W.W. GRAINGER, INC.

SUPPLEMENTAL PROFIT SHARING PLAN II

(Effective January 1, 2005)

 

 

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W.W. GRAINGER, INC.

SUPPLEMENTAL PROFIT SHARING PLAN II

(Effective January 1, 2005)

 

 

 

TABLE OF CONTENTS

 

PAGE

 

ARTICLE ONE

PURPOSE AND EFFECTIVE DATE

1

 

ARTICLE TWO

DEFINITIONS

1

 

ARTICLE THREE

ADMINISTRATION

3

 

ARTICLE FOUR

ELIGIBILITY

3

 

ARTICLE FIVE

BENEFITS AND ACCOUNTS

3

 

ARTICLE SIX

VESTING

5

 

ARTICLE SEVEN

AMENDMENT AND TERMINATION

5

 

ARTICLE EIGHT

MISCELLANEOUS

6

 

 

 

 

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W.W. GRAINGER, INC.

SUPPLEMENTAL PROFIT SHARING PLAN II

(Effective January 1, 2005)

 

ARTICLE ONE

PURPOSE AND EFFECTIVE DATE

1.1          Purpose of Plan. The purpose of this W.W. Grainger, Inc.
Supplemental Profit Sharing Plan II is to provide key executives with profit
sharing and retirement benefits commensurate with their current compensation
unaffected by limitations imposed by the Internal Revenue Code on qualified
retirement plans. The Plan is intended to constitute an excess benefit plan, as
defined in Section 3(36) of ERISA, and a “top hat” plan, as defined in Section
201(2) of ERISA. The Plan is also intended to comply with the requirements of
Code Section 409A.

1.2          Effective Date. The Plan is a continuation of the W.W. Grainger,
Inc. Supplemental Profit Sharing Plan that was originally established effective
as of January 1, 1983. The terms of the Original Plan as in effect on December
31, 2004 will continue to govern the benefits that were earned and vested (as
adjusted for earnings and losses thereon), as defined in Code Section 409A, as
of December 31, 2004 (including vested amounts credited to Participants’
accounts relating to the 2004 Plan Year). The Plan evidenced by this document
will govern benefits that are earned and/or become vested on and after January
1, 2005.

ARTICLE TWO

DEFINITIONS

2.1          Definitions. Whenever used herein, the following terms shall have
the respective meanings set forth below and, when intended, such terms shall be
capitalized.

 

(a)

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time.

 

(b)

“Committee” shall mean the Profit Sharing Trust Committee.

 

(c)

“Company” shall mean W.W. Grainger, Inc., a corporation organized under the laws
of the State of Illinois, and subsidiaries thereof.

 

(d)

“Disability” shall mean:

 

(i)

The Participant is unable 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 can be expected to last for a continuous period
of not less than twelve (12) months; or

 

 

 

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(ii)

The Participant is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, receiving income
replacement benefits for a period of not less than three (3) months under the
Company’s short term or long term disability plan.

 

(e)

“Employee” shall mean any person who is employed by the Company.

 

(f)

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.

 

(g)

“Hardship” shall mean an unforeseeable emergency that is a severe financial
hardship of the Participant resulting from (A) an illness or accident of the
Participant, the Participant’s spouse or the Participant’s dependent (as defined
in Code Section 152(a); (B) loss of the Participant’s property due to casualty
(including the need to rebuild a home following damage to a home not otherwise
covered by insurance, for example, as a result of a nature disaster); or (C)
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant. An occurrence or event will not
be determined to be a Hardship to the extent that such hardship is or may be
relieved: (i) through reimbursement or compensation by insurance or otherwise,
or (ii) by liquidation of the Participant’s assets, to the extent liquidation of
such assets would not itself cause severe financial hardship.

 

(h)

“Original Plan” shall mean the W.W. Grainger, Inc. Supplemental Profit Sharing
Plan that was originally established effective as of January 1, 1983 and as
amended through March 3, 2004.

 

(i)

“Participant” shall mean any Employee selected by the Committee to participate
in this Plan pursuant to Article Four or any individual with an account balance
under the Plan.

 

(j)

“Plan” shall mean this W.W. Grainger, Inc. Supplemental Profit Sharing Plan II.

 

(k)

“Plan Year” shall mean the calendar year.

 

(l)

“Profit Sharing Plan” shall mean the W.W. Grainger, Inc. Employees Profit
Sharing Plan as amended from time to time.

 

(m)

“Separation from Service” shall mean termination of employment with the Company
and all affiliates of the Company that are considered a single employer under
Code Sections 414(b) (controlled group of corporations) and 414(c) (entities
under common control).

 

 

 

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2.2          Gender and Number. Except when otherwise indicated by the context,
any masculine term used in this plan also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.

ARTICLE THREE

ADMINISTRATION

3.1          Administration by Committee. The Plan shall be administered by the
Committee, which is appointed by the Board of Directors of the Company to
administer this Plan and the Profit Sharing Plan.

3.2          Authority of Committee. The Committee shall have the authority to
interpret the Plan, to establish and revise rules and regulations relating to
the Plan, to designate Participants, and to make all determinations that it
deems necessary or advisable for the administration of the Plan.

ARTICLE FOUR

ELIGIBILITY

4.1          Participants. The Committee shall select the Employee or Employees
who shall participate in this Plan, subject to the limitations set forth in
Section 4.2. Once an Employee is designated a Participant, he shall remain a
Participant for the purposes specified in Section 5.1 until the earlier of his
death, Disability, or Separation from Service, and he shall remain a Participant
for the purposes specified in Section 5.2 until all amounts in his account have
been distributed to him (or on his behalf).

4.2          Limitations on Eligibility. The Committee may select as
Participants in this Plan only those Employees who are “Eligible Employees” in
the Profit Sharing Plan (as defined therein) and whose share of contributions
and forfeitures under the Profit Sharing Plan are limited by:

 

(a)

Section 415 of the Code; or

 

(b)

Any other provision of the Code or ERISA, provided that the Employee is among “a
select group of management or highly compensated Employees” of the Company,
within the meaning of Sections 201, 301, and 401 of ERISA, such that the Plan
with respect to benefits attributable to this subsection (b) qualifies for a
“top hat” exemption from most of the substantive requirements of Title I of
ERISA.

ARTICLE FIVE

BENEFITS AND ACCOUNTS

5.1          Accounts. An account shall be established for each Participant.
Each year there shall be credited to each Participant’s account the difference
between (a) the aggregate amount of Company contributions and forfeitures that
would have been allocated to the account of the Participant in the Profit
Sharing Plan without regard to the contribution limitations described in

 

 

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Section 4.2 hereof; and (b) the amount of Company contributions and forfeitures
actually allocated to the account of the Participant in the Profit Sharing Plan.

5.2          Earnings. In addition to the credit under Section 5.1, if any,
earnings shall be credited to each Participant’s account based on the applicable
earnings factor. For purposes of the Plan, the applicable earnings factor for
any Participant shall be the rate of return on the investment alternatives that
are offered under the Plan and in which the Participant has elected to have his
Plan account deemed to be invested. Unless otherwise specified by the Committee,
the investment alternatives offered under the Plan shall be the same investment
alternatives that are available for investment of Participants’ accounts under
the Profit Sharing Plan. The Committee shall establish uniform and
nondiscriminatory rules and procedures pursuant to which Participants may elect
among the applicable investment alternatives; provided, however, that if a
Grainger stock fund is offered as an investment alternative under the Plan, such
investment alternative shall be subject to the same restrictions as apply to an
investment in the Grainger Stock Fund under the Profit Sharing Plan. Adjustments
to Participants’ accounts under the Plan to reflect the earnings factor shall be
made at the same time and in the same manner as earnings are credited to
Participants’ accounts under the Profit Sharing Plan. Notwithstanding any other
provisions of this Section 5.2, any investment elections in effect under the
Profit Sharing Plan on December 31, 2005 shall apply for purposes of the Plan
thereafter unless and until changed by the Participant. Notwithstanding a
Participant’s election with respect to the investment of his or her account
under the Plan, any such investment election shall be hypothetical, neither the
Company nor the Committee shall have any obligation to purchase any investment
to provide benefits under the Plan and, in the event the Company does purchase
an investment, such investment shall be for the sole benefit of the Company and
Plan Participants shall have no rights under or with respect to such investment.

5.3          Distribution Upon Separation from Service. In the event of a
Participant’s Separation from Service for any reason other than death, except as
provided in the next succeeding paragraph, the Participant’s vested account
balance under this Plan shall become payable to the Participant in the form of a
lump sum payment paid during the seventh calendar month after the end of the
calendar month in which Separation from Service occurs.

An Employee may, at any time prior to becoming a Participant in this Plan (or
within thirty (30) days after becoming a Participant in this Plan) elect, in
accordance with procedures established by the Committee, to receive his accounts
in from 2 to 15 annual installments rather than in a lump sum. An Employee who
becomes a Participant in this Plan on or after January 1, 2005 and on or before
December 31, 2006 (including an Employee who was a Participant in the Original
Plan and who continues as a Participant in this Plan), may elect on or before
December 31, 2006, in accordance with procedures established by the Committee
and in a manner that is consistent with Internal Revenue Notice 2005-1 and
regulations issued under Code Section 409A, to receive installment payments
rather than a lump sum payment. The elections described in the preceding two
sentences shall be invalid if the Participant’s vested account balance in this
Plan at the time of Separation from Service is less than $100,000, in which case
such account balance shall be paid in a single lump sum as provided in the
preceding paragraph.

If a Participant elects to receive installment payments, the first annual
installment shall be paid to the Participant during the seventh calendar month
after the end of the calendar month in which

 

 

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Separation from Service occurs. Any remaining installments shall be paid in the
first calendar quarter of each subsequent year.

The amount of each annual installment shall be equal to the quotient obtained by
dividing the value of the Participant’s vested account balance on the effective
date of the related employment termination (and on the date of each subsequent
installment, as appropriate) by the number of years remaining in the
distribution period including that installment. The Participant’s vested account
balance shall continue to accrue earnings, as specified in Section 5.2, until
the entire vested account balance has been paid.

5.4          Death Benefit. In the event of a Participant’s death, the
Participant’s entire remaining account balance shall be paid in a lump sum,
within ninety (90) days after the end of the calendar quarter in which such
death occurs, to the Participant’s beneficiary, as such beneficiary was
designated by the Participant in accordance with the Company’s beneficiary
designation procedures.

In the event a Participant dies without having designated a beneficiary, or with
no surviving beneficiary, the Participant’s account balance shall be paid in a
lump sum to the Participant’s estate within ninety (90) days after the end of
the calendar quarter in which death occurs.

5.5          Hardship Distribution. Notwithstanding the terms and conditions of
Section 5.3, a Participant may at any time on or after his Separation from
Service petition the Committee to request that payment of a portion or all of
his remaining vested account balance be made in a lump sum due to circumstances
of Hardship. Amounts distributed pursuant to a Hardship may not exceed the
amounts necessary to satisfy such Hardship plus amounts necessary to pay taxes
reasonably anticipated as a result of the Hardship distribution. The Committee,
at its sole discretion, shall make a binding determination as to whether such a
Hardship exists.

ARTICLE SIX

VESTING

6.1          Vesting. Subject to Section 8.1, each Participant shall become
vested in his account balance under this Plan at the same rate and at the same
time as he becomes vested in his account balance in the Profit Sharing Plan.

ARTICLE SEVEN

AMENDMENT AND TERMINATION

7.1          Amendment. The Company shall have the power at any time and from
time to time to amend this Plan by resolution of its Board of Directors,
provided that no amendment shall be adopted the effect of which would be to
deprive any Participant of his vested interest in his account under this Plan;
except that the Board of Directors may adopt any prospective or retroactive
amendment that it determines is necessary for the Plan to maintain its
compliance with Code Section 409A.

7.2          Termination. The Company reserves the right to terminate this Plan
at any time by resolution of its Board of Directors. Subject to Section 8.1,
upon termination of this Plan, each

 

 

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Participant shall become fully vested in his account balance and such account
balance shall become payable at the same time and in the same manner as provided
in Article Five.

7.3          Former Employees. Notwithstanding any provision of the Plan to the
contrary, in the event of any amendment of the Plan with respect to the payment
of vested account balances or the termination of the Plan pursuant to this
Article, former employees for whom accounts are then maintained under the Plan
will be treated no less favorably with respect to such amendment or termination
than active employees for whom accounts are then maintained under the Plan.

ARTICLE EIGHT

MISCELLANEOUS

8.1          Funding. This Plan shall be unfunded. No contributions shall be
made to any separate funding vehicle. The Company may set up reserves on its
books of account evidencing the liability under this Plan. To the extent that
any person acquires an account balance hereunder or a right to receive payments
from the Company, such right shall be no greater than the right of a general
unsecured creditor.

 

8.2

Limitation of Rights. Nothing in the Plan shall be construed to:

 

(a)

Give any Employee any right to participate in the Plan except in accordance with
the provisions of the Plan;

 

(b)

Limit in any way the right of the Company to terminate an Employee’s employment;
or

 

(c)

Evidence any agreement or understanding, express or implied, that the Company
will employ an Employee in any particular position or at any particular rate of
remuneration.

8.3          Nonalienation. No benefits under this Plan shall be pledged,
assigned, transferred, sold or in any manner whatsoever anticipated, charged, or
encumbered by an Employee, former Employee, or their beneficiaries, or in any
manner be liable for the debts, contracts, obligations, or engagements of any
person having a possible interest in the Plan, voluntary or involuntary, or for
any claims, legal or equitable, against any such person, including claims for
alimony or the support of any spouse.

8.4          Controlling Law. Except to the extent governed by Federal law, this
Plan shall be construed in accordance with the laws of the State of Illinois in
every respect, including without limitation, validity, interpretation and
performance.

8.5          Text Controls. Article headings are included in the Plan for
convenience of reference only, and the Plan is to be construed without any
reference to such headings. If there is any conflict between such headings and
the text of the Plan, the text shall control.

 

 

 

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