Exhibit 10(xviii)
 
W.W. GRAINGER, INC.
 
PERFORMANCE SHARE AWARD AGREEMENT

This Performance Share Award Agreement (this “Agreement”) is entered into as of
[date] between W.W. Grainger, Inc., an Illinois corporation (the “Company”) and
the undersigned Company executive (the “Executive”).

Pursuant to the W.W. Grainger, Inc. 2005 Incentive Plan (the “Plan”), the
Company desires to award to the Executive as hereinafter provided certain
performance shares (the “Performance Shares”), entitling the Executive to
receive shares of the Company’s common stock (“Common Stock”) based upon the
Company’s attainment of certain long-term performance goals.   This award of
Performance Shares is in consideration of the Executive’s agreement to enter
into an Unfair Competition Agreement (the “Unfair Competition Agreement”)
between the Company and the Executive concurrently with this Agreement. In turn,
the Executive desires to enter into the Unfair Competition Agreement and accept
the award of Performance Shares, on the terms and conditions set forth in this
Agreement, the Plan and the Unfair Competition Agreement.  Capitalized terms
used but not defined in this Agreement have the meanings specified in the Plan.

NOW, THEREFORE, in consideration of the mutual promises set forth below and in
the Unfair Competition Agreement, the parties hereto agree as follows:

1.
General.  This award is governed by and subject to the terms and conditions of
this Agreement, the Plan and the Unfair Competition Agreement (the terms of
which are hereby incorporated herein by reference).   In general, the Executive
will be entitled to receive a number of Performance Shares determined by the
Company’s performance against its sales growth target (as described in Section 2
below), with the vesting of those Performance Shares being subject to the
Company’s achievement of its return on invested capital target (as described in
Section 3 below).

 
2.
Grant of Performance Shares; [Next Fiscal Year] Sales Target.  The Company
hereby awards to the Executive a total of _______ Performance Shares (the
“Target Number”), such number being subject to possible adjustment as
follows.  The actual number of Performance Shares which the Executive will
receive will depend on the Company’s total net sales during its [next fiscal
year].  Such number will be calculated in accordance with the following table:

 
If, the Company’s [Next Fiscal Year]
sales are at:
Then the number of Performance
Shares will be:
Less than 
$_________
Zero (0)
 
$_________
Fifty percent (50%) of the Target Number
 
$_________
$_________ or more
One hundred percent (100%) of the Target Number
Two hundred percent (200%) of the Target Number

 
 
 
 

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Amounts between the foregoing numbers will be interpolated as necessary.  For
example, if [next fiscal year] net sales are $_____, then the Executive would
receive ______________ percent (__%) of the Target Number of Performance Shares.

 
3.  
Vesting; ROIC Target.  The vesting of the Performance Shares will depend upon
the Company’s average return on invested capital (“ROIC”) during the period of
three fiscal years beginning with the [current] fiscal year, i.e., the Company’s
[current], [next], [2 years out] fiscal years (the “Measuring Period”).  For
this purpose, ROIC means the Company’s operating earnings divided by its net
working assets.  Vesting will be determined in accordance with the following
table:

If the Company’s average ROIC
during the Measuring Period is:
Then the following percentage of
Performance Shares will vest:
Less than ___ percent (__%)
Zero (0)
____ percent (__%) or more
One hundred percent (100%)

 
 
Amounts between the foregoing numbers will not be interpolated.  In other words,
the Performance Shares will either vest at one hundred percent (100%) or they
will not vest at all.  If the Performance Shares vest, then in settlement of the
Performance Shares, the Executive will receive a number of shares of Common
Stock equal to the number of Performance Shares determined under Section 2
above, subject, however, to the withholding provisions below.  If the
Performance Shares do not vest, then they will be forfeited in full and the
Executive shall have no further rights with respect to the award hereunder.

4.  
Receipt by the Executive of the Plan.  The Executive acknowledges receipt of the
Plan booklet which contains the entire Plan. The Executive represents and
warrants that he has read the Plan and that he agrees that all Performance
Shares awarded under it shall be subject to all of the terms and conditions of
the Plan, including but not limited to the exclusive right of the Committee to
interpret and determine the terms and provisions of the Performance Share Award
Agreements and the Plan and to make all determinations necessary or advisable
for the administration of the Plan, all of which interpretations and
determinations shall be final and binding.  Without limiting the generality of
the foregoing, the Committee shall have the discretion to adjust the terms and
conditions of awards of Performance Shares to correct for any windfalls or
shortfalls in such awards which, in the Committee’s determination, arise from
factors beyond the awardees’ control, provided, however, that the Committee’s
authority with respect to any award to a “covered employee,” as defined in
Section 162(m)(3) of the Code, shall be limited to decreasing, and not
increasing, such award.

 
 

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5.
Tax Deposit.  If the Performance Shares shall vest, the Executive shall deposit
with the Company an amount of cash equal to the amount determined by the Company
to be withheld upon such vesting for any withholding taxes, FICA contributions,
or the like under any federal or state statute, rule, or regulation.  The
Company may withhold, and the Committee may in its discretion permit the
Executive to elect (subject to such conditions as the Committee shall require)
to have the Company withhold, a number of shares of Common Stock having a fair
market value on the date that the amount of tax to be withheld is determined
equal to the required statutory minimum withholding.  The Company shall not
issue and deliver any of its Common Stock upon the vesting and settlement of the
Performance Shares until and unless the Executive has made the deposit required
herein or proper provision for withholding has been made.

 
6.
Agreement to Serve.  Except in the case of an event causing acceleration of
vesting in accordance with the Plan, the Executive agrees to remain in the
employ of the Company or its subsidiaries for a period of at least one (1) year
from the award date of the Performance Shares, subject to the right of the
Company to terminate such employment.

 
7.
Other Terms and Conditions Applicable to the Performance Shares.

 
 
a. Rights of Shareholder.  The Executive shall not have any voting rights with
respect to the Performance Shares.  The Executive shall have no right to receive
dividend equivalent payments with respect to the Performance Shares.

 
b. Termination of Employment.  If the Executive’s employment terminates during
the Measuring Period for any reason other than retirement, disability or death,
then the Performance Shares will be forfeited in full and the Executive shall
have no further rights with respect to the award hereunder.

  
c. Retirement.  If the Executive’s employment with the Company terminates during
the Measuring Period by reason of retirement, then the Executive will be
entitled to receive in settlement of the Performance Shares a number of shares
of Common Stock equal to the product of (x) the number of Performance Shares, if
any, which subsequently vest under Section 3 above, multiplied by (y) a
fraction, the numerator of which is the number of months during the Measuring
Period that the Executive was employed by the Company and the denominator of
which is the total number of months in the Measuring Period, i.e., 36 months.
For purposes of the foregoing calculation, the Executive will be deemed to have
been employed by the Company during the month that his employment terminates if,
and only if, such termination occurs on or after the fifteenth (15th) calendar
day of that month.   

  
d. Disability or Death.  If the Executive’s employment with the Company
terminates during the Measuring Period by reason of disability (defined below)
or death, then the Executive or the Executive’s estate, as the case may be, will
be entitled to receive in settlement of the Performance Shares a number of
shares of Common Stock calculated in the same manner as under Subsection c
immediately above, provided, however, that if such termination of employment
occurs during the first fiscal year of the Measuring Period, then for purposes
of such calculation the number of Performance Shares referred to in clause (x)
of such calculation shall be determined as though the Company had met, but not
exceeded, its sales growth target and 100 percent of such Performance Shares had
vested.  For purposes of the foregoing, the term “disability” means the
Executive’s inability to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment that can be expected to
result in death or that has lasted for a continuous period of not less than
twelve (12) months.

 
 

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8.
Severability.   The provisions of the Agreement shall be severable, and in the
event that any provision of it is found to be unenforceable, all other
provisions shall be binding and enforceable on the parties as drafted.  In the
event that any provision is found to be unenforceable, the parties consent to
the Court’s modification of that provision in order to make the provision
enforceable, subject to the limitations of the Court’s powers under the law.

9.
Venue.  The Executive acknowledges that, in the event that a determination of
the enforceability of this Agreement is sought, or any other judicial
proceedings are brought pertaining to this Agreement, the Company has the choice
of venue and the preferred venue for such proceedings is Lake County, Illinois.

10.
Governing Law.  This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois, excluding any conflicts or choice of law
rules or principles thereof.

IN WITNESS WHEREOF, the Company has caused this Performance Share Award
Agreement to be executed by a duly authorized Officer of the Company and the
Executive hereby agrees to all the terms and conditions set forth above.

 
W.W. GRAINGER, INC.
     
By:
 
James T. Ryan
 
President and Chief Executive Officer
         
Executive (Signature)
     
Executive (Print Name)
   
 
Date

 

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