
Goldman, Sachs & Co. (“GS&Co.”) and W.W. Grainger, Inc. (“Counterparty”). This
Master Confirmation, taken alone, is neither a commitment by either party to
enter into any Transaction nor evidence of a Transaction. The additional terms
of any particular Transaction shall be set forth in a Supplemental Confirmation
in the form of Schedule A hereto (a “Supplemental Confirmation”), which shall
reference this Master Confirmation and supplement, form a part of, and be
subject to this Master Confirmation. This Master Confirmation and each
Supplemental Confirmation together shall constitute a “Confirmation” as referred
to in the Agreement specified below.

The definitions and provisions contained in the 2002 ISDA Equity Derivatives
Definitions (the “Equity Definitions”), as published by the International Swaps
and Derivatives Association, Inc., are incorporated into this Master
Confirmation. This Master Confirmation and each Supplemental Confirmation
evidence a complete binding agreement between Counterparty and GS&Co. as to the
subject matter and terms of each Transaction to which this Master Confirmation
and such Supplemental Confirmation relate and shall supersede all prior or
contemporaneous written or oral communications with respect thereto.

This Master Confirmation and each Supplemental Confirmation supplement, form a
part of, and are subject to an agreement in the form of the 1992 ISDA Master
Agreement (Multicurrency-Cross Border) (the “Agreement”) as if GS&Co. and
Counterparty had executed the Agreement on the date of this Master Confirmation
(but without any Schedule except for (i) the election of Loss and Second Method,
New York law (without regard to the conflicts of law principles) as the
governing law and US Dollars (“USD”) as the Termination Currency, (ii) the
election that subparagraph (ii) of Section 2(c) will not apply to the
Transactions and (iii) the election that the “Cross Default” provisions of
Section 5(a)(vi) shall apply to Counterparty, with a “Threshold Amount” of USD
100 million).

The Transactions shall be the sole Transactions under the Agreement. If there
exists any ISDA Master Agreement between GS&Co. and Counterparty or any
confirmation or other agreement between GS&Co. and Counterparty pursuant to
which an ISDA Master Agreement is deemed to exist between GS&Co. and
Counterparty, then notwithstanding anything to the contrary in such ISDA Master
Agreement, such confirmation or agreement or any other agreement to which GS&Co.
and Counterparty are parties, the Transactions shall not be considered
Transactions under, or otherwise governed by, such existing or deemed ISDA
Master Agreement.

 

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All provisions contained or incorporated by reference in the Agreement shall
govern this Master Confirmation and each Supplemental Confirmation except as
expressly modified herein or in the related Supplemental Confirmation.

If, in relation to any Transaction to which this Master Confirmation and a
Supplemental Confirmation relate, there is any inconsistency between the
Agreement, this Master Confirmation, any Supplemental Confirmation and the
Equity Definitions, the following will prevail for purposes of such Transaction
in the order of precedence indicated: (i) such Supplemental Confirmation;
(ii) this Master Confirmation; (iii) the Agreement; and (iv) the Equity
Definitions.

1.         Each Transaction constitutes a Share Forward Transaction for the
purposes of the Equity Definitions. Set forth below are the terms and conditions
that, together with the terms and conditions set forth in the Supplemental
Confirmation relating to any Transaction, shall govern such Transaction.

General Terms:

 

Trade Date:

For each Transaction, as set forth in the related Supplemental Confirmation.

 

Buyer:

Counterparty

 

Seller:

GS&Co.

 

Shares:

Common stock, par value $0.50 per share, of Counterparty (Ticker: GWW)

 

Exchange:

New York Stock Exchange

 

Related Exchange(s):

All Exchanges.

Prepayment\Variable

 

Obligation:

Applicable

 

 

Prepayment Amount:

For each Transaction, as set forth in the related Supplemental Confirmation.

 

Prepayment Date:

For each Transaction, as set forth in the related Supplemental Confirmation.

Valuation:

 

VWAP Price:

For any Exchange Business Day, as determined by the Calculation Agent based on
the New York 10b-18 Volume Weighted Average Price per Share for the regular
trading session (including any extensions thereof) of the Exchange on such
Exchange Business Day (without regard to pre-open or after hours trading outside
of such regular trading session for such Exchange Business Day), as published by
Bloomberg at 4:15 p.m. New York time (or 15 minutes following the end of any
extension of the regular trading session) on such Exchange Business Day, on
Bloomberg page “GWW.N <Equity> AQR_SEC” (or any successor thereto), or if such
price is not so reported on such Exchange Business Day for any reason, as
reasonably determined by the Calculation Agent. For purposes of calculating the
VWAP Price, the Calculation Agent will include only those trades that are
reported during the period of time during which Counterparty could purchase its
own shares under Rule 10b-18(b)(2) and are effected pursuant to the conditions
of Rule 10b-18(b)(3), each under the Exchange Act (as defined herein) (such
trades, “Rule 10b-18 eligible transactions”).

 

Forward Price:

The average of the VWAP Prices for the Exchange Business Days in the Calculation
Period, subject to “Valuation Disruption” below.

 

 

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Forward Price

 

Adjustment Amount:

For each Transaction, as set forth in the related Supplemental Confirmation.

 

Calculation Period:

The period from and including the Calculation Period Start Date to and including
the Termination Date.

 

Calculation Period Start Date:

For each Transaction, as set forth in the related Supplemental Confirmation.

 

Termination Date:

The Scheduled Termination Date; provided that GS&Co. shall have the right to
designate any Exchange Business Day on or after the First Acceleration Date to
be the Termination Date (the “Accelerated Termination Date”) by delivering
notice to Counterparty of such designation prior to 11:59 p.m. New York City
time on such Exchange Business Day.

 

Scheduled Termination Date:

For each Transaction, as set forth in the related Supplemental Confirmation,
subject to postponement as provided in “Valuation Disruption” below.

 

First Acceleration Date:

For each Transaction, as set forth in the related Supplemental Confirmation.

 

Valuation Disruption:

The definition of “Market Disruption Event” in Section 6.3(a) of the Equity
Definitions is hereby amended by deleting the words “at any time during the
one-hour period that ends at the relevant Valuation Time, Latest Exercise Time,
Knock-in Valuation Time or Knock-out Valuation Time, as the case may be” and
inserting the words “at any time on any Scheduled Trading Day during the
Calculation Period or Settlement Valuation Period” after the word “material,” in
the third line thereof.

Section 6.3(d) of the Equity Definitions is hereby amended by deleting the
remainder of the provision following the term “Scheduled Closing Time” in the
fourth line thereof.

Notwithstanding anything to the contrary in the Equity Definitions, to the
extent that a Disrupted Day occurs (i) in the Calculation Period, the
Calculation Agent may, in its good faith and commercially reasonable discretion,
postpone the Scheduled Termination Date, or (ii) in the Settlement Valuation
Period, the Calculation Agent may, in its good faith and commercially reasonable
discretion, extend the Settlement Valuation Period. If any such Disrupted Day is
a Disrupted Day because of a Market Disruption Event (or a deemed Market
Disruption Event as provided herein), the Calculation Agent shall determine
whether (i) such Disrupted Day is a Disrupted Day in full, in which case the
VWAP Price for such Disrupted Day shall not be included for purposes of
determining the Forward Price or the Settlement Price, as the case may be, or
(ii) such Disrupted Day is a Disrupted Day only in part, in which case the VWAP
Price for such Disrupted Day shall be determined by the Calculation Agent based
on Rule 10b-18 eligible transactions in the Shares on such Disrupted Day
effected before the relevant Market Disruption Event occurred and/or after the
relevant Market Disruption Event ended, and the weighting of the VWAP Price for
the relevant Exchange Business Days during the Calculation Period or the
Settlement Valuation Period, as the case may be, shall be adjusted in a
commercially reasonable manner by the Calculation Agent for purposes of
determining the Forward Price or the Settlement Price, as the case may be, with
such adjustments based on, among other factors, the duration of any Market
Disruption Event and the volume, historical trading patterns and price of the
Shares.

If a Disrupted Day occurs during the Calculation Period or the Settlement
Valuation Period, as the case may be, and each of the nine immediately

 

 

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following Scheduled Trading Days is a Disrupted Day, then the Calculation Agent,
in its good faith and commercially reasonable discretion, may deem such ninth
Scheduled Trading Day to be an Exchange Business Day that is not a Disrupted Day
and determine the VWAP Price for such ninth Scheduled Trading Day using its good
faith estimate of the value of the Shares on such ninth Scheduled Trading Day
based on the volume, historical trading patterns and price of the Shares and
such other factors as it deems appropriate.

Settlement Terms:

 

 

 

Settlement Procedures:

If the Number of Shares to be Delivered is positive, Physical Settlement shall
be applicable. If the Number of Shares to be Delivered is negative, then the
Counterparty Settlement Provisions in Annex A shall apply.

 

Physical Settlement:

Applicable to GS&Co.; provided that GS&Co. does not, and shall not, make the
agreement or the representations set forth in Section 9.11 of the Equity
Definitions related to the restrictions imposed by applicable securities laws
with respect to any Shares delivered by GS&Co. to Counterparty under any
Transaction.

Number of Shares

 

to be Delivered:

A number of Shares equal to (x)(a) the Prepayment Amount divided by (b)(i) the
Forward Price minus (ii) the Forward Price Adjustment Amount minus (y) the
number of Initial Shares.

 

Excess Dividend Amount:

For the avoidance of doubt, all references to the Excess Dividend Amount shall
be deleted from Section 9.2(a)(iii) of the Equity Definitions.

 

Settlement Date:

The date that is one Settlement Cycle immediately following the Termination
Date.

 

Settlement Currency:

USD

 

Initial Share Delivery:

GS&Co. shall deliver a number of Shares equal to the Initial Shares to
Counterparty on the Initial Share Delivery Date in accordance with Section 9.4
of the Equity Definitions, with the Initial Share Delivery Date deemed to be a
“Settlement Date” for purposes of such Section 9.4.

 

 

Initial Share Delivery Date:

For each Transaction, as set forth in the related Supplemental Confirmation.

 

 

Initial Shares:

For each Transaction, as set forth in the related Supplemental Confirmation.

Share Adjustments:

 

Potential Adjustment Event:

Notwithstanding anything to the contrary in Section 11.2(e) of the Equity
Definitions, an Extraordinary Dividend shall not constitute a Potential
Adjustment Event.

It shall constitute an additional Potential Adjustment Event if the Termination
Date for any Transaction is postponed pursuant to “Valuation Disruption” above,
in which case the Calculation Agent may, in its commercially reasonable
discretion, adjust any relevant terms of such Transaction as necessary to
preserve as nearly as practicable the fair value of such Transaction to GS&Co.
prior to such postponement.

 

 

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Extraordinary Dividend:

For any calendar quarter occurring (in whole or in part) during the period from
and including the Calculation Period Start Date to and including the Termination
Date, any dividend or distribution on the Shares with an ex-dividend date
occurring during such calendar quarter (other than any dividend or distribution
of the type described in Section 11.2(e)(i) or Section 11.2(e)(ii)(A) or (B) of
the Equity Definitions) (a “Dividend”) the amount or value of which (as
determined by the Calculation Agent), when aggregated with the amount or value
(as determined by the Calculation Agent) of any and all previous Dividends with
ex-dividend dates occurring in the same calendar quarter, exceeds the Ordinary
Dividend Amount.

 

Ordinary Dividend Amount:

For each Transaction, as set forth in the related Supplemental Confirmation

 

Method of Adjustment:

Calculation Agent Adjustment

Extraordinary Events:

Consequences of

 

Merger Events:

 

(a)

Share-for-Share:

 

Modified Calculation Agent Adjustment

 

 

 

 

(b)

Share-for-Other:

 

Cancellation and Payment

 

 

 

 

(c)

Share-for-Combined:

 

Component Adjustment

 

Tender Offer:

Applicable; provided that (i) Section 12.1(l) of the Equity Definitions shall be
amended (x) by deleting the parenthetical in the fifth line thereof, (y) by
replacing “that” in the fifth line thereof with “whether or not such
announcement” and (z) by adding immediately after the words “Tender Offer” in
the fifth line thereof “, and any publicly announced change or amendment to such
an announcement (including the announcement of an abandonment of such
intention)” and (ii) Sections 12.3(a) and 12.3(d) of the Equity Definitions
shall each be amended by replacing each occurrence of the words “Tender Offer
Date” by “Announcement Date.”

Consequences of

 

Tender Offers:

 

(a)

Share-for-Share:

 

Modified Calculation Agent Adjustment or Cancellation and Payment, at the
election of GS&Co.

 

 

 

 

(b)

Share-for-Other:

 

Modified Calculation Agent Adjustment or Cancellation and Payment, at the
election of GS&Co.

 

 

 

 

(c)

Share-for-Combined:

 

Modified Calculation Agent Adjustment or Cancellation and Payment, at the
election of GS&Co.

Nationalization,

 

Insolvency or Delisting:

Cancellation and Payment; provided that in addition to the provisions of Section
12.6(a)(iii) of the Equity Definitions, it shall also constitute a Delisting if
the Exchange is located in the United States and the Shares are not immediately
re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the
American Stock Exchange, The NASDAQ Global Select Market or The NASDAQ Global
Market (or their respective successors); if the Shares are immediately
re-listed, re-traded or re-quoted on any such exchange or quotation system, such
exchange or quotation system shall be deemed to be the Exchange.

 

 

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Additional Disruption Events:

 

(a)

Change in Law:

 

Applicable

 

 

 

 

(b)

Failure to Deliver:

 

Applicable

 

 

 

 

(c)

Insolvency Filing:

 

Applicable

 

 

 

 

(d)

Loss of Stock Borrow:

 

Applicable; provided that Sections 12.9(a)(vii) and 12.9(b)(iv) of the Equity
Definitions shall be amended by deleting the words “at a rate equal to or less
than the Maximum Stock Loan Rate” and replacing them with “at a rate of return
equal to or greater than zero”.

 

 

 

 

 

Hedging Party:

 

GS&Co.

 

 

 

 

 

Determining Party:

 

GS&Co.

 

Additional Termination Event(s):

Notwithstanding anything to the contrary in the Equity Definitions, if, as a
result of an Extraordinary Event, any Transaction would be cancelled or
terminated (whether in whole or in part) pursuant to Article 12 of the Equity
Definitions, an Additional Termination Event (with such terminated
Transaction(s) (or portions thereof) being the Affected Transaction(s) and
Counterparty being the sole Affected Party) shall be deemed to occur, and, in
lieu of Sections 12.7, 12.8 and 12.9 of the Equity Definitions, Section 6 of the
Agreement shall apply to such Affected Transaction(s).

The declaration by the Issuer of any Extraordinary Dividend, the ex-dividend
date for which occurs or is scheduled to occur during the Calculation Period,
will constitute an Additional Termination Event, with Counterparty as the sole
Affected Party and all Transactions hereunder as the Affected Transactions.

Non-Reliance/Agreements and

Acknowledgements Regarding

Hedging Activities/Additional

Acknowledgements:

Applicable

 

Transfer:

Notwithstanding anything to the contrary in the Agreement, GS&Co. may assign,
transfer and set over all rights, title and interest, powers, privileges and
remedies of GS&Co. under any Transaction, in whole or in part, to an affiliate
of GS&Co. whose obligations are guaranteed by The Goldman Sachs Group, Inc.
without the consent of Counterparty.

 

GS&Co. Payment Instructions:

Chase Manhattan Bank New York

For A/C Goldman, Sachs & Co.

A/C #930-1-011483

ABA: 021-000021

 

Counterparty’s Contact Details

for Purpose of Giving Notice:

To be provided by Counterparty

 

GS&Co.’s Contact Details for

Purpose of Giving Notice:

Telephone No.:

(212) 902-8996

 

Facsimile No.:

(212) 902-0112

Attention: Equity Operations: Options and Derivatives

 

 

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With a copy to:

Tracey McCabe

Equity Capital Markets

One New York Plaza

New York, NY 10004

 

Telephone No.:

(212) 357-0428

 

Facsimile No.:

(212) 902-3000

2.

Calculation Agent.

GS&Co.

3.         Additional Mutual Representations, Warranties and Covenants of Each
Party. In addition to the representations, warranties and covenants in the
Agreement, each party represents, warrants and covenants to the other party
that:

(a)        Eligible Contract Participant. It is an “eligible contract
participant”, as defined in the U.S. Commodity Exchange Act (as amended), and is
entering into each Transaction hereunder as principal (and not as agent or in
any other capacity, fiduciary or otherwise) and not for the benefit of any third
party.

(b)        Accredited Investor. Each party acknowledges that the offer and sale
of each Transaction to it is intended to be exempt from registration under the
Securities Act of 1933, as amended (the “Securities Act”), by virtue of Section
4(2) thereof Accordingly, each party represents and warrants to the other that
(i) it has the financial ability to bear the economic risk of its investment in
each Transaction and is able to bear a total loss of its investment, (ii) it is
an “accredited investor” as that term is defined under Regulation D under the
Securities Act and (iii) the disposition of each Transaction is restricted under
this Master Confirmation, the Securities Act and state securities laws.

4.         Additional Representations, Warranties and Covenants of Counterparty.
In addition to the representations, warranties and covenants in the Agreement,
Counterparty represents, warrants and covenants to GS&Co. that:

(a)        The purchase or writing of each Transaction and the transactions
contemplated hereby will not violate Rule 13e-1 under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”).

(b)        It is not entering into any Transaction (i) on the basis of, and is
not aware of, any material non-public information with respect to the Shares,
(ii) in anticipation of, in connection with, or to facilitate, a distribution of
its securities, a self tender offer or a third-party tender offer or (iii) to
create actual or apparent trading activity in the Shares (or any security
convertible into or exchangeable for the Shares) or to raise or depress or
otherwise manipulate the price of the Shares (or any security convertible into
or exchangeable for the Shares), in each case for the purpose of inducing the
purchase or sale of the Shares by others.

(c)        Each Transaction is being entered into pursuant to a publicly
disclosed Share buy-back program and its Board of Directors has approved the use
of derivatives to effect the Share buy-back program.

(d)        Without limiting the generality of Section 13.1 of the Equity
Definitions, it acknowledges that neither GS&Co. nor any of its affiliates is
making any representations or warranties or taking any position or expressing
any view with respect to the treatment of any Transaction under any accounting
standards including FASB Statements 128, 133 as amended, or 149, 150, EITF
00-19, 01-6 or EITF 03-6 (or any successor issue statements) or under the
Financial Accounting Standards Board’s Liabilities & Equity Project.

(e)        As of (i) the date hereof and (ii) the Trade Date for each
Transaction hereunder, Counterparty is in compliance with its reporting
obligations under the Exchange Act and its most recent Annual Report on Form
10-K, together with all reports subsequently filed by it pursuant to the
Exchange Act, taken together and as amended and supplemented to the date of this
representation, do not, as of their respective filing dates, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

 

 

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(f)        Counterparty is aware of its reporting obligations under Regulation
S-K and/or Regulation S-B under the Exchange Act, as applicable, in respect of
the Transaction.

(g)        The shares are not, and Counterparty will not cause the Shares to be,
subject to a “restricted period” (as defined in Regulation M promulgated under
the Exchange Act) at any time during any Regulation M Period (as defined below)
for any Transaction unless Counterparty has provided written notice to GS&Co. of
such restricted period not later than the Scheduled Trading Day immediately
preceding the first day of such “restricted period”; Counterparty acknowledges
that any such notice may cause a Disrupted Day to occur pursuant to Section 5
below; accordingly, Counterparty acknowledges that its delivery of such notice
must comply with the standards set forth in Section 6 below; “Regulation M
Period” means, for any Transaction, the period commencing on the Calculation
Period Start Date for such Transaction and ending on the last day of the
Relevant Period (as defined below) for such Transaction, or such earlier day as
elected by GS&Co. and communicated to Counterparty on such day. “Relevant
Period” means, for any Transaction, the period commencing on the Calculation
Period Start Date for such Transaction and ending on the earlier of (i) last
Additional Relevant Day (as specified in the related Supplemental Confirmation)
for such Transaction (or, if later, the First Acceleration Date without regard
to any acceleration thereof pursuant to “Special Provisions for Friendly
Transaction Announcements” below) and (ii) the Scheduled Termination Date for
such Transaction.

 

(h)          As of the Trade Date, the Prepayment Date, the Initial Share
Delivery Date, the Settlement Date and the date of any Second Settlement Date
for each Transaction, Counterparty is not “insolvent” (as such term is defined
under Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States
Code) (the “Bankruptcy Code”)) and Counterparty would be able to purchase a
number of Shares with a value equal to the Prepayment Amount in compliance with
the laws of the jurisdiction of Counterparty’s incorporation.

 

(i)        Counterparty is not and, after giving effect to any Transaction, will
not be, required to register as an “investment company” as such term is defined
in the Investment Company Act of 1940, as amended.

(j)        Counterparty will not take any action that would limit or in any way
adversely affect GS&Co.’s rights under the Agreement, this Master Confirmation
or any Supplemental Confirmation.

(k)        Counterparty has not and, during the Relevant Period or, if
applicable, the Settlement Valuation Period for any Transaction, will not enter
into agreements similar to the Transactions described herein where any initial
hedge period, calculation period, relevant period or settlement valuation period
(each however defined) in such other transaction will overlap at any time
(including as a result of extensions in such initial hedge period, calculation
period, relevant period or settlement valuation period as provided in the
relevant agreements) with any Relevant Period or, if applicable, any Settlement
Valuation Period under this Master Confirmation. In the event that the initial
hedge period, relevant period, calculation period or settlement valuation period
in any other similar transaction overlaps with any Relevant Period or, if
applicable, Settlement Valuation Period under this Master Confirmation as a
result of any postponement of the Termination Date or extension of the
Settlement Valuation Period pursuant to “Valuation Disruption” above,
Counterparty shall promptly amend such transaction to avoid any such overlap.

5.         Regulatory Disruption. In the event that GS&Co. concludes, in its
reasonable discretion, that it is appropriate with respect to any legal,
regulatory or self-regulatory requirements or related policies and procedures
(whether or not such requirements, policies or procedures are imposed by law or
have been voluntarily adopted by GS&Co.), for it to refrain from purchasing
Shares on any Scheduled Trading Day during the Calculation Period or, if
applicable, the Settlement Valuation Period, GS&Co. may by written notice to
Counterparty elect to deem that a Market Disruption Event has occurred on such
Scheduled Trading Day. The notice shall not specify, and GS&Co. shall not
otherwise communicate to Counterparty, the reason for GS&Co.’s election.

6.

10b5-1 Plan. Counterparty represents, warrants and covenants to GS&Co. that:

(a)          Counterparty is entering into this Master Confirmation and each
Transaction hereunder in good faith and not as part of a plan or scheme to evade
the prohibitions of Rule 10b5-1 under the Exchange Act (“Rule 10b5-1”) or any
other antifraud or anti-manipulation provisions of the federal or applicable
state securities laws and

 

 

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that it has not entered into or altered and will not enter into or alter any
corresponding or hedging transaction or position with respect to the Shares.
Counterparty acknowledges that it is the intent of the parties that each
Transaction entered into under this Master Confirmation comply with the
requirements of paragraphs (c)(1)(i)(A) and (B) of Rule 10b5-1 and each
Transaction entered into under this Master Confirmation shall be interpreted to
comply with the requirements of Rule 10b5-1(c).

(b)          Counterparty will not seek to control or influence GS&Co.’s
decision to make any “purchases or sales” (within the meaning of Rule
10b5-1(c)(1)(i)(B)(3)) under any Transaction entered into under this Master
Confirmation, including, without limitation, GS&Co.’s decision to enter into any
hedging transactions. Counterparty represents and warrants that it has consulted
with its own advisors as to the legal aspects of its adoption and implementation
of this Master Confirmation and each Supplemental Confirmation under Rule
10b5-1.

(c)          Counterparty acknowledges and agrees that any amendment,
modification, waiver or termination of this Master Confirmation or the relevant
Supplemental Confirmation must be effected in accordance with the requirements
for the amendment or termination of a “plan” as defined in Rule 10b5-1(c).

7.         Counterparty Purchases. Counterparty (or any “affiliated purchaser”
as defined in Rule 10b-18 under the Exchange Act (“Rule 10b-18”)) shall not,
without the prior written consent of GS&Co., directly or indirectly purchase any
Shares (including by means of a derivative instrument), listed contracts on the
Shares or securities that are convertible into, or exchangeable or exercisable
for Shares (including, without limitation, any Rule 10b-18 purchases of blocks
(as defined in Rule 10b-18)) during any Relevant Period or, if applicable,
Settlement Valuation Period, except through GS&Co; provided that purchases
effected by or for an issuer plan by an agent independent of the issuer within
the meaning of Rule 10b-18(a)(13)(ii) shall not be subject to this Section 7.

8.         Special Provisions for Merger Transactions. Notwithstanding anything
to the contrary herein or in the Equity Definitions:

(a) Counterparty agrees that it:

(i)        will not during the period commencing on the Trade Date through the
end of the Relevant Period for any Transaction make, or permit to be made, any
public announcement (as defined in Rule 165(f) under the Securities Act) of any
Merger Transaction or potential Merger Transaction unless such public
announcement is made prior to the opening or after the close of the regular
trading session on the Exchange for the Shares;

(ii)        shall promptly (but in any event prior to the next opening of the
regular trading session on the Exchange) notify GS&Co. following any such
announcement that such announcement has been made; and

(iii)       shall promptly (but in any event prior to the next opening of the
regular trading session on the Exchange) provide GS&Co. with written notice
specifying (i) Counterparty’s average daily Rule 10b-18 Purchases (as defined in
Rule 10b-18) during the three full calendar months immediately preceding the
announcement date that were not effected through GS&Co. or its affiliates and
(ii) the number of Shares purchased pursuant to the proviso in Rule 10b-18(b)(4)
under the Exchange Act for the three full calendar months preceding the
announcement date. Such written notice shall be deemed to be a certification by
Counterparty to GS&Co. that such information is true and correct. In addition,
Counterparty shall promptly notify GS&Co. of the earlier to occur of the
completion of such transaction and the completion of the vote by target
shareholders. Counterparty acknowledges that any such notice may cause the terms
of any Transaction to be adjusted or such Transaction to be terminated;
accordingly, Counterparty acknowledges that its delivery of such notice must
comply with the standards set forth in Section 6 above.

(b)        In connection with any Merger Transaction, GS&Co. in its reasonable
discretion may (i) suspend the Calculation Period and/or the Relevant Period and
postpone the Termination Date and make related adjustments as though such event
were a Potential Adjustment Event or (ii) treat the occurrence of such public
announcement as an Additional Termination Event with Counterparty as the sole
Affected Party and the Transactions hereunder as the Affected Transactions and
with the amount under Section 6(e) of the Agreement determined taking into
account the

 

 

9

 

 

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

fact that the Calculation Period or Settlement Valuation Period, as the case may
be, had fewer Scheduled Trading Days than originally anticipated.

“Merger Transaction” means any merger, acquisition or similar transaction
involving a recapitalization as contemplated by Rule 10b-18(a)(13)(iv) under the
Exchange Act but not including any transaction in which the consideration is
solely cash and there is no valuation period.

9.         Special Provisions for Friendly Transaction Announcements. (a) If a
Friendly Transaction Announcement occurs on or prior to the Settlement Date for
any Transaction, then the Number of Shares to be Delivered for such Transaction
shall be determined as if clause (x)(b)(ii) of the definition thereof were
replaced with “(b)(ii) the Prorated Forward Price Adjustment Amount.” If a
Friendly Transaction Announcement occurs after the Trade Date, but prior to the
First Acceleration Date of any Transaction, the First Acceleration Date shall be
the date of such Friendly Transaction Announcement. If a Friendly Transaction
Announcement occurs after the Settlement Date for any Transaction or any earlier
date of termination or cancellation of such Transaction pursuant to Section 6 of
the Agreement or Article 12 of the Equity Definitions, then a second settlement
of such Transaction (a “Second Settlement”) shall occur (notwithstanding such
earlier termination or cancellation) with a Number of Shares to be Delivered
equal to the lesser of (i) zero and (ii) (x) the Number of Shares to be
Delivered determined pursuant to the first sentence of this paragraph as if such
Friendly Transaction Announcement occurred prior to such Settlement Date minus
(y) the Number of Shares to be Delivered determined pursuant to Section 1 of
this Confirmation (provided that in the case of a Second Settlement occurring
after such an early termination or cancellation, a Number of Shares to be
Delivered shall not be determined and instead a Forward Cash Settlement Amount
will be determined as provided in Annex A). If the Number of Shares to be
Delivered for any settlement of any Transaction is a negative number, then the
terms of the Counterparty Settlement Provisions in Annex A shall apply.

(b)        “Friendly Transaction Announcement” means (i) an Acquisition
Transaction Announcement by Counterparty or its board of directors prior to the
last day of the Relevant Period or any earlier date of termination or
cancellation of the relevant Transaction pursuant to Section 6 of the Agreement
or Article 12 of the Equity Definitions (such date, the “Actual Termination
Date”), (ii) an announcement by Counterparty or its board of directors prior to
the date three months following the Scheduled Termination Date that an
Acquisition Transaction that is the subject of an Acquisition Transaction
Announcement occurring prior to the Actual Termination Date has been approved,
agreed to, recommended by or otherwise consented to by Counterparty or its board
of directors, or negotiated by Counterparty or any authorized representative of
Counterparty, or (iii) where Counterparty or its board of directors has a legal
obligation to make a recommendation to its shareholders in respect of any such
Acquisition Transaction prior to the date three months following the Scheduled
Termination Date, the absence of a recommendation that its shareholders reject
such transaction.

(c)        “Acquisition Transaction Announcement” means (i) the announcement of
an Acquisition Transaction, (ii) an announcement that Counterparty or any of its
subsidiaries has entered into an agreement, a letter of intent or an
understanding designed to result in an Acquisition Transaction, (iii) the
announcement of the intention to solicit or enter into, or to explore strategic
alternatives or other similar undertaking that may include, an Acquisition
Transaction, or (iv) any other announcement that in the reasonable judgment of
the Calculation Agent may result in an Acquisition Transaction. For the
avoidance of doubt, announcements as used in the definition of Acquisition
Transaction Announcement refer to any public announcement whether made by the
Issuer or a third party.

(d)        “Acquisition Transaction” means (i) any Merger Event (for purposes of
this definition the definition of Merger Event shall be read with the references
therein to “100%” being replaced by “15%” and to “50%” by “75%” and without
reference to the clause beginning immediately following the definition of
Reverse Merger therein to the end of such definition), Tender Offer or any other
transaction involving the merger of Counterparty with or into any third party,
(ii) the sale or transfer of all or substantially all of the assets of
Counterparty, (iii) a recapitalization, reclassification, binding share exchange
or other similar transaction, (iv) any acquisition, lease, exchange, transfer,
disposition (including by way of spin-off or distribution) of assets (including
any capital stock or other ownership interests in subsidiaries) or other similar
event by Counterparty or any of its subsidiaries where the aggregate
consideration transferable or receivable by or to Counterparty or its
subsidiaries exceeds 20% of the market capitalization of Counterparty and (v)
any transaction in which Counterparty or its board

 

 

10

 

 

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

of directors has a legal obligation to make a recommendation to its shareholders
in respect of such transaction (whether pursuant to Rule 14e-2 under the
Exchange Act or otherwise).

(e)        “Prorated Forward Price Adjustment Amount” means the Forward Price
Adjustment Amount multiplied by the Proration Fraction.

(f)        “Proration Fraction” means the fraction (i) the numerator of which is
the number of Scheduled Trading Days during the period commencing on the
Calculation Period Start Date and ending on the date of any Friendly Transaction
Announcement (or, in the case of a Friendly Transaction Announcement of the type
described in clause (ii) or clause (iii) of the definition thereof, the date of
the related Acquisition Transaction Announcement) (inclusive), and (ii) the
denominator of which is the number of Scheduled Trading Days during the period
commencing on the Calculation Period Start Date and ending on the Scheduled
Termination Date (inclusive).

10.

Acknowledgments. (a) The parties hereto intend for:

(i)        each Transaction to be a “securities contract” as defined in Section
741(7) of the Bankruptcy Code, a “swap agreement” as defined in Section 101(53B)
of the Bankruptcy Code and a “forward contract” as defined in Section 101(25) of
the Bankruptcy Code, and the parties hereto to be entitled to the protections
afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 362(b)(27),
362(o), 546(e), 546(g), 546(j), 555, 556, 560 and 561 of the Bankruptcy Code;

(ii)        the Agreement to be a “master netting agreement” as defined in
Section 101(38A) of the Bankruptcy Code;

(iii)       a party’s right to liquidate, terminate or accelerate any
Transaction, net out or offset termination values or payment amounts, and to
exercise any other remedies upon the occurrence of any Event of Default or
Termination Event under the Agreement with respect to the other party or any
Extraordinary Event that results in the termination or cancellation of any
Transaction to constitute a “contractual right” (as defined in the Bankruptcy
Code); and

(iv)       all payments for, under or in connection with each Transaction, all
payments for the Shares (including, for the avoidance of doubt, payment of the
Prepayment Amount) and the transfer of such Shares to constitute “settlement
payments” and “transfers” (as defined in the Bankruptcy Code).

 

(b)

Counterparty acknowledges that:

(i)        during the term of any Transaction, GS&Co. and its affiliates may buy
or sell Shares or other securities or buy or sell options or futures contracts
or enter into swaps or other derivative securities in order to establish or
adjust its hedge position with respect to such Transaction;

(ii)        GS&Co. and its affiliates may also be active in the market for the
Shares other than in connection with hedging activities in relation to any
Transaction;

(iii)       GS&Co. shall make its own determination as to whether, when or in
what manner any hedging or market activities in Counterparty’s securities shall
be conducted and shall do so in a manner that it deems appropriate to hedge its
price and market risk with respect to the Forward Price and the VWAP Price;

(iv)       any market activities of GS&Co. and its affiliates with respect to
the Shares may affect the market price and volatility of the Shares, as well as
the Forward Price and VWAP Price, each in a manner that may be adverse to
Counterparty; and

(v)        each Transaction is a derivatives transaction in which it has granted
GS&Co. an option; GS&Co. may purchase shares for its own account at an average
price that may be greater than, or less than, the price paid by Counterparty
under the terms of the related Transaction.

 

 

11

 

 

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11.       Credit Support Documents. The parties hereto acknowledge that no
Transaction hereunder is secured by any collateral that would otherwise secure
the obligations of Counterparty herein or pursuant to the Agreement.

12.       Limitation on Set-off. (a) The parties agree that upon the occurrence
of an Event of Default or Termination Event with respect to a party who is the
Defaulting Party or an Affected Party (“X”), the other party (“Y”) will have the
right (but not be obliged) without prior notice to X or any other person to
set-off or apply any obligation of X owed to Y (or any Affiliate of Y) (whether
or not matured or contingent and whether or not arising under the Agreement, and
regardless of the currency, place of payment or booking office of the
obligation) against any obligation of Y (or any Affiliate of Y) owed to X
(whether or not matured or contingent and whether or not arising under the
Agreement, and regardless of the currency, place of payment or booking office of
the obligation). Y will give notice to the other party of any set-off effected
under this Section 12.

Amounts (or the relevant portion of such amounts) subject to set-off may be
converted by Y into the Termination Currency at the rate of exchange at which
such party would be able, acting in a reasonable manner and in good faith, to
purchase the relevant amount of such currency. If any obligation is
unascertained, Y may in good faith estimate that obligation and set-off in
respect of the estimate, subject to the relevant party accounting to the other
when the obligation is ascertained. Nothing in this Section 12 shall be
effective to create a charge or other security interest. This Section 12 shall
be without prejudice and in addition to any right of set-off, combination of
accounts, lien or other right to which any party is at any time otherwise
entitled (whether by operation of law, contract or otherwise).

(b)        Notwithstanding anything to the contrary in the foregoing, GS&Co.
agrees not to set off or net amounts due from Counterparty with respect to any
Transaction against amounts due from GS&Co. to Counterparty with respect to
contracts or instruments that are not Equity Contracts. “Equity Contract” means
any transaction or instrument that does not convey to GS&Co. rights, or the
ability to assert claims, that are senior to the rights and claims of common
stockholders in the event of Counterparty’s bankruptcy.

13.       Delivery of Shares. Notwithstanding anything to the contrary herein,
GS&Co. may, by prior notice to Counterparty, satisfy its obligation to deliver
any Shares or other securities on any date due (an “Original Delivery Date”) by
making separate deliveries of Shares or such securities, as the case may be, at
more than one times on or prior to such Original Delivery Date, so long as the
aggregate number of Shares and other securities so delivered on or prior to such
Original Delivery Date is equal to the number required to be delivered on such
Original Delivery Date.

14.       Early Termination. In the event that an Early Termination Date
(whether as a result of an Event of Default or a Termination Event) occurs or is
designated with respect to any Transaction (except as a result of a Merger Event
in which the consideration or proceeds to be paid to holders of Shares consists
solely of cash), if either party would owe any amount to the other party
pursuant to Section 6(d)(ii) of the Agreement (any such amount, a “Payment
Amount”), then, in lieu of any payment of such Payment Amount, Counterparty may,
no later than the Early Termination Date or the date on which such Transaction
is terminated, elect to deliver or for GS&Co. to deliver, as the case may be, to
the other party a number of Shares (or, in the case of a Merger Event, a number
of units, each comprising the number or amount of the securities or property
that a hypothetical holder of one Share would receive in such Merger Event (each
such unit, an “Alternative Delivery Unit” and, the securities or property
comprising such unit, “Alternative Delivery Property”)) with a value equal to
the Payment Amount, as determined by the Calculation Agent (and the parties
agree that, in making such determination of value, the Calculation Agent may
take into account a number of factors, including the market price of the Shares
or Alternative Delivery Property on the date of early termination and, if such
delivery is made by GS&Co., the prices at which GS&Co. purchases Shares or
Alternative Delivery Property to fulfill its delivery obligations under this
Section 14); provided that in determining the composition of any Alternative
Delivery Unit, if the relevant Merger Event involves a choice of consideration
to be received by holders, such holder shall be deemed to have elected to
receive the maximum possible amount of cash. If such delivery is made by
Counterparty, paragraphs 2 through 7 of Annex A shall apply as if such delivery
were a settlement of the Transaction to which Net Share Settlement applied, the
Cash Settlement Payment Date were the Early Termination Date and the Forward
Cash Settlement Amount were zero (0) minus the Payment Amount owed by
Counterparty.

 

 

12

 

 

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15.       Calculations and Payment Date upon Early Termination. The parties
acknowledge and agree that in calculating Loss pursuant to Section 6 of the
Agreement GS&Co. may (but need not) determine losses without reference to actual
losses incurred but based on expected losses assuming a commercially reasonable
(including without limitation with regard to reasonable legal and regulatory
guidelines) risk bid were used to determine loss to avoid awaiting the delay
associated with closing out any hedge or related trading position in a
commercially reasonable manner prior to or sooner following the designation of
an Early Termination Date. Notwithstanding anything to the contrary in Section
6(d)(ii) of the Agreement, all amounts calculated as being due in respect of an
Early Termination Date under Section 6(e) of the Agreement will be payable on
the day that notice of the amount payable is effective; provided that if
Counterparty elects to receive Shares or Alternative Delivery Property in
accordance with Section 14, such Shares or Alternative Delivery Property shall
be delivered on a date selected by GS&Co as promptly as practicable.

16.       Automatic Termination Provisions. Notwithstanding anything to the
contrary in Section 6 of the Agreement, if a Termination Price is specified in
any Supplemental Confirmation, then an Additional Termination Event with
Counterparty as the sole Affected Party and the Transaction to which such
Supplemental Confirmation relates as the Affected Transaction will automatically
occur without any notice or action by GS&Co. or Counterparty if the price of the
Shares on the Exchange at any time falls below such Termination Price. The
Exchange Business Day that the price of the Shares on the Exchange at any time
falls below the Termination Price will be the “Early Termination Date” for
purposes of the Agreement. Notwithstanding anything to the contrary in Section
6(d) of the Agreement, following the occurrence of such an Additional
Termination Event, GS&Co. will notify Counterparty of the amount owing under
Section 6(e) of the Agreement within a commercially reasonable time period (with
such period based upon the amount of time, determined by GS&Co. (or any of its
Affiliates) in its sole discretion, that it would take to unwind any of its
Hedge Position(s) related to the relevant Transaction in a commercially
reasonable manner based on relevant market indicia).

17.       Claim in Bankruptcy. GS&Co. acknowledges and agrees that this
Confirmation is not intended to convey to it rights with respect to the
Transaction that are senior to the claims of common stockholders in the event of
Counterparty’s bankruptcy

18.       Agreement in Respect of Adjustments; Agreement in Respect of
Dividends. In determining any adjustment in respect of any Transaction pursuant
to Article 11 or Article 12 of the Equity Definitions, the Calculation Agent
shall make such adjustments without regard to changes in expected dividends
since the Trade Date for such Transaction. For the avoidance of doubt, if an
Early Termination Date occurs in respect of any Transaction as a result of an
Additional Termination Event of the type described in the second paragraph
opposite “Additional Termination Event(s)” above, the relevant party’s Loss for
purposes of Section 6(e) of the Agreement in respect of such Additional
Termination Event shall be determined without regard to the difference between
such Extraordinary Dividend giving rise to such Additional Termination Event and
the expected dividend as of the Trade Date for such Transaction.

19.       General Obligations Law of New York. With respect to each Transaction,
(i) this Master Confirmation, together with the related Supplemental
Confirmation is a “qualified financial contract”, as such term is defined in
Section 5-701(b)(2) of the General Obligations Law of New York (the “General
Obligations Law”); (ii) such Supplemental Confirmation constitutes a
“confirmation in writing sufficient to indicate that a contract has been made
between the parties” hereto, as set forth in Section 5-701(b)(3)(b) of the
General Obligations Law; and (iii) this Master Confirmation, together with the
related Supplemental Confirmation, constitutes a prior “written contract” as set
forth in Section 5-701(b)(1)(b) of the General Obligations Law, and each party
hereto intends and agrees to be bound by this Master Confirmation and the
related Supplemental Confirmation.

20.       Governing Law. The Agreement, this Master Confirmation, each
Supplemental Confirmation and all matters arising in connection with the
Agreement, this Master Confirmation and each Supplemental Confirmation shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York (without reference to its choice of laws doctrine).

21.

Offices.

 

 

13

 

 

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(a)        The Office of GS&Co. for each Transaction is: One New York Plaza, New
York, New York 10004.           

(b)        The Office of Counterparty for each Transaction is: 100 Grainger
Parkway, Lake Forest, IL 60045-5201.

22.       Arbitration. The Agreement, this Master Confirmation and each
Supplemental Confirmation are subject to the following arbitration provisions:

(a)        All parties to this Confirmation are giving up the right to sue each
other in court, including the right to a trial by jury, except as provided by
the rules of the arbitration forum in which a claim is filed.

(b)        Arbitration awards are generally final and binding; a party’s ability
to have a court reverse or modify an arbitration award is very limited.

(c)        The ability of the parties to obtain documents, witness statements
and other discovery is generally more limited in arbitration than in court
proceedings.

 

(d)

The arbitrators do not have to explain the reason(s) for their award.

(e)        The panel of arbitrators will typically include a minority of
arbitrators who were or are affiliated with the securities industry, unless
Counterparty is a member of the organization sponsoring the arbitration
facility, in which case all arbitrators may be affiliated with the securities
industry.

(f)        The rules of some arbitration forums may impose time limits for
bringing a claim in arbitration. In some cases, a claim that is ineligible for
arbitration may be brought in court.

(g)        The rules of the arbitration forum in which the claim is filed, and
any amendments thereto, shall be incorporated into this Confirmation.

Counterparty agrees that any and all controversies that may arise between
Counterparty and GS&Co., including, but not limited to, those arising out of or
relating to the Agreement or any Transaction hereunder, shall be determined by
arbitration conducted before The New York Stock Exchange, Inc. (“NYSE”) or NASD
Dispute Resolution (“NASD-DR”), or, if the NYSE and NASD-DR decline to hear the
matter, before the American Arbitration Association, in accordance with their
arbitration rules then in force. The award of the arbitrator shall be final, and
judgment upon the award rendered may be entered in any court, state or federal,
having jurisdiction.

No person shall bring a putative or certified class action to arbitration, nor
seek to enforce any pre-dispute arbitration agreement against any person who has
initiated in court a putative class action or who is a member of a putative
class who has not opted out of the class with respect to any claims encompassed
by the putative class action until: (i) the class certification is denied; (ii)
the class is decertified; or (iii) Counterparty is excluded from the class by
the court.

Such forbearance to enforce an agreement to arbitrate shall not constitute a
waiver of any rights under this Confirmation except to the extent stated
herein.”

23.       Counterparts.        This Master Confirmation may be executed in any
number of counterparts, all of which shall constitute one and the same
instrument, and any party hereto may execute this Master Confirmation by signing
and delivering one or more counterparts.

 

 

14

 

 

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Counterparty hereby agrees (a) to check this Master Confirmation carefully and
immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing (in the exact
form provided by GS&Co.) correctly sets forth the terms of the agreement between
GS&Co. and Counterparty with respect to any particular Transaction to which this
Master Confirmation relates, by manually signing this Master Confirmation or
this page hereof as evidence of agreement to such terms and providing the other
information requested herein and immediately returning an executed copy to
Equity Derivatives Documentation Department, Facsimile No. 212-428-1980/83.

Yours faithfully,

GOLDMAN, SACHS & CO.

 

By: /s/ David G. Goldenberg

 

Authorized Signatory

Agreed and Accepted By:

W.W. GRAINGER, INC.

 

 

By:

/s/ P. Ogden Loux

Name:

P. Ogden Loux

Title:

Sr. Vice President, Finance      and Chief Financial Officer

 

 

 

 

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

SCHEDULE A

 

SUPPLEMENTAL CONFIRMATION

To:

 

W.W. Grainger, Inc.

100 Grainger Parkway

Lake Forest, IL 60045-5201

From:

Goldman, Sachs & Co.

Subject:

Accelerated Stock Buyback

Ref. No:

[Insert Reference No.]

Date:

[Insert Date]

 

The purpose of this Supplemental Confirmation is to confirm the terms and
conditions of the Transaction entered into between Goldman, Sachs & Co.
(“GS&Co.”) and W.W. Grainger, Inc. (“Counterparty”) (together, the “Contracting
Parties”) on the Trade Date specified below. This Supplemental Confirmation is a
binding contract between GS&Co. and Counterparty as of the relevant Trade Date
for the Transaction referenced below.

1.         This Supplemental Confirmation supplements, forms part of, and is
subject to the Master Confirmation dated as of [Insert Date] (the “Master
Confirmation”) between the Contracting Parties, as amended and supplemented from
time to time. All provisions contained in the Master Confirmation govern this
Supplemental Confirmation except as expressly modified below.

2.

The terms of the Transaction to which this Supplemental Confirmation relates are
as follows:

 

Trade Date:

[ ]

Forward Price Adjustment Amount:

USD [ ]

Calculation Period Start Date:

[ ]

Scheduled Termination Date:

[ ]

First Acceleration Date:

[ ]

Prepayment Amount:

USD [ ]

Prepayment Date:

[ ]

Initial Shares:

[ ] Shares; provided that if GS&Co. is unable to borrow or otherwise acquire a
number of Shares equal to the Initial Shares for delivery to Counterparty on the
Initial Share Delivery Date, the Initial Shares shall be reduced to such number
of Shares that GS&Co. is able to so borrow or otherwise acquire.

Initial Share Delivery Date:

[ ]

Ordinary Dividend Amount:

For any calendar quarter, USD [ ]

Termination Price:

USD[ ] per Share

 

 

 

A-1

 

 

 

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Additional Relevant Days:

The [ ] Exchange Business Days immediately following the Calculation Period.

3.         Counterparty represents and warrants to GS&Co. that neither it nor
any “affiliated purchaser” (as defined in Rule 10b-18 under the Exchange Act)
has made any purchases of blocks pursuant to the proviso in Rule 10b-18(b)(4)
under the Exchange Act during the four full calendar weeks immediately preceding
the Trade Date.

4.         This Supplemental Confirmation may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
party hereto may execute this Supplemental Confirmation by signing and
delivering one or more counterparts.

 

 

A-2

 

 

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Counterparty hereby agrees (a) to check this Supplemental Confirmation carefully
and immediately upon receipt so that errors or discrepancies can be promptly
identified and rectified and (b) to confirm that the foregoing (in the exact
form provided by GS&Co.) correctly sets forth the terms of the agreement between
GS&Co. and Counterparty with respect to the Transaction to which this
Supplemental Confirmation relates, by manually signing this Supplemental
Confirmation or this page hereof as evidence of agreement to such terms and
providing the other information requested herein and immediately returning an
executed copy to Equity Derivatives Documentation Department, facsimile No.
212-428-1980/83.

Yours sincerely,

GOLDMAN, SACHS & CO.

 

By: __________________________________________

 

Authorized Signatory

Agreed and Accepted By:

W.W. GRAINGER, INC.

 

By: __________________________

 

Name:

 

Title:

 

 

 

A-3

 

 

 

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ANNEX A

COUNTERPARTY SETTLEMENT PROVISIONS

1.         The following Counterparty Settlement Provisions shall apply to the
extent indicated under the Master Confirmation:

 

Settlement Currency:

USD

 

Settlement Method Election:

Applicable; provided that (i) Section 7.1 of the Equity Definitions is hereby
amended by deleting the word “Physical” in the sixth line thereof and replacing
it with the words “Net Share” and (ii) the Electing Party may make a settlement
method election only if the Electing Party represents and warrants to GS&Co. in
writing on the date it notifies GS&Co. of its election that, as of such date,
the Electing Party is not aware of any material non-public information
concerning Counterparty or the Shares and is electing the settlement method in
good faith and not as part of a plan or scheme to evade compliance with the
federal securities laws.

 

Electing Party:

Counterparty

Settlement Method

 

Election Date:

The earlier of (i) the Scheduled Termination Date and (ii) the Accelerated
Termination Date, as the case may be; provided that if a Friendly Transaction
Announcement occurs after the Settlement Date, the Settlement Method Election
Date for the Second Settlement shall be the date of the Friendly Transaction
Announcement.

 

Default Settlement Method:

Cash Settlement

Forward Cash Settlement

 

Amount:

The Number of Shares to be Delivered multiplied by the Settlement Price;
provided that in the case of a Second Settlement occurring after an early
termination or cancellation of the relevant Transaction pursuant to Section 6 of
the Agreement or Article 12 of the Equity Definitions, the Forward Cash
Settlement Amount shall equal the lesser of (i) zero and (ii)(x) the Payment
Amount that would have been calculated for such early termination or
cancellation if clause (x)(b)(ii) in the definition of Number of Shares to be
Delivered had been replaced with “(b)(ii) the Prorated Forward Price Adjustment
Amount”, as determined by the Calculation Agent minus (y) the actual Payment
Amount calculated for such early termination or cancellation (in each case, with
an amount that would have been owed by Counterparty expressed as a negative
number for purposes of this calculation).

 

 

Settlement Price:

The average of the VWAP Prices for the Exchange Business Days in the Settlement
Valuation Period, subject to “Valuation Disruption” as specified in the Master
Confirmation.

 

 

1

 

 

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

 

 

Settlement Valuation Period:

A number of Scheduled Trading Days selected by GS&Co. in its reasonable
discretion, beginning on the Scheduled Trading Day immediately following the
Termination Date or, in the case of a Second Settlement, the date of the
Friendly Transaction Announcement.

 

Cash Settlement:

If Cash Settlement is applicable, then Buyer shall pay to Seller the absolute
value of the Forward Cash Settlement Amount on the Cash Settlement Payment Date.

Cash Settlement

 

Payment Date:

The date one Settlement Cycle following the last day of the Settlement Valuation
Period.

Net Share Settlement

 

Procedures:

If Net Share Settlement is applicable, Net Share Settlement shall be made in
accordance with paragraphs 2 through 7 below.

 

2.         Net Share Settlement shall be made by delivery on the Cash Settlement
Payment Date of a number of Shares satisfying the conditions set forth in
paragraph 3 below (the “Registered Settlement Shares”), or a number of Shares
not satisfying such conditions (the “Unregistered Settlement Shares”), in either
case with a value equal to the absolute value of the Forward Cash Settlement
Amount, with such Shares’ value based on the value thereof to GS&Co. (which
value shall, in the case of Unregistered Settlement Shares, take into account a
commercially reasonable illiquidity discount), in each case as determined by the
Calculation Agent.

 

3.         Counterparty may only deliver Registered Settlement Shares pursuant
to paragraph 2 above if:

(a)        a registration statement covering public resale of the Registered
Settlement Shares by GS&Co. (the “Registration Statement”) shall have been filed
with the Securities and Exchange Commission under the Securities Act and been
declared or otherwise become effective on or prior to the date of delivery, and
no stop order shall be in effect with respect to the Registration Statement; a
printed prospectus relating to the Registered Settlement Shares (including any
prospectus supplement thereto, the “Prospectus”) shall have been delivered to
GS&Co., in such quantities as GS&Co. shall reasonably have requested, on or
prior to the date of delivery;

(b)        the form and content of the Registration Statement and the Prospectus
(including, without limitation, any sections describing the plan of
distribution) shall be satisfactory to GS&Co. in its reasonable discretion;

(c)        as of or prior to the date of delivery, GS&Co. and its agents shall
have been afforded a reasonable opportunity to conduct a due diligence
investigation with respect to Counterparty customary in scope for underwritten
offerings of equity securities and the results of such investigation are
satisfactory to GS&Co., in its reasonable discretion; and

(d)        as of the date of delivery, an agreement (the “Underwriting
Agreement”) shall have been entered into with GS&Co. in connection with the
public resale of the Registered Settlement Shares by GS&Co. substantially
similar to underwriting agreements customary for underwritten offerings of
equity securities, in form and substance reasonably satisfactory to GS&Co.,
which Underwriting Agreement shall include, without limitation, provisions
substantially similar to those contained in such underwriting agreements
relating to the indemnification of, and contribution in connection with the
liability of, GS&Co. and its affiliates.

 

 

2

 

 

                                          
                                          
                                          
                                                                              

 

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4.

If Counterparty delivers Unregistered Settlement Shares pursuant to paragraph 2
above:

(a)        all Unregistered Settlement Shares shall be delivered to GS&Co. (or
any affiliate of GS&Co. designated by GS&Co.) pursuant to the exemption from the
registration requirements of the Securities Act provided by Section 4(2)
thereof;

(b)        as of or prior to the date of delivery, GS&Co. and any potential
purchaser of any such shares from GS&Co. (or any affiliate of GS&Co. designated
by GS&Co.) identified by GS&Co. shall be afforded a commercially reasonable
opportunity to conduct a due diligence investigation with respect to
Counterparty customary in scope for private placements of equity securities
(including, without limitation, the right to have made available to them for
inspection all financial and other records, pertinent corporate documents and
other information reasonably requested by them); and

(c)        as of the date of delivery, Counterparty shall enter into an
agreement (a “Private Placement Agreement”) with GS&Co. (or any affiliate of
GS&Co. designated by GS&Co.) in connection with the private placement of such
shares by Counterparty to GS&Co. (or any such affiliate) and the private resale
of such shares by GS&Co. (or any such affiliate), substantially similar to
private placement purchase agreements customary for private placements of equity
securities, in form and substance commercially reasonably satisfactory to
GS&Co., which Private Placement Agreement shall include, without limitation,
provisions substantially similar to those contained in such private placement
purchase agreements relating to the indemnification of, and contribution in
connection with the liability of, GS&Co. and its affiliates, and shall provide
for the payment by Counterparty of all fees and expenses in connection with such
resale, including all fees and expenses of counsel for GS&Co., and shall contain
representations, warranties and agreements of Counterparty reasonably necessary
or advisable to establish and maintain the availability of an exemption from the
registration requirements of the Securities Act for such resales.

5.         GS&Co., itself or through an affiliate (the “Selling Agent”) or any
underwriter(s), will sell all, or such lesser portion as may be required
hereunder, of the Registered Settlement Shares or Unregistered Settlement Shares
and any Makewhole Shares (as defined below) (together, the “Settlement Shares”)
delivered by Counterparty to GS&Co. pursuant to paragraph 6 below commencing on
the Cash Settlement Payment Date and continuing until the date on which the
aggregate Net Proceeds (as such term is defined below) of such sales, as
determined by GS&Co., is equal to the absolute value of the Forward Cash
Settlement Amount (such date, the “Final Resale Date”). If the proceeds of any
sale(s) made by GS&Co., the Selling Agent or any underwriter(s), net of any fees
and commissions (including, without limitation, underwriting or placement fees)
customary for similar transactions under the circumstances at the time of the
offering, together with carrying charges and expenses incurred in connection
with the offer and sale of the Shares (including, but without limitation to, the
covering of any over-allotment or short position (syndicate or otherwise)) (the
“Net Proceeds”) exceed the absolute value of the Forward Cash Settlement Amount,
GS&Co. will refund, in U.S. Dollars, such excess to Counterparty on the date
that is three (3) Business Days following the Final Resale Date, and, if any
portion of the Settlement Shares remains unsold, GS&Co. shall return to
Counterparty on that date such unsold Shares.

6.         If the Calculation Agent determines that the Net Proceeds received
from the sale of the Registered Settlement Shares or Unregistered Settlement
Shares or any Makewhole Shares, if any, pursuant to this paragraph 6 are less
than the absolute value of the Forward Cash Settlement Amount (the amount in
U.S. Dollars by which the Net Proceeds are less than the absolute value of the
Forward Cash Settlement Amount being the “Shortfall” and the date on which such
determination is made, the “Deficiency Determination Date”), Counterparty shall
on the Exchange Business Day next succeeding the Deficiency Determination Date
(the “Makewhole Notice Date”) deliver to GS&Co., through the Selling Agent, a
notice of Counterparty’s election that Counterparty shall either (i) pay an
amount in cash equal to the Shortfall on the day that is one (1) New York
Business Day after the Makewhole Notice Date, or (ii) deliver additional Shares.
If Counterparty elects to deliver to GS&Co. additional Shares, then Counterparty
shall deliver additional Shares in compliance with the terms and conditions of
paragraph 3 or paragraph 4 above, as the case may be (the “Makewhole Shares”),
on the first Clearance System Business Day which is also an Exchange Business
Day following the Makewhole Notice Date in such number as the Calculation Agent
reasonably believes would have a market value on that Exchange Business Day
equal to the Shortfall. Such Makewhole Shares shall be sold by GS&Co. in
accordance with the provisions

 

 

3

 

 

                                          
                                          
                                          
                                                                              

 

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above; provided that if the sum of the Net Proceeds from the sale of the
originally delivered Shares and the Net Proceeds from the sale of any Makewhole
Shares is less than the absolute value of the Forward Cash Settlement Amount
then Counterparty shall, at its election, either make such cash payment or
deliver to GS&Co. further Makewhole Shares until such Shortfall has been reduced
to zero.

7.         Notwithstanding the foregoing, in no event shall the aggregate number
of Settlement Shares and Makewhole Shares be greater than the Reserved Shares
minus the amount of any Shares actually delivered by Counterparty under any
other Transaction(s) under this Master Confirmation (the result of such
calculation, the “Capped Number”). Counterparty represents and warrants (which
shall be deemed to be repeated on each day that a Transaction is outstanding)
that the Capped Number is equal to or less than the number of Shares determined
according to the following formula:

A – B

 

Where

A = the number of authorized but unissued shares of the Counterparty that are
not reserved for future issuance on the date of the determination of the Capped
Number; and

B = the maximum number of Shares required to be delivered to third parties if
Counterparty elected Net Share Settlement of all transactions in the Shares
(other than Transactions in the Shares under this Master Confirmation) with all
third parties that are then currently outstanding and unexercised.

“Reserved Shares” means initially, 5,000,000 Shares. The Reserved Shares may be
increased or decreased in a Supplemental Confirmation.

 

 

 

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