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2001 LONG TERM STOCK INCENTIVE PLAN

AS AMENDED APRIL 28, 2004

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W.W. Grainger, Inc.
100 Grainger Parkway
Lake Forest, Illinois 60045-5201
(847) 535-1000

 

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W.W. GRAINGER, INC.
2001 LONG TERM STOCK INCENTIVE PLAN
AS AMENDED APRIL 28, 2004

SECTION 1.  OBJECTIVE.

The objective of the 2001 Long Term Stock Incentive Plan (the “Plan”) is to
attract and retain highly qualified executives and other employees, to advance
the interests of the Company by giving Employees a stake in the Company’s future
growth and success, and to strengthen the alignment of interests between
Employees and the Company’s shareholders through the ownership of shares of the
Company’s Common Stock.

SECTION 2.  DEFINITIONS.

2.1.   General Definitions. The following words and phrases, when used herein,
shall have the following meanings:

(a)   “Act” - The Securities Exchange Act of 1934, as amended.

(b)   “Award” - The grant of any Option, Stock Appreciation Right, Share of
Restricted Stock, Share of Phantom Stock, Share of Stock, Other Stock-Based
Award, or any combination thereof.

(c)   “Board” - The Board of Directors of the Company.

(d)   “Change in Control” - Any one or more of the following events:

(i)   approval by the shareholders of the Company of:

(A)   any merger, reorganization or consolidation of the Company or any
Subsidiary with or into any corporation or other Person if Persons who were the
beneficial owners (as such term is used in Rule 13d-3 under the Act) of Common
Stock and securities of the Company entitled to vote generally in the election
of directors (“Voting Securities”) immediately before such merger,
reorganization or consolidation are not, immediately thereafter, the beneficial
owners, directly or indirectly, of at least 60% of the then-outstanding common
shares and the combined voting power of the then-outstanding Voting Securities
(“Voting Power”) of the corporation or other Person surviving or resulting from
such merger, reorganization or consolidation (or the parent corporation thereof)
in substantially the same respective proportions as their beneficial ownership,
immediately before the consummation of such merger, reorganization or

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 consolidation, of the then-outstanding Common Stock and Voting Power of the
Company;

(B)   the sale or other disposition of all or substantially all of the
consolidated assets of the Company, other than a sale or other disposition by
the Company of all or substantially all of its consolidated assets to an entity
of which at least 60% of the common shares and the Voting Power outstanding
immediately after such sale or other disposition are then beneficially owned (as
such term is used in Rule 13d-3 under the Act) by shareholders of the Company in
substantially the same respective proportions as their beneficial ownership of
Common Stock and Voting Power of the Company immediately before the consummation
of such sale or other disposition; or

(C)   a liquidation or dissolution of the Company;

provided, however, that if the consummation of an event described in this
paragraph (i) (a “Transaction”) is subject to an Other Party Approval
Requirement (as defined below), the approval of such Transaction by the
shareholders of the Company shall not be deemed a Change in Control until the
first date on which such Other Party Approval Requirement has been satisfied.
For this purpose, “Other Party Approval Requirement” means a requirement
expressly set forth in a Transaction Agreement (as defined below) between the
Company and another Person to the effect that such Person shall obtain the
approval of one or more elements of the Transaction by the stockholders,
members, partners, or other holders of equity interests of such Person (or of a
parent of such Person) prior to the consummation of such Transaction in order to
comply with the mandatory provisions of (x) the law of the jurisdiction of the
incorporation or organization of such Person (or its parent) or (y) the articles
of incorporation or other charter or organizational documents of such Person (or
its parent) that are applicable to such Transaction. For this purpose,
“Transaction Agreement” means a written agreement that sets forth the terms and
conditions of the Transaction;

(ii)   the following individuals cease for any reason to constitute a majority
of the directors of the Company then serving: individuals who, on the Effective
Date, constitute the Board and any subsequently appointed or elected director of
the Company (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including a consent
solicitation, relating to the election or removal of one or more 

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directors of the Company) whose appointment or election by the Board or
nomination for election by the Company’s shareholders was approved or
recommended by a vote of at least two-thirds of the Company’s directors then in
office whose appointment, election or nomination for election was previously so
approved or recommended or who were directors on the Effective Date; or

(iii)   the acquisition or holding by any person, entity or “group” (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Act, other than by any Exempt
Person (as such term is defined below), the Company, any Subsidiary, any
employee benefit plan of the Company or a Subsidiary) of beneficial ownership
(within the meaning of Rule 13d-3 under the Act) of 20% or more of either the
Company’s then-outstanding Common Stock or Voting Power; provided that:

(A)   no such person, entity or group shall be deemed to own beneficially any
securities held by the Company or a Subsidiary or any employee benefit plan (or
any related trust) of the Company or a Subsidiary;

(B)   no Change in Control shall be deemed to have occurred solely by reason of
any such acquisition if both (x) after giving effect to such acquisition, such
person, entity or group has beneficial ownership of less than 30% of the
then-outstanding Common Stock and Voting Power of the Company and (y) prior to
such acquisition, at least two-thirds of the directors described in (and not
excluded from) paragraph (ii) of this definition vote to adopt a resolution of
the Board to the specific effect that such acquisition shall not be deemed a
Change in Control; and

(C)   no Change in Control shall be deemed to have occurred solely by reason of
any such acquisition or holding in connection with any merger, reorganization or
consolidation of the Company or any Subsidiary which is not a Change in Control
within the meaning of paragraph (i)(A) above.

Notwithstanding the occurrence of any of the events specified in paragraphs (i),
(ii) or (iii) of this definition, no Change in Control shall occur with respect
to any Participant if (x) the event which otherwise would be a Change in Control
(or the transaction which resulted in such event) was initiated by such
Participant, or was discussed by him with any third party, without the approval
of the Board with respect to such Participant’s initiation or discussion, as
applicable, or (y) such Participant is, by written agreement, a participant on
his own behalf in a transaction in which the 

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persons (or their affiliates) with whom such Participant has the written
agreement cause the Change in Control to occur and, pursuant to the written
agreement, such Participant has an equity interest (or a right to acquire such
equity interest) in the resulting entity.

(e)   “Code” - The Internal Revenue Code of 1986, as amended, including the
regulations thereunder, as amended from time to time.

(f)   “Committee” - The Compensation Committee of the Board or such other
Committee of the Board appointed by the Board to administer the Plan. No
Employee may serve as a member of the Committee. If the Committee does not exist
or cannot function for any reason, the Board may take any action under the Plan
that would otherwise be the responsibility of the Committee.

(g)   “Common Stock” - The shares of common stock of the Company, and any shares
into which such shares are converted, changed or reclassified.

(h)   “Company” - W.W. Grainger, Inc., an Illinois corporation.

(i)   “Disability” or “Disabled” - A Participant’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.

(j)   “Effective Date” - The date the Plan is approved by the Company’s
shareholders.

(k)   “Employee” - Any person designated as an employee of the Company or a
Subsidiary on the payroll records thereof. An Employee shall not include any
individual during any period he or she is classified or treated by the Company
or a Subsidiary as an independent contractor, a consultant, or any employee of
an employment, consulting, or temporary agency or any other entity other than
the Company or a Subsidiary, without regard to whether such individual is
subsequently determined to have been, or is subsequently retroactively
reclassified as, a common-law employee of the Company or a Subsidiary during
such period.

(l)   “Exempt Person” - Any one or more of the following:

(i)   any descendant of W.W. Grainger (deceased) or any spouse, widow or widower
of any such descendant (any such descendants, spouses, widows and widowers
collectively defined as the “Grainger Family Members”);

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(ii)   any descendant of E.O. Slavik (deceased) or any spouse, widow or widower
of any such descendant (any such descendants, spouses, widows and widowers
collectively defined as the “Slavik Family Members” and with the Grainger Family
Members collectively defined as the “Family Members”);

(iii)   any trust which is in existence on the Effective Date and which has been
established by one or more Grainger Family Members, any estate of a Grainger
Family Member who died on or before the Effective Date, and The Grainger
Foundation (such trusts, estates and named entity collectively defined as the
“Grainger Family Entities”);

(iv)   any trust which is in existence on the Effective Date and which has been
established by one or more Slavik Family Members, any estate of a Slavik Family
Member who died on or before the Effective Date, Mark IV Capital, Inc., and
Mountain Capital Corporation (such trusts, estates and named entities
collectively defined as the “Slavik Family Entities” and with the Grainger
Family Entities collectively defined as the “Existing Family Entities”);

(v)   any estate of a Family Member who dies after the Effective Date or any
trust established after the Effective Date by one or more Family Members or
Existing Family Entities; provided that one or more Family Members, Existing
Family Entities or charitable organizations which qualify as exempt
organizations under Section 501(c) of the Code (“Charitable Organizations”),
collectively, are the beneficiaries of at least 50% of the actuarially
determined beneficial interests in such estate or trust;

(vi)   any Charitable Organization which is established by one or more Family
Members or Existing Family Entities (a “Family Charitable Organization”);

(vii)   any corporation of which a majority of the voting power and a majority
of the equity interest is held, directly or indirectly, by or for the benefit of
one or more Family Members, Existing Family Entities, estates or trusts
described in clause (v) above, or Family Charitable Organizations; or

(viii)   any partnership or other entity or arrangement of which a majority of
the voting interest and a majority of the economic interest is held, directly or
indirectly, by or for the benefit of one or more Family Members, Existing Family
Entities, estates or trusts described in clause (v) above, or Family Charitable
Organizations.

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(m)   “Fair Market Value” - The closing price of a share of Common Stock as
reported in the Composite Tape for New York Stock Exchange listed stocks or any
other national stock exchange or national market system on which the Common
Stock is then traded, on the last day on which a trade occurred preceding the
relevant date, or as otherwise determined by the Committee.

(n)   “Option” - The right to purchase a specified number of shares of Common
Stock at a stated price for a specified period of time. For purposes of the
Plan, the option is a non-qualified stock option.

(o)   “Other Stock-Based Award” - An award under Section 10 that is valued in
whole or in part by reference to, or is otherwise based on, the Common Stock.

(p)   “Participant” - Any Employee designated by the Committee to participate in
the Plan.

(q)   “Person” - Any individual, corporation, partnership, limited liability
company, sole proprietorship, trust or other entity.

(r)   “Period of Restriction” - The period during which Shares of Restricted
Stock or Phantom Stock rights are subject to forfeiture or restrictions on
transfer pursuant to Section 8 of the Plan.

(s)   “Phantom Stock” - A right to receive payment from the Company in cash,
stock, or any combination thereof, in an amount determined by the Fair Market
Value of the Common Stock.

(t)   “Restricted Stock” - Shares granted to a Participant which are subject to
restrictions on transferability pursuant to Section 8 of the Plan.

(u)   “Shares” - Shares of Common Stock.

(v)   “Stock” - An Award of Shares granted under Section 9 of the Plan.

(w)   “Stock Appreciation Right” or “SAR” - The right to receive a payment from
the Company in cash, Common Stock, or any combination thereof, equal to the
excess of the Fair Market Value of a share of Common Stock on the date of
exercise over a specified price fixed by the Committee, but subject to such
maximum amounts as the Committee may impose.

(x)   “Subsidiary” - Any corporation, partnership, joint venture, limited
liability company, or other entity in which the Company or any successor to the
Company directly or indirectly owns securities representing a majority of the
aggregate voting power or profits interest.

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2.2.   Other Definitions. In addition to the above definitions, certain words
and phrases used in the Plan or any certificate, notice or agreement evidencing
an Award may be defined elsewhere in the Plan or in such certificate, notice or
agreement.

SECTION 3.  SHARES SUBJECT TO THE PLAN.

3.1.   Number of Shares Available for Awards. Subject to the provisions of
Section 3.3, the number of Shares deliverable under the Plan may not exceed
7,180,000 Shares, provided, however, that the number of Shares of Stock and
Shares of Restricted Stock delivered under the Plan other than with respect to
grants of Options or SARs may not exceed 600,000 shares. Notwithstanding the
foregoing, the total number of Shares with respect to which Options or Stock
Appreciation Rights may be granted to any Participant shall not exceed 600,000
Shares (proportionately adjusted pursuant to Section 3.3) in any calendar year.

3.2   Re-usage. If an Option or SAR expires or is terminated, surrendered, or
canceled without having been fully exercised, if Restricted Stock is forfeited
or cancelled, if Phantom Stock is forfeited or cancelled, if Shares otherwise
deliverable upon (i) exercise of Options, (ii) exercise of SARs, (iii) vesting
of Restricted Stock, or (iv) settlement of Phantom Stock, are not delivered by
reason of payments of the Option exercise price pursuant to Section 6.5(b)
hereunder or withholdings of Shares in satisfaction of tax obligations under
Section 15.4 hereunder, or if any other grant results in any Shares not being
delivered, the Shares covered by such Option, SAR, grant of Restricted Stock,
grant of Phantom Stock or other grant, as the case may be, shall again be
available for Awards under the Plan. Notwithstanding the foregoing, in cases of
events, transactions or occurrences that would cause the Plan, in the event of
such re-availability, to be deemed a “formula plan” within the meaning of
Section 303A.08 of the New York Stock Exchange Listed Company Manual, as the
same may be amended or interpreted by the New York Stock Exchange from time to
time, the Shares shall again be available for Awards under the Plan only by
reason of such events, transactions or occurrences within a period of ten years
following the date of the original approval of the Plan by the shareholders of
the Company or, if later, the date of the most recent approval of the Plan,
including without limitation any amendment to the Plan to increase the number of
Shares available for Awards thereunder, by the shareholders of the Company.

3.3   Adjustments. Subject to Section 5.3, in the event of any change in the
outstanding Common Stock by reason of a stock split, stock dividend,
combination, reclassification or exchange of Shares, recapitalization, merger,
consolidation or other similar event, the number of SARs and the number of
Shares available for Options, grants of Restricted Stock, grants of Phantom
Stock, and Other Stock-Based Awards and the number of Shares subject to
outstanding Options, SARs, grants of Restricted Stock, grants of Phantom Stock, 

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and Other Stock-Based Awards, and the price thereof, and the Fair Market Value,
as applicable, shall be appropriately adjusted by the Committee in its sole
discretion and any such adjustment shall be binding and conclusive on all
parties. Any fractional Shares resulting from any such adjustment shall be
disregarded.

SECTION 4.  ELIGIBILITY AND PARTICIPATION.

The Committee may grant an Award only to an Employee who is actively employed by
the Company or any Subsidiary on the date the Award is made. The granting of
Awards under the terms of this Plan is made at the discretion of the Committee
and does not entitle a Participant to receive future Awards. The adoption of
this Plan shall not be deemed to give any Employee any right to be granted an
Award, except to the extent as may be determined by the Committee.

SECTION 5.  ADMINISTRATION.

5.1.   Committee. The Plan and all Awards granted pursuant hereto shall be
administered by the Committee, which has sole and absolute discretion with
respect to all decisions and determinations pertaining thereto. The members of
the Committee shall be appointed by and shall serve at the pleasure of the
Board, which may from time to time change the Committee’s membership.

5.2.   Authority. The Committee shall have the sole and complete authority to:

(a)   determine the individuals to whom Awards are granted, the type and amounts
of awards to be granted and the time of all such grants;

(b)   determine the terms, conditions and provisions of, and restrictions
relating to, each Award granted;

(c)   interpret and construe the Plan and all Awards and any certificates,
notices or agreements relating thereto;

(d)   prescribe, amend and rescind rules, guidelines and regulations relating to
the Plan;

(e)   determine the content and form of all certificates, notices and agreements
relating to Awards;

(f)   determine all questions relating to Awards under the Plan;

(g)   maintain accounts, records and ledgers relating to Awards;

(h)   maintain records concerning its decisions and proceedings;

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(i)   employ agents, attorneys, accountants or other persons for such purposes
as the Committee considers necessary or desirable; and

(j)   do and perform all acts which it may deem necessary or appropriate for the
administration of the Plan and to carry out the objectives of the Plan.

5.3.   Additional Terms. The Committee may: (i) modify or restrict exercise
procedures and any other Plan procedures; (ii) establish local country plans as
subplans to this Plan, each of which may be attached as an Appendix hereto and
to the extent that the Committee determines that the restrictions imposed by the
Plan preclude the achievement of the material purposes of the Awards in
jurisdictions outside the United States under such a subplan, the Committee will
have the authority and discretion to modify those restrictions as the Committee
determines to be necessary or appropriate to conform to applicable requirements
or practices of jurisdictions outside the United States; (iii) take any action,
before or after an Award is made, which it deems advisable to obtain or comply
with any necessary local government regulatory exemptions or approvals; provided
that the Committee may not take any action hereunder which would violate any
securities law or any governing statute; and (iv) in the event of an
extraordinary dividend or other distribution, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange, or spin off, or
other extraordinary corporate transaction, the Committee may, in such manner and
to such extent (if any) as it deems appropriate and equitable make provision for
a cash payment or for the substitution or exchange of any or all outstanding
Awards of the cash, securities or property deliverable to the holder of any or
all outstanding Awards based upon the distribution or consideration payable to
holders of Common Stock upon or in respect of such event.

5.4.   Delegation. The Committee may delegate to appropriate senior officers of
the Company, or such other persons or committees as it deems appropriate, its
duties under the Plan pursuant to such conditions and limitations as the
Committee may establish.

5.5.   Determinations. All determinations, interpretations, or other actions
made or taken by the Committee pursuant to the provisions of the Plan shall be
final, binding, and conclusive for all purposes and upon all persons. Neither
the Committee nor the Board, nor any member of the Committee or the Board or
anyone acting at the direction of the Committee or the Board, shall be liable
for any action or determination made hereunder in good faith.

SECTION 6.  STOCK OPTIONS.

6.1.   Type of Option. It is intended that only non-qualified stock options may
be granted by the Committee under this Section 6 of the Plan.

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6.2.   Grant of Option. An Option may be granted to Participants at such time or
times as shall be determined by the Committee. Each Option shall be evidenced by
a certificate, notice or agreement that shall specify the exercise price, the
duration of the Option, the number of Shares to which the Option applies, and
such other terms and conditions not inconsistent with the Plan as the Committee
shall determine.

6.3.   Option Price. The per-share Option price shall be at least 100% of the
Fair Market Value at the time the Option is granted.

6.4.   Exercise of Options. Options awarded under the Plan shall be exercisable
at such times and shall be subject to such restrictions and conditions,
including the performance of a minimum period of service after the grant, as the
Committee may impose, which need not be uniform for all Participants; provided,
however, that no Option shall be exercisable for more than ten (10) years after
the date on which it is granted.

6.5.   Payment. The Committee shall determine the procedures governing the
exercise of Options, and shall require that the per-share option price be paid
in full at the time of exercise. The per-share option price shall be payable in
full either: (a) in cash or its equivalent (acceptable cash equivalents shall be
determined by the Committee); (b) unless otherwise determined by the Committee,
by tendering previously acquired shares of Common Stock having an aggregate Fair
Market Value at the time of exercise equal to the total option exercise price
(provided that the shares of Common Stock which are tendered must have been held
by the Participant for at least six (6) months prior to their tender);
(c) unless otherwise determined by the Committee, pursuant to a “cashless
exercise” procedure, as permitted under United States Federal Reserve Board’s
Regulation T, subject to securities law restrictions; (d) by a combination of
(a), (b) and (c); or (e) by any other means which the Committee determines to be
consistent with the Plan’s purpose and applicable law.

6.6.   Rights as a Shareholder. Until the exercise of an Option and the delivery
of the Shares in respect thereof, a Participant shall have no rights as a
Shareholder with respect to the Shares covered by such Option.

SECTION 7.  STOCK APPRECIATION RIGHTS.

7.1.   Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted to Participants at such time or times as shall be determined by the
Committee and shall be subject to such terms and conditions as the Committee may
decide. A grant of an SAR shall be made pursuant to a certificate, notice or
agreement containing such provisions not inconsistent with the Plan as the
Committee shall approve.

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7.2.   Exercise of SARs. SARs may be exercised at such times and subject to such
conditions, including the performance of a minimum period of service, as the
Committee shall impose. SARs that are granted in tandem with an Option may only
be exercised upon the surrender of the right to exercise an equivalent number of
Shares under the related Option and may be exercised only with respect to the
Shares for which the related Option is then exercisable. Notwithstanding any
other provision of the Plan, the Committee may impose conditions on the exercise
of an SAR, including, without limitation, the right of the Committee to limit
the time of exercise to specified periods.

7.3.   Payment of SAR Amount. Upon exercise of an SAR, the Participant shall be
entitled to receive payment of an amount determined by multiplying:

(a)   any increase in the Fair Market Value of a Share at the date of exercise
over the Fair Market Value of a Share at the date of grant, by

(b)   the number of Shares with respect to which the SAR is exercised;

provided, however, that at the time of grant, the Committee may establish, in
its sole discretion, a maximum amount per Share which will be payable upon
exercise of an SAR.

7.4.   Method of Payment. Subject to the discretion of the Committee, which may
be exercised at the time of grant, the time of payment, or any other time,
payment of an SAR may be made in cash, Shares or any combination thereof.

SECTION 8.  RESTRICTED STOCK OR PHANTOM STOCK.

8.1.   Grant of Restricted Stock or Phantom Stock. The Committee may grant
Shares of Restricted Stock or Phantom Stock rights to such Participants at such
times and in such amounts, and subject to such other terms and conditions not
inconsistent with the Plan as it shall determine. Each grant of Restricted Stock
or Phantom Stock rights shall be evidenced by a certificate, notice or agreement
setting forth the terms of such Award.

8.2.   Restrictions on Transferability. Restricted Stock or Phantom Stock rights
may not be sold, transferred, pledged, assigned, or otherwise alienated until
such time, or until the satisfaction of such conditions as shall be determined
by the Committee (including without limitation, the satisfaction of performance
goals, the occurrence of such events as shall be determined by the Committee, or
pursuant to a determination under Section 15.1). At the end of the Period of
Restriction applicable to any Restricted Stock, such Shares will be transferred
to the Participant free of all restrictions. At the end of the restriction
period applicable to Phantom Stock, payment shall be made in the manner set
forth in the applicable award agreement.

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8.3.   Rights as a Shareholder. Unless otherwise determined by the Committee at
the time of grant, Participants holding Restricted Stock granted hereunder may
exercise full voting rights and other rights as a Shareholder with respect to
those Shares during the Period of Restriction. Holders of Phantom Stock rights
shall not be deemed Shareholders and, except to the extent provided in
accordance with the Plan, shall have no rights related to any Shares.

8.4.   Dividends and Other Distributions. Unless otherwise determined by the
Committee at the time of grant, Participants holding Restricted Stock shall be
entitled to receive all dividends and other distributions paid with respect to
those Shares, provided that if any such dividends or distributions are paid in
shares of stock, such shares shall be subject to the same forfeiture
restrictions and restrictions on transferability as apply to the Restricted
Stock with respect to which they were paid. Unless otherwise determined by the
Committee at the time of grant, Participants holding shares of Phantom Stock
shall be entitled to receive cash payments equal to any cash dividends and other
distributions paid with respect to a corresponding number of Shares; provided,
however, that if any such dividends or distributions are paid in Shares, the
Fair Market Value of such Shares shall be converted into shares of Phantom Stock
which shall be subject to the same forfeiture restrictions and restrictions on
transferability as apply to the shares of Phantom Stock with respect to which
they are paid.

8.5.   Payment of Phantom Stock Rights. The Committee may, at the time of grant,
provide for other methods of payment in respect of Phantom Stock rights in cash,
Shares, partially in cash and partially in Shares, or in any other manner not
inconsistent with this Plan.

SECTION 9.  AWARDS OF STOCK.

Subject to the provisions of the Plan, Shares of Stock may be awarded to
Participants in such number, upon such terms, and at such time or times as the
Committee shall determine in its discretion. Each grant of Stock may be
evidenced by a certificate, notice or agreement setting forth the terms of such
Award.

SECTION 10.  OTHER STOCK-BASED AWARDS AND OTHER BENEFITS.

10.1.   Other Stock-Based Awards. The Committee shall have the right to grant
Other Stock-Based Awards which may include, without limitation, the grant of
Shares based on certain conditions, the payment of cash based on the performance
of the Common Stock, and the payment of Shares in lieu of cash under other
Company incentive or bonus programs. Payment under or settlement of any such
Awards shall be made in such manner and at such times as the Committee may
determine.

10.2.   Other Benefits. The Committee shall have the right to provide types of
Awards under the Plan in addition to those specifically listed utilizing shares
of 

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stock or cash, or a combination thereof, if the Committee believes that such
Awards would further the purposes for which the Plan was established. Payment
under or settlement of any such Awards shall be made in such manner and at such
times as the Committee may determine.

10.3.   Substitution or Assumption of Awards. The Committee, from time to time,
also may substitute or assume outstanding awards granted by another company,
whether in connection with an acquisition of such other company or otherwise, by
either (a) granting an Award under the Plan in substitution of such other
company’s award, or (b) assuming such award as if it had been granted under the
Plan if the terms of such assumed award could be applied to an Award granted
under the Plan. Such substitution or assumption shall be permissible if the
holder of the substituted or assumed award would have been eligible to be
granted an Award under the Plan if the other company had applied the rules of
the Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award shall remain unchanged,
except that the exercise price and the number and nature of Shares issuable upon
exercise of any such option will be adjusted pursuant to Section 424(a) of the
Code, notwithstanding other provisions of the Plan. In the event the Company
elects to grant a new Award rather than assuming an existing option, such new
Award may be granted with a similarly adjusted exercise price.

SECTION 11.  AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN.

Subject to the terms of the Plan, the Board at any time may terminate or suspend
the Plan, and from time to time may amend or modify the Plan, except that no
amendment or modification by the Board without shareholder approval shall
increase the number of Shares available for delivery under the Plan, decrease
the minimum per-share Option or SAR price or permit Employees to serve on the
Committee. No amendment, modification, or termination of the Plan shall in any
manner adversely affect any Award theretofore granted under the Plan to a
Participant without the consent of such Participant.

SECTION 12.  TERMINATION OF EMPLOYMENT.

12.1.   Termination of Employment Due to Retirement. Unless otherwise determined
by the Committee at the time of grant, in the event a Participant’s employment
terminates by reason of retirement, any Option or SAR granted to such
Participant which is then outstanding may be exercised at any time prior to the
expiration of the term of the Option or SAR or within six (6) years following
the Participant’s termination of employment, whichever period is shorter, and
any Restricted Stock, Phantom Stock rights, or other Award then outstanding for
which any restriction has not lapsed prior to the effective date of retirement
shall be forfeited.

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12.2.   Termination of Employment Due to Death or Disability. Unless otherwise
determined by the Committee at the time of grant, in the event a Participant’s
employment is terminated by reason of death or Disability, any Option or SAR
granted to such Participant which is then outstanding may be exercised by the
Participant, the Participant’s designated beneficiary, the Participant’s legal
representative or other person entitled thereto, at any time prior to the
expiration date of the term of the Option or SAR or within six (6) years
following the Participant’s termination of employment, whichever period is
shorter, and any Restricted Stock, Phantom Stock rights, or other Award then
outstanding shall become nonforfeitable and shall become transferable or
payable, as the case may be, as though any restriction had expired.

12.3.   Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee, whether at the time of grant or thereafter, in the
event the employment of the Participant shall terminate for any reason other
than misconduct or one described in Section 12.1 or 12.2, any Option or SAR
granted to such Participant which is then outstanding may be exercised by the
Participant at any time prior to the expiration date of the term of the Option
or SAR or within three (3) months following the Participant’s termination of
employment, whichever period is shorter; any Restricted Stock, Phantom Stock
rights, or other Award then outstanding for which any restriction has not lapsed
prior to the date of termination of employment shall be forfeited upon
termination of employment. If the employment of a Participant is terminated by
the Company or a Subsidiary by reason of the Participant’s misconduct, any
outstanding Option or SAR shall terminate and cease to be exercisable on the
date of the Participant’s termination of employment; any Restricted Stock,
Phantom Stock rights, or other Award then outstanding for which any restriction
has not lapsed prior to the date of termination of employment shall be forfeited
upon termination of employment. As used herein, “misconduct” means that the
Participant has engaged, or intends to engage, in competition with the Company
or a Subsidiary, has induced any customer of the Company or a Subsidiary to
breach any contract with the Company or a Subsidiary, has made any unauthorized
disclosure of any of the trade secrets or confidential information of the
Company or a Subsidiary, has committed an act of embezzlement, fraud, or theft
with respect to the property of the Company or a Subsidiary, or has deliberately
disregarded the rules of the Company or a Subsidiary in such a manner as to
cause any loss, damage, or injury to, or otherwise endanger the property,
reputation, or employees of the Company or a Subsidiary. The Committee shall
determine whether a Participant’s employment is terminated by reason of
misconduct.

12.4.   Accrual of Right at Date of Termination. The Participant shall have the
right to exercise an Option or SAR as indicated in Section 12.3 only to the
extent the Participant’s right to exercise such Option or SAR had accrued at the
date of termination of employment pursuant to the terms of the Award and had not
previously been exercised.

 

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SECTION 13.  CHANGE IN CONTROL.

Except as otherwise provided at the time of grant in the certificate, notice or
agreement relating to a particular Award, if a Change in Control occurs, then:

(i)   the Participant’s Restricted Stock, Phantom Stock, or Other Stock-Based
Awards that were forfeitable shall, unless otherwise determined by the
Committee, become nonforfeitable and, to the extent applicable, shall be
converted into Shares; and

(ii)   any unexercised Option or SAR, whether or not exercisable on the date of
such Change in Control, shall thereupon be fully exercisable and may be
exercised, in whole or in part.

SECTION 14.  EFFECT OF DISPOSITION OF FACILITY OR OPERATING UNIT.

In the event that the Company or any of its Subsidiaries closes or disposes of
the facility at which a Participant is located or the Company or any of its
Subsidiaries diminish or eliminate ownership interests in any operating unit of
the Company or any of its Subsidiaries so that such operating unit ceases to be
majority owned by the Company or any of its Subsidiaries, then, with respect to
Awards held by Participants who subsequent to such event will not be employees
of the Company or any of its Subsidiaries, the Committee may (i) accelerate the
exercisability of Awards to the extent not yet otherwise exercisable or remove
any restrictions applicable to any Awards and (ii) extend the period during
which Awards will be exercisable to a date subsequent to the date when such
Awards would otherwise have expired by reason of the termination of such
Participant’s employment with the Company or any of its Subsidiaries (but in no
event to a date later than the expiration date of the Awards or the fifth
anniversary of the transaction in which such facility closes or operating unit
ceases). If the Committee takes no special action with respect to any
disposition of a facility or an operating unit, then any cessation of employment
resulting from such disposition will be treated as an ordinary cessation of
employment as described in Section 12.

SECTION 15.  MISCELLANEOUS PROVISIONS.

15.1.   Non-transferability of Awards. Unless otherwise determined by the
Committee, whether at the time of grant or thereafter, and except as provided in
Sections 12.2 and 15.2, no Award granted under the Plan shall be assignable,
transferable, or payable to or exercisable by anyone other than the Participant
to whom it was granted.

15.2.   Beneficiary Designation. Unless otherwise determined by the Committee,
whether at the time of grant or thereafter, each Participant may from time to
time name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom any benefit under the Plan is to be paid in the event of
such Participant’s death before he or she receives any or all of such benefit. 

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Each such designation shall revoke all prior designations by such Participant,
shall be in a form prescribed by the Company, and will be effective only when
filed by the Participant in writing with the Company during the Participant’s
lifetime.

15.3.   No Guarantee of Employment or Participation. Nothing in the Plan shall
interfere with or limit in any way the right of the Company or a Subsidiary to
terminate any Participant’s employment at any time, nor confer upon any
Participant any right to continue in the employment of the Company or a
Subsidiary. No Employee shall have a right to be selected as a Participant, or,
having been so selected, to receive any future Awards.

15.4.   Tax Withholding. The Company shall have the authority to withhold, or
require a Participant to remit to the Company an amount sufficient to satisfy
federal, state, and local withholding tax requirements on any Award under the
Plan, and the Company may defer payment of cash or issuance of Shares until such
requirements are satisfied. Unless otherwise determined by the Committee, a
Participant may elect, subject to such conditions as the Committee may require,
to have Shares otherwise deliverable under the Plan withheld by the Company and
having a Fair Market Value sufficient to satisfy all or part of such
requirements or, if so determined by the Committee, the Participant’s estimated
total federal, state, and local tax obligation associated with the transaction.

15.5.   Governing Law. The Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by the Code or Act, shall
be governed by the law of the State of Illinois and construed in accordance
therewith.

15.6.   Effectiveness of Plan. The Plan shall become effective upon its approval
by the shareholders of the Company; provided, however, that no Award requiring
the delivery of Shares shall be exercised or paid out unless at the time of such
exercise or payout (i) such Shares are covered by a currently effective
registration statement filed under the Securities Act of 1933, as amended, if
one is then required, or in the sole opinion of the Company and its counsel such
issuance of Shares is otherwise exempt from the registration requirements of
such act, and (ii) such Shares are listed on any securities exchange upon which
the Common Stock of the Company is listed.

15.7.   Unfunded Plan. Insofar as the Plan provides for Awards of cash, Shares,
rights or a combination thereof, the Plan shall be unfunded. The Company may
maintain bookkeeping accounts with respect to Participants who are entitled to
Awards under the Plan, but such accounts shall be used merely for bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by interests in Awards nor shall the Plan be
construed as providing for any such segregation. None of the Committee, the
Company or Board shall be deemed to be a trustee of any cash, Shares or rights 

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to Awards granted under the Plan. Any liability of the Company to any
Participant with respect to an Award or any rights thereunder shall be based
solely upon any contractual obligations that may be created by the Plan and any
Agreement, and no obligation of the Company under the Plan shall be deemed to be
secured by any pledge or other encumbrance on any property of the Company.

15.8.   Deferrals. The Committee may permit a Participant to defer such
Participant’s receipt of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option or SAR, the lapse or waiver of restrictions with respect to Restricted
Stock or Phantom Stock, or the satisfaction of any requirements or goals with
respect to Other Stock-Based Awards. If any such deferral election is permitted,
the Committee shall, in its sole discretion, establish rules and procedures for
such payment deferrals and the manner in which such deferral shall be
accomplished.

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