GRAINGER

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1990 LONG TERM STOCK INCENTIVE PLAN

As Amended July 26, 2006

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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.

1990 LONG TERM STOCK INCENTIVE PLAN

As Amended July 26, 2006

Section 1. Objective.

The objective of the W.W. Grainger, Inc. 1990 Long Term Stock Incentive Plan
(the “Plan”) is to attract and retain the best available executive personnel and
other key employees to be responsible for the management, growth and success of
the business, and to provide an incentive for such employees to exert their best
efforts on behalf of the Company and its shareholders.

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)   “Agreement” - The document which evidences the grant of any Award under
the Plan and which sets forth the terms, conditions, and limitations relating to
such Award.

 

 

 

(c)   “Award” - The grant of any stock option, stock appreciation right, share
of restricted stock, share of phantom stock, other stock-based award, or any
combination thereof.

 

 

 

(d)   “Board” - The Board of Directors of W.W. Grainger, Inc.

 

 

 

(e)   “Change in Control” means 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 

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beneficial ownership, immediately before the consummation of such merger,
reorganization or 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 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 

 

 

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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 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.

 

 

 

(f)   “Code” - The Internal Revenue Code of 1986, as amended, including the
regulations promulgated pursuant thereto.

 

 

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(g)   “Committee” - The Compensation Committee of the Board, which shall consist
of two or more members. The members of the Committee shall be “non-employee
directors” within the meaning of Rule 16b-3, as the same may be amended or
supplemented from time to time, as promulgated under the Act.

 

 

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

 

 

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

 

 

(j)   “Effective Date” - December 9, 1998.

 

 

(k)   “Employee” - Any person designated as an employee of the Company or a
Subsidiary on the payroll records thereof.

 

 

(l)   “Exempt Person” means 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”);

 

 

(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 

 

 

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(“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.

 

 

(m)   “Fair Market Value” - The fair market value of Common Stock on a
particular day shall be the closing price of the Common Stock on the New York
Stock Exchange, or any other national stock exchange on which the Common Stock
is traded, on the last preceding trading day on which such Common Stock was
traded.

 

 

 

(n)   “Option” - The right to purchase 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 9 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 in combination thereof, in an amount determined by the Fair Market
Value.

 

 

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(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 Appreciation Right” or “SAR” - The right to receive a payment from
the Company in cash, Common Stock, or in 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.

 

 

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

 

 

2.2.   Other Definitions. In addition to the above definitions, certain words
and phrases used in the Plan and any Agreement may be defined elsewhere in the
Plan or in such Agreement.

Section 3. Common Stock.

3.1.   Number of Shares. Subject to the provisions of Section 3.3, the number of
Shares which may be issued or sold or for which Options or Stock Appreciation
Rights may be granted under the Plan may not exceed 8,056,828 Shares.1
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 800,000 Shares2 (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 Shares otherwise deliverable upon (i) exercise of Options, (ii)
exercise of SARs, or (iii) vesting of Restricted Stock, regardless of when the
Options, SARs or Restricted Stock shall have been granted, 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 pursuant
to under Section 14.4 hereunder, or if any other grant results in any Shares not
being delivered, the Shares covered by such Option, SAR, grant of Restricted
Stock, or other grants, or not so delivered, 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

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1 As adjusted to reflect (i) the number of shares remaining available for grants
under the Company’s Restated 1975 Non-Qualified Stock Option Plan, (ii) the
Company’s 1991 two-for-one stock split and (iii) the Company’s 1998 two-for-one
stock split.

2 As adjusted to reflect the Company’s 1998 two-for-one stock split.

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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. 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, and Other Stock-Based Awards, and the price
thereof, and the Fair Market Value, as applicable, shall be appropriately and
equitably adjusted by the Committee 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.

Participants in the Plan shall be those key employees selected by the Committee
to participate in the Plan who hold positions of responsibility and whose
participation in the Plan the Committee or management of the Company determines
to be in the best interests of the Company.

Section 5. Administration.

5.1.   Committee. The Plan shall be administered by the Committee. 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 Agreements;

 

 

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

 

 

(e)   determine the content and form of all Agreements;

 

 

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

 

 

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

 

 

(h)   maintain records concerning its decisions and proceedings;

 

 

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

 

 

(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.   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.

5.4.   Delegation. Except as required by Rule 16b-3 promulgated under the Act
(and any successor to such Rule) with respect to the grant of Awards to
Participants who are subject to Section 16 of the Act, the Committee may
delegate to appropriate senior officers of the Company its duties under the Plan
pursuant to such conditions and limitations as the Committee may establish.

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 of the Plan.

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
an Option 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 10 years after the
date on which it is granted.

6.5.   Payment. Options shall be exercised by the delivery of a written notice
to the Company, setting forth the number of Shares with respect to which the
Option is to be exercised, and accompanied by full payment for the Shares. Upon
the exercise of any Option, the exercise price shall be payable by any one or
combination of the following means:

 

(a)   cash or its equivalent,

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(b)   with the prior approval of the Committee, delivery of Shares already owned
by the participant and valued at the Fair Market Value thereof at the time of
exercise,

 

 

 

(c)   with the prior approval of the Committee, a cashless exercise through a
broker-dealer approved for this purpose by the Company.

 

 

6.6.   Rights as a Shareholder. Until the exercise of an Option and the issuance
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 written Agreement
containing such provisions not inconsistent with the Plan as the Committee shall
approve.

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 which 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.

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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 written 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 14.1). 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.

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. Other Stock Based Awards and Other Benefits.

9.1.   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 

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Stock, and the payment of Shares in lieu of cash under other Company incentive
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.

9.2.   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 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.

Section 10. Amendment, Modification, and Termination of Plan.

The Board at any time may terminate or suspend the Plan, and from time to time
may amend or modify the Plan. 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 11. Termination of Employment.

11.1.   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.

11.2.   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.

11.3.   Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee at the time of grant, in the event the employment of
the Participant shall terminate for any reason other than misconduct or one
described in Section 11.1 or 11.2, 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, 

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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 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 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.

11.4.   Accrual of Right at Date of Termination. The Participant shall have the
right to exercise an Option or SAR as indicated in Sections 11.1, 11.2, and 11.3
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
Option or SAR Agreement and had not previously been exercised.

Section 12. Change in Control.

Except as otherwise provided in an Agreement, 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 13. 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

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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 11.

Section 14. Miscellaneous Provisions.

14.1.   Non-transferability of Awards. Unless otherwise determined by the
Committee, whether at the time of grant or thereafter, and except as provided in
Sections 11.2 and 14.2, no Awards granted under the Plan shall be assignable,
transferable, or payable to or exercisable by anyone other than the Participant
to whom it was granted.

14.2   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.
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.

14.3.   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.

14.4.   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. The Committee may, in its discretion, permit a
Participant to elect, subject to such conditions as the Committee shall require,
to have Shares otherwise issuable under the Plan withheld by the Company and
having a Fair Market Value sufficient to satisfy all or part of the
Participant’s estimated total federal, state, and local tax obligation
associated with the transaction.

14.5.   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.

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14.6.   Effectiveness of Plan. The Plan became effective upon its approval by
the shareholders of the Company on April 25, 1990; provided, however, that no
Award requiring the issuance 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.

14.7.   Termination of the 1975 Plan. The Company’s Restated 1975 Non-Qualified
Stock Option Plan shall be terminated as of the date of Shareholder approval of
this Plan, provided, however, that such termination shall not affect any Options
or Stock Appreciation Rights outstanding thereunder, all of which shall remain
subject to and be governed by such plan.

14.8.   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
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.

14.9.   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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