Exhibit 10 (x) 

W.W. GRAINGER, INC.

VOLUNTARY SALARY AND INCENTIVE DEFERRAL PLAN

EFFECTIVE JANUARY 1, 2004

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TABLE OF CONTENTS

Page

ARTICLE 1             DEFINITIONS

  1

 

ARTICLE 2             SELECTION, ENROLLMENT, ELIGIBILITY

  6

2.1      Selection by Committee

  6

2.2      Enrollment Requirements

  6

2.3      Eligibility; Commencement of Participation

  6

2.4      Termination of Participation and/or Deferrals

  6

ARTICLE 3             CONTRIBUTIONS/CREDITING/TAXES

  7

3.1      Minimum and Maximum Deferrals

  7

3.2      Election Form

  7

3.3      Withholding of Annual Deferral Amounts

  8

3.4      Profit Sharing Allocation

  8

3.5      Vesting

  8

3.6      Allocation of Funds

  8

3.7      FICA and Other Taxes

  9

3.8      Distributions

10

ARTICLE 4             HARDSHIP WITHDRAWAL 11

ARTICLE 5             DISTRIBUTION OF BENEFITS

12

5.1      Distribution Election

12

5.2      Retirement/Disability Distributions

12

5.3      Date Certain Distributions

13

5.4      Death Before Commencement of Distributions

14

5.5      Death After Commencement of Distributions

14

5.6      Other Terminations of Employment

14

5.7      Hardship Withdrawals

14

ARTICLE 6             DISABILITY WAIVER AND BENEFIT

15

6.1      Disability Waiver

15

6.2      Continued Eligibility; Disability Benefit

15

ARTICLE 7             BENEFICIARY DESIGNATION

16

7.1      Beneficiary

16

7.2      Beneficiary Designation and Change of Beneficiary

16

 

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TABLE OF CONTENTS
(continued)

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7.3      Acknowledgment

16

7.4      No Beneficiary Designation

16

7.5      Doubt as to Beneficiary

16

ARTICLE 8               LEAVE OF ABSENCE

17

8.1      Paid Leave of Absence

17

8.2      Unpaid Leave of Absence

17

ARTICLE 9               TERMINATION, AMENDMENT OR MODIFICATION

18

9.1      Termination

18

9.2      Amendment

18

ARTICLE 10             ADMINISTRATION

19

10.1     Committee Duties

19

10.2     Administration Upon Change In Control

19

10.3     Agents

19

10.4     Binding Effect of Decisions

19

10.5     Indemnity of Committee

20

10.6     Employer Information

20

ARTICLE 11             OTHER BENEFITS AND AGREEMENTS

21

11.1     Coordination with Other Benefits

21

ARTICLE 12             CLAIMS PROCEDURES

22

12.1     Presentation of Claim

22

12.2     Notification of Decision

22

12.3     Review of a Denied Claim

22

12.4     Decision on Review

23

12.5     Legal Action

23

ARTICLE 13             STATUS OF THE PLAN

24

13.1     Plan To Be Unfunded

24

13.2     Unsecured General Creditor

24

ARTICLE 14             MISCELLANEOUS

25

14.1     Employer’s  Liability

25

14.2     Nonassignability

25

 

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TABLE OF CONTENTS
(continued)

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14.3      Not a Contract of Employment

25

14.4      Furnishing Information

25

14.5      Terms

25

14.6      Captions

25

14.7      Governing Law

26

14.8      Notice

26

14.9      Successors

26

14.10    Validity

26

14.11    Incompetent

26

14.12    Court Order

26

14.13    Distribution in the Event of Taxation

27

14.14    Discharge of Obligations

27

14.15    Legal Fees to Enforce Rights After Change in Control

27

 

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W.W. GRAINGER, INC.

VOLUNTARY SALARY AND INCENTIVE DEFERRAL PLAN

EFFECTIVE JANUARY 1, 2004

PURPOSE       

              The purpose of the Plan is to provide specified benefits to a
select group of management and highly compensated Employees who contribute
materially to the continued growth, development and future business success of
W.W. Grainger, Inc., an Illinois corporation. The Plan shall be unfunded for tax
purposes and for purposes of Title I of ERISA.

ARTICLE 1
DEFINITIONS

  For purposes of the Plan, unless otherwise clearly apparent from the context,
the following phrases or terms shall have the following indicated meanings:

1.1   “Administrator” shall mean the Committee at all times prior to the
occurrence of a Change in Control. Upon and after the occurrence of a Change in
Control, the “Administrator” shall be an independent third party approved by the
individual who, immediately prior to such event, was the Company’s Chief
Executive Officer or, if not so identified, the Company’s highest ranking
officer.

1.2   “Affiliate” shall mean (i) a corporation that is a member of a controlled
group of corporations (as determined pursuant to Section 414(b) of the Code)
which includes the Company and (ii) a trade or business (whether or not
incorporated) which is under common control (as determined pursuant to Section
414(c) of the Code) with the Company.

1.3   “Annual Account Balance” shall mean, with respect to a Participant, a
credit on the records of the Employer equal to the sum of the Annual Deferral
Account balance and the Annual Profit Sharing Account balance. The Annual
Account Balance, and each other specified account balance, shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to a Participant, or his
or her designated Beneficiary, pursuant to the Plan.

1.4   “Annual Base Salary” shall mean the annual cash compensation relating to
services performed during any Plan Year, whether or not paid in such Plan Year
or included on the Federal Income Tax Form W-2 for such Plan Year, excluding
bonuses, commissions, royalties, overtime, fringe benefits, relocation expenses,
incentive payments, non-monetary awards, directors fees and other fees, and
automobile and other allowances paid to a Participant for employment services
rendered (whether or not such allowances are included in the Employee’s gross
income). Annual Base Salary shall be calculated before reduction for
compensation voluntarily deferred or contributed by the Participant pursuant to
all 

 

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  qualified or non-qualified plans of any Employer and shall be calculated to
include amounts not otherwise included in the Participant’s gross income under
Code Sections 125, 402(e)(3), 402(h), 403(b) or any other Code Sections which
allow pre-tax contributions pursuant to plans established by the Employer;
provided, however, that all such amounts will be included in compensation only
to the extent that, had there been no such plan, the amount would have been
payable in cash to the Employee.

1.5   “Annual Deferral Account” shall mean (i) the sum of all of a Participant’s
Annual Deferral Amounts, plus (ii) amounts credited in accordance with all the
applicable crediting provisions of the Plan that relate to the Participant’s
Annual Deferral Account, less (iii) all distributions made to the Participant or
his or her Beneficiary pursuant to the Plan that relate to his or her Annual
Deferral Account.

1.6   “Annual Deferral Amount” shall mean that portion of a Participant’s Annual
Base Salary and Bonus that a Participant elects to have, and is deferred, in
accordance with Article 3, for any one Plan Year. In the event of a
Participant’s Retirement, Disability (if deferrals cease in accordance with
Section 6.1), death or other termination of employment prior to the end of a
Plan Year, such year’s Annual Deferral Amount shall be the actual amount
withheld prior to such event.

1.7   “Annual Profit Sharing Account” shall mean (i) the sum of all of a
Participant’s Annual Profit Sharing Allocations, plus (ii) amounts credited in
accordance with all the applicable crediting provisions of the Plan that relate
to the Participant’s Annual Profit Sharing Account, less (iii) all distributions
made to the Participant or his or her Beneficiary pursuant to the Plan that
relate to the Participant’s Annual Profit Sharing Account.

1.8   “Annual Profit Sharing Allocation” for a Plan Year shall be the amount
determined in accordance with Section 3.4.

1.9   “Beneficiary” shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 7, that are entitled to receive
benefits under the Plan upon the death of a Participant.

1.10   “Beneficiary Designation Form” shall mean the form, established from time
to time by the Committee, that a Participant completes, signs and returns to the
Committee to designate one or more Beneficiaries.

1.11   “Board” shall mean the Board of Directors of the Company. 

1.12   “Bonus” shall mean any cash compensation, in addition to Annual Base
Salary relating to services performed during any Plan Year, whether or not paid
in such Plan Year or included on the Federal Income Tax Form W-2, payable to a
Participant as an Employee under the Employer’s annual incentive plans.

 

 

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1.13   “Change in Control” shall have the meaning set forth in Section 2.1(d) of
the W.W. Grainger, Inc. 2001 Long Term Stock Incentive Plan, as may be amended
from time to time. 

1.14   “Claimant” shall have the meaning set forth in Section 12.1.

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

1.16   “Committee” shall mean the committee described in Article 10.

1.17   “Company” shall mean W.W. Grainger, Inc., an Illinois corporation and any
successor to such corporation that adopts the Plan.

1.18   “Date Certain Distribution” shall mean a distribution from the Plan of
the vested Annual Account Balance elected by the Participant to be paid in a
single-sum or installments pursuant to Section 5.3 of the Plan at a date
specified in the Deferral Election Form other than as a result of the
Participant’s Retirement or Disability.

1.19   “Deduction Limitation” shall mean the following described limitation on a
benefit that may otherwise be distributable pursuant to the provisions of the
Plan. Except as otherwise provided, this limitation shall be applied to all
distributions that are “subject to the Deduction Limitation” under the Plan. If
the Company determines in good faith prior to a Change in Control that there is
a reasonable likelihood that any compensation paid to a Participant for a
taxable year of the Company would not be deductible by the Company solely by
reason of the limitation under Code Section 162(m), then to the extent deemed
necessary by the Company to ensure that the entire amount of any distribution to
the Participant pursuant to the Plan prior to the Change in Control is
deductible, the Company may defer all or any portion of a distribution under the
Plan. Any amounts deferred pursuant to this limitation shall continue to be
credited/debited with additional amounts in accordance with Section 3.6(a)
below. The amounts so deferred and amounts credited/debited thereon shall be
distributed to the Participant or his or her Beneficiary (in the event of the
Participant’s death) at the earliest possible date, as determined by the Company
in good faith, on which the deductibility of compensation paid or payable to the
Participant for the taxable year of the Company during which the distribution is
made will not be limited by Section 162(m), or if earlier, the effective date of
a Change in Control. Notwithstanding anything to the contrary in the Plan, the
Deduction Limitation shall not apply to any distributions made after a Change in
Control.

1.20   “Deferral Election Form” shall mean the form established by the Committee
that a Participant completes, signs and returns to the Committee to make his or
her deferral election under the Plan in accordance with Section 3.2 of the Plan.

1.21   “Disability” shall mean a period of disability during which a Participant
qualifies for permanent disability benefits under the long-term disability plan
of the Employer in which the Participant participates, or, if a Participant does
not 

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  participate in such a plan, a period of disability during which the
Participant would have qualified for permanent disability benefits under such a
plan had the Participant been a participant in such a plan, as determined in the
sole discretion of the Committee. If the Employer does not sponsor such a plan,
or discontinues sponsoring such a plan, Disability shall be determined by the
Committee in its sole discretion. Notwithstanding any language within Article 6
or Article 12 to the contrary, disability claims shall be administered in
accordance with the disability requirements of the Department of Labor claims
procedure regulations under 29 CFR 2560.503-1, as may be amended from time to
time, which are hereby incorporated by reference.

1.22   “Disability Benefit” shall mean the benefit set forth in Article 6. 

1.23   “Employee” shall mean an individual whose relationship with an Employer
is, under common law, that of an employee.

1.24   “Employer” shall mean the Company and/or any Affiliate selected by the
Committee to participate in the Plan and any successor. If any such entity
withdraws, is excluded from participation in the Plan or terminates its
participation in the Plan, such entity shall thereupon cease to be an Employer.

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

1.26   “Hardship” shall, if permitted by law, mean an unanticipated emergency
that is caused by an event beyond the control of the Participant that would
result in severe financial hardship to the Participant resulting from (i) a
sudden and unexpected illness or accident of the Participant or a dependent of
the Participant, (ii) a loss of the Participant’s property due to casualty, or
(iii) such other extraordinary and unforeseeable circumstances arising as a
result of events beyond the control of the Participant, all as determined in the
sole discretion of the Committee. Such circumstances and the Committee’s
determination will depend on the facts of each case, but, in any case, 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, (ii) by liquidation of the Participant’s assets, to
the extent liquidation of such assets would not itself cause severe financial
hardship, or (iii) by cessation of his elective deferrals under the Plan for the
remainder of the Plan Year.

1.27   “Participant” shall mean (i) any individual selected by the Committee to
participate in the Plan, (ii) who elects to participate in the Plan, (iii) who
properly completes and submits a Deferral Election Form, (iv) who commences
participation in the Plan, and (v) whose participation has not terminated.

 

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1.28   “Plan” shall mean the W.W. Grainger, Inc. Voluntary Salary and Incentive
Deferral Plan, which shall be evidenced by this instrument, as may be amended
from time to time.

1.29   “Plan Year” shall mean the 12-month period commencing January 1. 

1.30   “Profit Sharing Plan” shall mean the W.W. Grainger, Inc. Employees Profit
Sharing Plan or a comparable plan which  covers Employees of an Affiliate.

1.31   “Retirement” shall mean the voluntary severance of employment with the
Employer as a retirement as such term, or comparable applicable term, is defined
under the Profit Sharing Plan.

1.32   “Year of Service” shall have the same meaning as the term Vesting Service
under the Profit Sharing Plan.

 

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ARTICLE 2
SELECTION, ENROLLMENT, ELIGIBILITY

2.1   Selection by Committee. Participation in the Plan shall be limited to a
select group of management and highly compensated Employees of the Company who
are situated in the United States, as determined by the Committee in its sole
discretion. From that group, the Committee shall select, in its sole discretion,
Employees to participate in the Plan.

2.2   Enrollment Requirements. As a condition to participation, each selected
Employee shall complete, execute and return to the Committee a Deferral Election
Form within the time prescribed by the Committee. The Committee may establish
from time to time such other enrollment requirements as it determines in its
sole discretion are necessary.

2.3   Eligibility; Commencement of Participation. Provided an Employee selected
to participate in the Plan has met all enrollment requirements set forth in the
Plan and required by the Committee, including returning all required documents
to the Committee within the specified time period, that Employee shall commence
participation in the Plan on the first day of the month following the month in
which the Employee completes all enrollment requirements. If an Employee fails
to meet all such requirements within the period required, in accordance with
Section 2.2, that Employee shall not be eligible to participate in the Plan
until the first day of the Plan Year following the proper completion and
delivery to the Committee of the required documents.

2.4   Termination of Participation and/or Deferrals. If the Committee determines
in good faith that a Participant no longer qualifies as a member of a select
group of management or highly compensated employees, the Committee shall have
the right, in its sole discretion, to (i) terminate any deferral election for
both Annual Base Salary and/or Bonus which the Participant has made for the
remainder of the Plan Year in which the Participant’s membership status changes,
(ii) prevent the Participant from making future deferral elections and/or
(iii) immediately distribute the total vested portion of the Participant’s
Annual Account Balances and terminate the Participant’s participation in the
Plan. If a Participant terminates employment after the end of a Plan Year but
prior to the payment of a bonus for such Plan Year, the deferral election will
be terminated.

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ARTICLE 3
CONTRIBUTIONS/CREDITING/TAXES

3.1       Minimum and Maximum Deferrals.

(a)

Annual Deferral Amount, Annual Base Salary, and Bonus. For each Plan Year, a
Participant may elect to defer, as his or her Annual Deferral Amount, Annual
Base Salary and/or Bonus multiplied by percentages which are not less than the
following minimum percentages or more than the following maximum percentages.

Minimum Maximum Annual Base Salary 5% 50% Bonus 10% 85%

  If an election is made for less than the stated minimum, or if no election is
made, the amount deferred shall be zero. If an election is made for more than
the stated maximum, then the election shall be for the maximum amount.

(b)

Short Plan Year. Notwithstanding the foregoing, if a Participant first becomes a
Participant after the first day of a Plan Year, the minimum and maximum
percentage of Annual Base Salary and/or Bonus shall be applied to the amount of
Annual Base Salary and/or the amount of Bonus not yet earned for such Plan Year
by the Participant as of the effective date of the Participant’s Deferral
Election Form which is submitted to the Committee.

 3.2 Election Form.

(a)

Filing of Election Forms. In connection with a Participant’s commencement of
participation in the Plan, the Participant shall make an irrevocable deferral
election for the Plan Year in which the Participant commences participation in
the Plan, along with such other elections as the Committee deems necessary or
desirable under the Plan. For these elections to be valid, the Deferral Election
Form must be properly completed and signed by the Participant and delivered to
the Committee (in accordance with Section 2.2 above).

(b)

Effect of Election Forms. A Participant’s Deferral Election Form shall only be
effective for the Plan Year for which it is submitted and shall not continue in
effect for subsequent Plan Years. The Committee shall maintain an open
enrollment period preceding each Plan Year in order to allow Participants to
submit new Deferral Election Forms.

(c)

Timing of Election Forms. To be effective for any Plan Year, a Deferral Election
Form must be received by the Committee prior to January 1 of 

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the Plan Year to which it relates. However, if an individual first becomes
eligible to participate in the Plan on or after the effective date of the Plan
and on a date other than January 1, the individual may submit a Deferral
Election Form for the remainder of the Plan Year in which he or she becomes a
Participant if the Deferral Election Form is submitted within the time
prescribed by the Committee; provided, however, that the Deferral Election Form
shall apply only to Annual Base Salary and/or Bonus not yet earned, in
accordance with Section 3.1(b).

3.3   Withholding of Annual Deferral Amounts. For each Plan Year, the Annual
Base Salary portion of the Annual Deferral Amount shall be withheld from each
regularly scheduled payroll in equal amounts, as adjusted from time to time for
increases and decreases in Annual Base Salary. The Bonus portion of the Annual
Deferral Amount shall be withheld at the time the Bonus is or otherwise would be
paid to the Participant, whether or not this occurs during the Plan Year itself.

3.4   Profit Sharing Allocation. For any Participant, the Annual Profit Sharing
Allocation for a Plan Year will be limited to the amount that is the excess of
(i) the amount, but for the Annual Deferral Amounts, that would have been
allocable to such Participant’s profit sharing account under the Profit Sharing
Plan for the Plan Year, and without regard to any limitations on such profit
sharing contributions contained in the Code or in the Profit Sharing Plan in
furtherance of such Code limitations, over (ii) the actual profit sharing
contribution allocated to such Participant’s Profit Sharing Plan profit sharing
account for the Plan Year; provided, however, that the amount determined by the
application of clauses (i) and (ii) of this sentence shall be further reduced by
the amount of any profit sharing contributions, if any, allocated for such Plan
Year to the Participant’s account under the W.W. Grainger, Inc. Supplemental
Profit Sharing Plan or a comparable supplemental profit sharing plan which
covers Employees of an Affiliate.

3.5   Vesting. A Participant shall at all times be 100% vested in his or her
Annual Deferral Account. A Participant shall be vested in his or her Annual
Profit Sharing Account in accordance with the vesting provisions of the Profit
Sharing Plan.

3.6    Allocation of Funds

(a)

Crediting/Debiting of Account Balances. In accordance with, and subject to, the
rules and procedures that are established from time to time by the Committee, in
its sole discretion, amounts shall be credited or debited to a Participant’s
Annual Account Balance.

(b)

Election of Investment Options. A Participant, in connection with his or her
Deferral Election Form in accordance with Section 2 above, shall elect one or
more investment funds (the “Investment Option(s)”) to be used to 

 

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determine the additional amounts to be credited to his or her Annual Account
Balance. Participants will be permitted to modify their elected Investment
Options in a manner prescribed by the Committee.

 (c)

Proportionate Allocation. In making any election described in Section 3.6(b)
above, the Participant shall specify in increments of one percentage point (1%),
the percentage of his or her Annual Account Balance to be allocated to a
Investment Option (as if the Participant was making an investment in that
Investment Option with that portion of his or her Annual Account Balance).

 (d)

No Actual Investment. Notwithstanding any other provision of the Plan that may
be interpreted to the contrary, the Investment Options are to be used for
measurement purposes only, and a Participant’s election of any Investment
Option(s), the allocation to his or her Annual Account Balance thereto, the
calculation of additional amounts and the crediting or debiting of such amounts
to a Participant’s Annual Account Balance shall not be considered or construed
in any manner as an actual investment of his or her Annual Account Balance in
any such Investment Option. In the event that the Company, in its own
discretion, decides to invest funds in any or all of the Investment Options, no
Participant shall have any rights in or to such investment themselves. Without
limiting the foregoing, a Participant’s Annual Account Balance shall at all
times be a bookkeeping entry only and shall not represent any investment made on
his or her behalf by the Company, and the Participant shall at all times remain
an unsecured creditor of the Company.

3.7          FICA and Other Taxes.

 (a)

Annual Deferral Amounts. For each Plan Year in which an Annual Deferral Amount
is being withheld from a Participant, the Participant’s Employer(s) shall
withhold from that portion of the Participant’s Annual Base Salary and/or Bonus
that is not being deferred, in a manner determined by the Employer, the
Participant’s share of contributions under the Federal Insurance Contributions
Act (“FICA”) and other employment taxes on such Annual Deferral Amount. If
necessary, the Committee may reduce the Annual Deferral Account in order to
comply with this Section 3.7.

 (b)

Profit Sharing Account. When a Participant becomes vested in a portion of his or
her Annual Profit Sharing Account, the Employer shall withhold from the
Participant’s Annual Base Salary and/or Bonus that is not deferred, in a manner
determined by the Employer, the Participant’s share of FICA and other employment
taxes on such vested portions of his or her Annual Profit Sharing Account. If
necessary, the Committee may reduce the vested portion of the Participant’s
Annual Profit Sharing Account, as the case may be, in order to comply with this
Section 3.7.

 

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3.8   Distributions. The Employer shall withhold from any distributions made to
a Participant under the Plan all federal, state and local income, employment and
other taxes required to be withheld by the Employer in connection with such
distributions, in amounts and in a manner to be determined in the sole
discretion of the Employer.

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ARTICLE 4
HARDSHIP WITHDRAWAL

           If the Participant experiences a Hardship, the Participant may
petition the Committee to (i) suspend any deferrals required to be made by a
Participant and/or (ii) receive a partial or full payout from the Plan as
permitted by law (“Hardship Withdrawal”). The Hardship Withdrawal shall not
exceed the lesser of the total of the Participant’s Annual Account Balances,
calculated as if such Participant were receiving a single-sum distribution upon
termination of employment, or the amount reasonably needed to satisfy the
Hardship. If, subject to the sole discretion of the Committee, the petition for
a suspension is approved, suspension shall take effect upon the date of
approval. If a Hardship Withdrawal is approved any distribution shall be made
within 60 days of the date of approval. The payment of any amount under this
Article 4 shall not be subject to the Deduction Limitation. Any suspension of
deferrals pursuant to this Article 4 shall continue for the remainder of the
Plan Year in which the suspension is approved.

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ARTICLE 5
DISTRIBUTION OF BENEFITS

5.1          Distribution Election.

 (a)

A Participant may elect to receive a distribution of the vested portion of his
or her Annual Account Balance which will commence upon one of the following
events: (i) the Participant’s Retirement or Disability and/or (ii) a date or
dates certain.

5.2          Retirement/Disability Distributions.

 (a)

A Participant may elect one or more of the following forms of distribution for
the vested portion of his or her Annual Account Balance distributable by reason
of the Participant’s Retirement or Disability: (i) a single-sum distribution,
(ii) a distribution in annual installments payable over a period of up to 15
years; provided, however, that if the total of the Participant’s Annual Account
Balances are less than $50,000, such amount shall be paid in a single-sum;
and/or (iii) a single-sum distribution followed by a distribution in annual
installments payable over a period of up to 15 years; provided, however, that if
the total vested portion of the Participant’s Annual Account Balances is less
than $50,000, such amount shall be paid in a single-sum. For purposes of
determining whether a single-sum payment shall be required, the Committee may
select a valuation date that occurs no earlier than 90 days prior to the date
distributions are to otherwise commence. The decision of the Committee that a
single-sum payment is required shall be final on all parties.

 (b)

A Participant may change his or her distribution election for a distribution of
a Participant Annual Account Balance if such change is made in writing at least
one year prior to the Participant’s Retirement or Disability, whichever applies,
and so long as such change is not prohibited by law. In the event that the
Participant’s most recent form of distribution election was made within one year
of the Participant’s Retirement or Disability (whichever applies), the next most
recent election made at least one year prior to the Participant’s Retirement or
Disability (or if none, the Participant’s initial election) shall be used.

 (c)

A distribution payable by reason of the Participant’s Retirement or Disability
shall be paid (in the case of a single-sum) or commence to be paid (in the case
of annual installments) following the Participant’s Retirement or Disability,
but not later than one year following such date.

 

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5.3          Date Certain Distributions.

 (a)

A Participant may elect one of the following forms of distribution for all or a
portion of the vested portion of his or her Annual Account Balances
distributable as a Date Certain Distribution: (i) a single-sum distribution, or
(ii) a distribution in annual installments payable over a period of up to 15
years; provided, however, that if the total vested portion of the Participant’s
distributable Annual Account Balances is less than $50,000, such amount shall be
paid in a single-sum. For purposes of determining whether a single-sum payment
shall be required, the Committee may select a valuation date that occurs no
earlier than 90 days prior to the date distributions are to otherwise commence.
The decision of the Committee that a single-sum payment is required shall be
final on all parties.

 (b)

A Participant may change his or her distribution election if such change is made
in writing at least one year prior to the Participant’s Date Certain
Distribution and so long as such change is not prohibited by law. In the event
that the Participant’s most recent form of distribution election was made within
one year of the Participant’s Date Certain Distribution, the next most recent
election made at least one year prior to the Date Certain Distribution (or if
none, the Participant’s initial election) shall be used.

 (c)

A Date Certain Distribution shall be paid (in the case of a single-sum) or
commence to be paid (in the case of annual installments) in the January of the
year elected by the Participant to receive or begin receiving such Date Certain
Distribution.

 (d)

If a Participant has elected a Date Certain Distribution for all or a portion of
the vested portion of his or her Annual Account Balances, but terminates
employment by reason of Retirement or Disability prior to the year specified by
the Participant for such Date Certain Distribution to commence, the vested
portion of the Participant’s Annual Account Balances which would have been
distributable shall instead be paid to him or her in the same manner that the
Participant elected to receive the Date Certain Distribution but beginning as of
the date of Retirement or Disability; provided, however, that if the vested
portion of such Participant’s distributable Annual Account Balances is less than
$50,000, such amount shall be paid in a single-sum. For purposes of determining
whether a single-sum payment shall be required, the Committee may select a
valuation date that occurs no earlier than 90 days prior to the date
distributions are to otherwise commence. The decision of the Committee that a
single-sum payment is required shall be final on all parties.

 (e)

If a Participant terminates employment by reason of Retirement or Disability
while receiving installment distributions of a Date Certain Distribution, the
remaining portion of the Date Certain Distribution shall continue to be
distributed as elected by the Participant.

 

 

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5.4   Death Before Commencement of Distributions. If a Participant dies before a
distribution of the vested portion of his or her Annual Account Balance under
the Plan has begun, the vested portion of the Participant’s Annual Account
Balance shall be distributed to his or her Beneficiary in a single-sum as soon
as administratively practicable following receipt by the Committee of
satisfactory notice and confirmation of the Participant’s death.

5.5   Death After Commencement of Distributions. If a Participant dies after a
distribution of the vested portion of his or her Annual Account Balance under
the Plan has begun, the vested portion of the Participant’s Annual Account
Balance, including those amounts not yet distributable, shall be distributed to
his or her Beneficiary in a single-sum as soon as administratively practicable
following receipt by the Committee of satisfactory notice and confirmation of
the Participant’s death.

5.6   Other Terminations of Employment. If a Participant terminates employment
for any reason other than Retirement, Disability, or death, the vested portion
of the Participant’s Annual Account Balance shall be distributed to such
Participant as soon as administratively practicable after such termination.

5.7   Hardship Withdrawals. Upon petition to and approval by the Committee in
accordance with Article 4, a Participant shall be permitted a Hardship
Withdrawal, if permitted by law. A Hardship Withdrawal shall be distributed in a
single-sum as soon as administratively practicable after the Committee has
determined the amount of the Hardship Withdrawal.

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ARTICLE 6
DISABILITY WAIVER AND BENEFIT

6.1         Disability Waiver.

(a)

Waiver of Deferral. A Participant who is determined by the Committee to be
suffering from a Disability shall be excused from fulfilling that portion of the
Annual Deferral Amount commitment that would otherwise have been withheld from a
Participant’s Annual Base Salary or Bonus for the Plan Year during which the
Participant first suffers a Disability. During the period of Disability, the
Participant shall not be allowed to make any additional deferral elections, but
will continue to be considered a Participant for all other purposes of the Plan.

(b)

Return to Work. If a Participant returns to employment with the Employer after a
Disability ceases, the Participant may elect to defer an Annual Deferral Amount
for the Plan Year following his or her return to employment or service and for
every Plan Year thereafter while a Participant in the Plan; provided such
deferral elections are otherwise allowed and a Deferral Election Form is
delivered to the Committee for each such election in accordance with Section 3.2
above.

6.2   Continued Eligibility; Disability Benefit. A Participant suffering a
Disability shall, for benefit purposes under the Plan, continue to be considered
to be employed, and shall be eligible for the benefits provided for in
Articles 4 or 5 in accordance with the provisions of those Articles.
Notwithstanding the above, the Committee shall have the right to, in its sole
and absolute discretion and for purposes of the Plan only, deem such Participant
to have experienced a termination of employment under Section 5.6 of the Plan,
in which case such Participant shall receive a payment of his or her Annual
Account Balance at the time of the Committee’s determination in accordance with
Section 5.6. Any payment made shall be subject to the Deduction Limitation.

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ARTICLE 7
BENEFICIARY DESIGNATION

7.1   Beneficiary. Each Participant shall have the right, at any time, to
designate his or her Beneficiary (both primary as well as contingent) to receive
any benefits payable under the Plan upon the death of the Participant. The
Beneficiary designated under the Plan may be the same as or different from the
Beneficiary designated under any other plan of an Employer in which the
Participant participates.

7.2   Beneficiary Designation and Change of Beneficiary. A Participant shall
designate his or her Beneficiary by completing and signing the Beneficiary
Designation Form, and returning it to the Committee. A Participant shall have
the right to change a Beneficiary by completing, signing and otherwise complying
with the terms of the Beneficiary Designation Form and the Committee’s rules and
procedures, as in effect from time to time. Upon the acceptance by the Committee
of a new Beneficiary Designation Form, all Beneficiary designations previously
filed shall be canceled. The Committee shall be entitled to rely on the last
Beneficiary Designation Form filed by the Participant and accepted by the
Committee prior to his or her death.

7.3   Acknowledgment. No designation or change in designation of a Beneficiary
shall be effective until received and acknowledged in writing by the Committee. 

7.4   No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided in Sections 7.1, 7.2 and 7.3 above, the Beneficiary
shall first be deemed to be his or her spouse if his or her spouse resides with
the Participant at the time of such Participant’s death. If a Participant fails
to designate a Beneficiary as provided in Sections 7.1, 7.2 and 7.3 above and
such spouse has predeceased the Participant or if all designated Beneficiaries
predecease the Participant or die prior to complete distribution of the
Participant’s benefits, then the Participant’s designated Beneficiary shall be
deemed to be his or her estate.

7.5   Doubt as to Beneficiary. If the Committee has any doubt as to the proper
Beneficiary to receive payments pursuant to the Plan, the Committee shall have
the right, exercisable in its discretion, to cause the Employer to withhold such
payments until this matter is resolved to the Committee’s satisfaction.

 

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ARTICLE 8
LEAVE OF ABSENCE

8.1   Paid Leave of Absence. If a Participant is authorized by the Employer for
any reason to take a paid leave of absence from the employment of the Employer,
the Participant shall continue to be considered employed by the Employer and the
Annual Deferral Amount shall continue to be withheld during such paid leave of
absence in accordance with Section 3.2.

8.2   Unpaid Leave of Absence. If a Participant is authorized by the Employer
for any reason to take an unpaid leave of absence from the employment of the
Employer, the Participant shall continue to be considered employed by the
Employer and the Participant shall be excused from making deferrals until the
earlier of the date the leave of absence expires or the Participant returns to a
paid employment status. Upon such expiration or return, deferrals shall resume
for the remaining portion of the Plan Year in which the expiration or return
occurs, based on the deferral election applicable for that Plan Year.

 

 

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ARTICLE 9
TERMINATION, AMENDMENT OR MODIFICATION

9.1   Termination. Although the Company anticipates that it will continue the
Plan for an indefinite period of time, there is no guarantee that the Company
will continue the Plan or will not terminate the Plan at any time in the future.
Accordingly, the Company reserves the right to discontinue its sponsorship of
the Plan and/or to terminate the Plan at any time with respect to any or all of
its participating Employees, by action of its Board. Upon the termination of the
Plan, the affected Participants shall terminate their participation in the Plan
and their vested Annual Account Balances, determined as if they had experienced
a termination of employment under Section 5.6 of the Plan on the date of Plan
termination, shall be paid to the Participants as follows: Prior to a Change in
Control, if the Plan is terminated with respect to all of its Participants, the
Company shall pay such benefits as soon as administratively practicable. Upon a
Change in Control, the Annual Account Balances of all participants shall be
administered in accordance with Section 10.2 of the Plan.

9.2   Amendment. The Company may, at any time, amend or modify the Plan in whole
or in part by the action of the Board; provided, however, that: (i) no amendment
or modification shall be effective to decrease or restrict the value of a
Participant’s vested Annual Account Balance in existence at the time the
amendment or modification is made, as of the effective date of the amendment or
modification, and (ii) no amendment or modification of this Section 9.2 or
Section 10.2 of the Plan shall be effective. The amendment or modification of
the Plan shall not affect any Participant or Beneficiary who has become entitled
to the payment of benefits under the Plan as of the date of the amendment or
modification.

 

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ARTICLE 10
ADMINISTRATION

10.1   Committee Duties. Except as otherwise provided in this Article 10, the
Plan shall be administered by a Committee which shall be the Compensation
Committee of Management, or such other committee as the Board shall appoint.
Members of the Committee may be Participants in the Plan. The Committee shall
have the discretion and authority to (i) make, amend, interpret, and enforce all
appropriate rules and regulations for the administration of the Plan and
(ii) decide or resolve any and all questions including interpretations of the
Plan, as may arise in connection with the Plan. Any individual serving on the
Committee who is a Participant shall not vote or act on any matter relating
solely to himself or herself. When making a determination or calculation, the
Committee shall be entitled to rely on information furnished by a Participant or
the Employer.

10.2   Administration Upon Change In Control. The Administrator shall have the
discretionary power to determine all questions arising in connection with the
administration of the Plan and the interpretation of the Plan including, but not
limited to, benefit entitlement determinations. Upon and after the occurrence of
a Change in Control, the Company must: (i) pay all reasonable administrative
expenses and fees of the Administrator; (ii) indemnify the Administrator against
any costs, expenses and liabilities including, without limitation, attorney’s
fees and expenses arising in connection with the performance of the
Administrator hereunder, except with respect to matters resulting from the gross
negligence or willful misconduct of the Administrator or its employees or
agents; (iii) supply full and timely information to the Administrator on all
matters relating to the Plan, the Participants and their Beneficiaries, the
Annual Account Balances of the Participants, the date of the Retirement,
Disability, death or other termination of employment of the Participants, and
such other pertinent information as the Administrator may reasonably require;
and (iv) fully vest all Annual Account Balances of the Participants and pay such
benefits in a lump sum within five (5) business days of such Change in Control.
Upon and after a Change in Control, the Administrator may be terminated (and a
replacement appointed) only with the Administrator’s approval.

10.3   Agents. In the administration of the Plan, the Committee may, from time
to time, employ agents and delegate to them such administrative duties as it
sees fit (including acting through a duly appointed representative) and may from
time to time consult with counsel who may be counsel to any Employer.

10.4   Binding Effect of Decisions. The decision or action of the Administrator
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the rules and
regulations promulgated hereunder shall be final and conclusive and binding upon
all persons having any interest in the Plan.

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10.5   Indemnity of Committee. The Company shall indemnify and hold harmless the
members of the Committee, and any Employee to whom the duties of the Committee
may be delegated, against any and all claims, losses, damages, expenses or
liabilities including, without limitation, attorney’s fees and expenses arising
from any action or failure to act with respect to the Plan, except in the case
of gross negligence or willful misconduct by the Committee, any of its members,
and any such Employee.

10.6   Employer Information. To enable the Committee and/or Administrator to
perform its functions, the Employer shall supply full and timely information to
the Committee and/or Administrator, as the case may be, on all matters relating
to the compensation of its Participants, the date and circumstances of the
Retirement, Disability, death or other termination of employment of its
Participants, and such other pertinent information as the Committee or
Administrator may reasonably require.

 

 

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ARTICLE 11
OTHER BENEFITS AND AGREEMENTS

11.1   Coordination with Other Benefits. The benefits provided for a Participant
and Participant’s Beneficiary under the Plan are in addition to any other
benefits available to such Participant under any other plan or program for
employees of the Employer. The Plan shall supplement and shall not supersede,
modify or amend any other such plan or program except as may otherwise be
expressly provided.

 

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ARTICLE 12
CLAIMS PROCEDURES

12.1   Presentation of Claim. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as a
“Claimant”) may deliver to the Committee a written claim for a determination
with respect to the amounts distributable to such Claimant from the Plan. If
such a claim relates to the contents of a notice received by the Claimant, the
claim must be made within 60 days after such notice was received by the
Claimant. All other claims must be made within 180 days of the date on which the
event that caused the claim to arise occurred. The claim must state with
particularity the determination desired by the Claimant.

12.2   Notification of Decision. The Committee shall consider a Claimant’s claim
within a reasonable time, and shall notify the Claimant in writing: 

(a) 

that the Claimant’s requested determination has been made, and that the claim
has been allowed in full; or

  (b) 

that the Committee has reached a conclusion contrary, in whole or in part, to
the Claimant’s requested determination, and such notice must set forth in a
manner calculated to be understood by the Claimant:

 (i)

the specific reason(s) for the denial of the claim, or any part of it;

 (ii)

specific reference(s) to pertinent provisions of the Plan upon which such denial
was based;

 (iii)

a description of any additional material or information necessary for the
Claimant to perfect the claim, and an explanation of why such material or
information is necessary; and

 (iv)

an explanation of the claim review procedure set forth in Section 12.3 below.

12.3   Review of a Denied Claim. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a Claimant (or
the Claimant’s duly authorized representative) may file with the Committee a
written request for a review of the denial of the claim. Thereafter, but not
later than 30 days after the review procedure began, the Claimant (or the
Claimant’s duly authorized representative):

(a) 

may review pertinent documents;

(b) 

may submit written comments or other documents; and/or

 

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(c) 

may request a hearing, which the Committee, in its sole discretion, may grant.

12.4   Decision on Review. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written request for
review of the denial, unless a hearing is held or other special circumstances
require additional time, in which case the Committee’s decision must be rendered
within 120 days after such date. Such decision must be written in a manner
calculated to be understood by the Claimant, and it must contain:

(a) 

specific reasons for the decision;

(b) 

specific reference(s) to the pertinent Plan provisions upon which the decision
was based; and

(c) 

such other matters as the Committee deems relevant.

12.5   Legal Action. A Claimant’s compliance with the foregoing provisions of
this Article 12 is a mandatory prerequisite to a Claimant’s right to commence
any legal action with respect to any claim for benefits under the Plan.

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ARTICLE 13
STATUS OF THE PLAN.

13.1   Plan To Be Unfunded. The Plan is intended to be a plan that is not
qualified within the meaning of Code Section 401(a) and that is unfunded and is
maintained by an employer primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). The Plan
shall be administered and interpreted to the extent possible in a manner
consistent with that intent.

13.2   Unsecured General Creditor. Participants and their Beneficiaries, heirs,
successors and assigns shall have no legal or equitable rights, interests or
claims in any property or assets of the Employer. For purposes of the payment of
benefits under the Plan, any and all of the Employer’s assets shall be, and
remain, the general, unpledged unrestricted assets of the Employer. The
Employer’s obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future.

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ARTICLE 14
MISCELLANEOUS

14.1   Employer’s Liability. The Employer shall have no obligation to a
Participant under the Plan except as expressly provided in the Plan.

14.2   Nonassignability. A Participant shall not have any right to commute,
sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
transfer, hypothecate, alienate or convey in advance of actual receipt, the
amounts, if any, payable hereunder, or any part thereof, which are, and all
rights to which are expressly declared to be, unassignable and non-transferable.
No part of the amounts payable shall, prior to actual payment, be subject to
seizure, attachment, garnishment or sequestration for the payment of any debts,
judgments, alimony or separate maintenance owed by a Participant directly or
indirectly, be transferable by operation of law in the event of a Participant’s
bankruptcy or insolvency or be transferable to a spouse as a result of a
property settlement or otherwise.

14.3   Not a Contract of Employment. The terms and conditions of the Plan shall
not be deemed to constitute a contract of employment between the Employer and
the Participant. Such employment is hereby acknowledged to be an “at will”
employment relationship that can be terminated at any time for any reason, or no
reason, with or without cause, and with or without notice, unless expressly
otherwise provided in a written employment agreement. Nothing in the Plan shall
be deemed to give a Participant the right to be retained in the service of the
Employer, either as an Employee or a director, or to interfere with the right of
the Employer to discipline or discharge the Participant at any time.

14.4   Furnishing Information. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information requested by
the Committee and take such other actions as may be requested in order to
facilitate the administration of the Plan and the payments of benefits
hereunder, including but not limited to taking such physical examinations as the
Committee may deem necessary.

14.5   Terms. Whenever any words are used herein in the masculine, they shall be
construed as though they were in the feminine in all cases where they would so
apply; and whenever any words are used herein in the singular or in the plural,
they shall be construed as though they were used in the plural or the singular,
as the case may be, in all cases where they would so apply.

14.6   Captions. The captions of the articles, sections and paragraphs of the
Plan are for convenience only and shall not control or affect the meaning or
construction of any of its provisions.

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14.7   Governing Law.  Subject to ERISA, the provisions of the Plan shall be
construed and interpreted according to the internal laws of the State of
Illinois.

14.8   Notice. Any notice or filing required or permitted to be given to the
Committee under the Plan shall be sufficient if in writing and hand-delivered,
or sent by registered or certified mail, to the address below:

 W.W. Grainger, Inc.
           Attn: Corporate Secretary
    100 Grainger Parkway
               Lake Forest, IL 60045-5201 

  Such notice shall be deemed given as of the date of delivery or, if delivery
is made by mail, as of the date shown on the postmark on the receipt for
registration or certification.

  Any notice or filing required or permitted to be given to a Participant under
the Plan shall be sufficient if in writing and hand-delivered, or sent by mail,
to the last known address of the Participant.

14.9   Successors. The provisions of the Plan shall bind and inure to the
benefit of the Company and its successors and assigns and the Participant and
the Participant's designated Beneficiaries.

14.10   Validity. In case any provision of the Plan shall be illegal or invalid
for any reason, said illegality or invalidity shall not affect the remaining
parts hereof, but the Plan shall be construed and enforced as if such illegal or
invalid provision had never been inserted herein.

14.11   Incompetent. If the Committee determines in its discretion that a
benefit under the Plan is to be paid to a minor, a person declared incompetent
or to a person incapable of handling the disposition of that person’s property,
the Committee may direct payment of such benefit to the guardian, legal
representative or person having the care and custody of such minor, incompetent
or incapable person. The Committee may require proof of minority, incompetence,
incapacity or guardianship, as it may deem appropriate prior to distribution of
the benefit. Any payment of a benefit shall be a payment for the account of the
Participant and the Participant’s Beneficiary, as the case may be, and shall be
a complete discharge of any liability under the Plan for such payment amount.

14.12   Court Order. The Committee is authorized to make any payments when due
as directed by court order in any action in which the Employer, Plan or the
Committee has been named as a party. In addition, if a court determines that a
spouse or former spouse of a Participant has an interest in the Participant’s
benefits under the Plan in connection with a property settlement or otherwise,
the Committee, in its sole discretion, shall have the right, notwithstanding any
election made by a Participant, to immediately distribute the spouse’s or
former 

 

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  spouse’s interest in the Participant’s benefits under the Plan to that spouse
or former spouse.

14.13   Distribution in the Event of Taxation. If, for any reason, all or any
portion of a Participant’s benefits under the Plan becomes taxable to the
Participant prior to receipt, a Participant may petition the Committee before a
Change in Control, or the Administrator after a Change in Control, for a
distribution of that portion of his or her benefit that has become taxable. Upon
the grant of such a petition, which grant shall not be unreasonably withheld
(and, after a Change in Control, shall be granted), the Company shall distribute
to the Participant immediately available funds in an amount equal to the taxable
portion of his or her benefit (which amount shall not exceed the vested portion
of a Participant’s Annual Account Balance under the Plan). If the petition is
granted, the tax liability distribution shall be made within 90 days of the date
when the Participant’s petition is granted. Such a distribution shall affect and
reduce the benefits to be paid under the Plan.

14.14   Discharge of Obligations. The full payment of the applicable benefit
under Articles 4, 5 or 6 of the Plan to a Participant or Beneficiary shall fully
and completely discharge all obligations to a Participant and his or her
designated Beneficiaries under the Plan and the Participant’s participation in
the Plan shall terminate.

14.15   Legal Fees to Enforce Rights After Change in Control. The Company is
aware that upon the occurrence of a Change in Control, the Board (which might
then be composed of new members), a shareholder of the Company or of any
successor might then cause or attempt to cause the Company or such successor to
refuse to comply with its obligations under the Plan and might cause or attempt
to cause the Company to institute, or may institute, litigation seeking to deny
Participants the benefits intended under the Plan. In these circumstances, the
purpose of the Plan could be frustrated. Accordingly, if, following a Change in
Control, it should appear to any Participant that the Company or its successor
has failed to comply with any of its obligations under the Plan or any agreement
thereunder or, if the Company, its successor, or any other person takes any
action to declare the Plan void or unenforceable or institutes any litigation or
other legal action designed to deny, diminish or to recover from any Participant
the benefits intended to be provided, then the Company or its successor
irrevocably authorizes such Participant to retain counsel of his or her choice
at the expense of the Company or its successor to represent such Participant in
connection with the initiation or defense of any litigation or other legal
action, whether by or against the Company, its successor, or any director,
officer, shareholder or other person affiliated with the Company or its
successor thereto in any jurisdiction.

 

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