Document:

exv10w1w1

 

Exhibit 10.1.1

LIBERTY PROPERTY TRUST

AMENDED AND RESTATED SHARE INCENTIVE PLAN

     1. Purpose. The Liberty Property Trust Amended and Restated Share Incentive Plan (the “Plan”)
is intended to recognize the contributions made to Liberty Property Trust (the “Company”) by key
employees, consultants and advisors of the Company or an Affiliate (including employees who are
members of the Board of Trustees) of the Company or any Affiliate, to provide such persons with
additional incentive to devote themselves to the future success of the Company or an Affiliate, and
to improve the ability of the Company or an Affiliate to attract, retain, and motivate individuals
upon whom the Company’s sustained growth and financial success depend, by providing such persons
with an opportunity to acquire or increase their proprietary interest in the Company through
receipt of rights to acquire common shares of beneficial interest, $.001 par value per share (the
“Shares”), in the Company, and through transfers of Shares subject to conditions of forfeiture. In
addition, the Plan is intended as an additional incentive to members of the Board of Trustees (the
“Trustees”) who are not employees of the Company or an Affiliate to serve on the Board of Trustees
and to devote themselves to the future success of the Company by providing them with an opportunity
to acquire or increase their proprietary interest in the Company through the receipt of Options to
acquire Shares.

     2. Definitions. Unless the context clearly indicates otherwise, the following terms shall
have the following meanings:

     (a) “Affiliate” means a corporation which is a parent corporation or a subsidiary
corporation with respect to the Company within the meaning of Section 424(e) or (f) of the
Code. In addition, “Affiliate” means any other entity in which the Company owns an interest
which would be an Affiliate as defined in the preceding sentence but for the fact that such
entity is not a corporation. Employees of any such non-corporate affiliate shall not be
granted ISOs under the Plan.

     (b) “Award” means a grant of Shares subject to conditions of forfeiture made pursuant
to the terms of the Plan.

     (c) “Award Agreement” means the agreement between the Company and a Grantee with
respect to an Award made pursuant to the Plan.

     (d) “Awardee” means a person to whom an Award has been granted pursuant to the Plan.

 

 

     (e) “Board of Trustees” means the Board of Trustees of the Company.

     (f) “Change of Control” has the meaning as set forth in Section 10 of the Plan.

     (g) “Code” means the Internal Revenue Code of 1986, as amended.

     (h) “Committee” has the meaning set forth in Section 3 of the Plan.

     (i) “Company” means Liberty Property Trust, a Maryland real estate investment trust.

     (j) “Disability” has the meaning set forth in Section 22(e)(3) of the Code.

     (k) “Fair Market Value” has the meaning set forth in Subsection 8(b) of the Plan.

     (l) “Grantee” means a person to whom an Option or an Award has been granted pursuant
to the Plan.

     (m) “ISO” means an Option granted under the Plan which is intended to qualify as an
“incentive stock option” within the meaning of Section 422(b) of the Code.

     (n) “Non-employee Trustee “ means a member of the Board of Trustees who is not an
employee of the Company or an Affiliate and who qualifies both as a “non-employee director”
as that term is used in Rule 16b-3 and as an “outside director” as that term is used in
applicable IRS regulations promulgated under Code Section 162(m).

     (o) “Non-Executive Officer Award Committee” has the meaning set forth in Section 3 of
the Plan.

     (p) “Non-qualified Stock Option” means an Option granted under the Plan which is not
intended to qualify, or otherwise does not qualify, as an “incentive stock option” within
the meaning of Section 422(b) of the Code.

     (q) “Option” means either an ISO or a Non-qualified Stock Option granted under the
Plan.

     (r) “Optionee” means a person to whom an Option has been granted under the Plan, which
Option has not been exercised and has not expired or terminated.

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     (s) “Option Document” means the document described in Section 8 or Section 9 of the
Plan, as applicable, which sets forth the terms and conditions of each grant of Options.

     (t) “Option Price” means the price at which Shares may be purchased upon exercise of
an Option, as calculated pursuant to Subsection 8(b) or Subsection 9(a) of the Plan.

     (u) “Restricted Share” means a Share subject to conditions of forfeiture and transfer
granted to any person pursuant to an Award under the Plan.

     (v) “Retirement” shall mean a termination of an Optionee’s employment or services for
the Company or an Affiliate at any time after such Optionee has (i) reached age 65, (ii)
attained age 55 with at least 10 years of employment or services for the Company or an
Affiliate, or (iii) attained an age of 55 or greater which when combined with the
Optionee’s years of employment or services for the Company or an Affiliate equals 65.

     (w) “Rule 16b-3” means Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended, or any successor rule.

     (x) “Section 16 Officer” means any person who is an “officer” within the meaning of
Rule 16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended, or any
successor rule.

     (y) “Shares” means the shares of beneficial interest, $.01 par value per share, of the
Company.

     (z) “Trustee” means a member of the Board of Trustees.

3. Administration of the Plan. The Plan shall be administered by the Board of Trustees of the
Company if all members of the Board of Trustees are Non-employee Trustees; provided, however, that
the Board of Trustees may designate a committee or committee(s) of the Board of Trustees composed
of two or more of its Trustees to administer the Plan in its stead. If any member of the Board of
Trustees is not a Non-employee Trustee, the Board of Trustees shall (i) designate a committee
composed of two or more Trustees, each of whom is a Non-employee Trustee (the “Non-employee Trustee
Committee”), to operate and administer the Plan in its stead, (ii) designate two committees to
operate and administer the Plan in its stead, one of such committees composed of two or more of its
Non-employee Trustees (the “Non-employee Trustee Committee”) to operate and administer the Plan
with respect to the Company’s Section 16 Officers and the Trustees who are not members of the
Non-employee Trustee Committee, and another committee composed of two or more Trustees (which may
include Trustees who are not Non-employee Trustees) to operate and administer the Plan with respect
to persons other than Section 16 Officers or Trustees or (iii) designate only one committee
composed of two or more Non-employee Trustees (the “Non-employee

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Trustee Committee”) to operate and administer the Plan with respect to the Company’s Section 16
Officers and Trustees (other than those Trustees serving on the Non-employee Trustee Committee) and
itself operate and administer the Plan with respect to persons other than Section 16 Officers or
Trustees. Any of such committees designated by the Board of Trustees, and the Board of Trustees
itself in its administrative capacity with respect to the Plan, is referred to as the “Committee.”
In addition, with respect to employees who are not executive officers of the Company, the Board of
Trustees may delegate certain Committee powers to a “Non-Executive Officer Award Committee,” which
may consist of any one or more Trustees, pursuant to the provisions of Section 17 hereof. With the
exception of the timing of grants of Options, the price at which Shares may be purchased, and the
number of Shares covered by Options granted to each member of the Non-employee Trustee Committee,
all of which shall be as specifically set forth in Section 9, the other provisions set forth
herein, as it pertains to members of the Non-employee Trustee Committee, shall be administered by
the Board of Trustees.

     (a) Meetings. The Committee shall hold meetings at such times and places as it may
determine. Acts approved at a meeting by a majority of the members of the Committee or acts
approved in writing by the unanimous consent of the members of the Committee shall be the
valid acts of the Committee.

     (b) Grants and Awards. Except with respect to Options granted under Subsection 8(j)
and to Non-employee Trustee Committee Members pursuant to Section 9, the Committee shall
from time to time at its discretion direct the Company to grant Options and Awards pursuant
to the terms of the Plan. The Committee shall have plenary authority to (i) determine the
persons to whom, and the times at which Options and Awards are to be granted as well as the
terms applicable to Options and Awards, (ii) determine the type of Option to be granted and
the number of Shares subject thereto, (iii) determine the Awardees to whom, and the times
at which, Restricted Shares are granted, the number of Shares awarded, and the purchase
price per Share, if any, and (iv) approve the form and terms and conditions of the Option
Documents and Award Agreements; all subject, however, to the express provisions of the
Plan. In making such determinations, the Committee may take into account the nature of the
Grantee’s services and responsibilities, the Grantee’s present and potential contribution
to the Company’s success and such other factors as it may deem relevant. Notwithstanding
the foregoing, grants of Options to Non-employee Trustee Committee Members shall be made
exclusively in accordance with Section 9 and such other provisions of the Plan that
specifically apply to such Options. The interpretation and construction by the Committee of
any provisions of the Plan or of any Option or Award granted under it shall be final,
binding and conclusive.

     (c) Exculpation. No member of the Committee shall be personally liable for monetary
damages as such for any action taken or any failure to take any action in connection with
the administration of the Plan or the granting of Options or Awards thereunder unless (i)
the member of the Committee has breached or failed to perform the duties of his office
under applicable law and (ii)

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the breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness; provided, however, that the provisions of this Subsection 3(c) shall not
apply to the responsibility or liability of a member of the Committee pursuant to any
criminal statute or to the liability of a member of the Committee for the payment of taxes
pursuant to local, state or federal law.

     (d) Indemnification. Service on the Committee shall constitute service as a member of
the Board of Trustees. Each member of the Committee shall be entitled without further act
on his part to indemnity from the Company to the fullest extent provided by applicable law
and the Company’s Declaration of Trust and/or By-laws in connection with or arising out of
any action, suit or proceeding with respect to the administration of the Plan or the
granting of Options or Awards thereunder in which he or she may be involved by reason of
his or her being or having been a member of the Committee, whether or not he or she
continues to be such member of the Committee at the time of the action, suit or proceeding.

     4. Grants and Awards under the Plan. Options under the Plan may be in the form of a
Non-qualified Stock Option, an ISO, or Awards of Restricted Shares, or any combination thereof, at
the discretion of the Committee.

     5. Eligibility. All key employees, consultants and advisors of the Company or an Affiliate
and members of the Board of Trustees shall be eligible to receive Options and Awards hereunder. The
Committee, in its sole discretion, shall determine whether an individual qualifies as a key
employee. Notwithstanding anything to the contrary contained herein, consultants and advisors shall
only be eligible to receive Options or Awards provided bona fide services shall be rendered by such
persons, and such services are not in connection with a capital raising transaction.

     6. Shares Subject to the Plan. The aggregate maximum number of Shares for which Options or
Awards may be granted pursuant to the Plan (including Shares for which Options or Awards were
granted under the Plan prior to this restatement) is Eleven Million Four Hundred Twenty-Six
Thousand Two Hundred Fifty Six (11,426,256), subject to adjustment as provided in Section 11 of the
Plan. The Shares shall be issued from authorized and unissued Shares or Shares held in or hereafter
acquired for the treasury of the Company. If an Option terminates or expires without having been
fully exercised for any reason, or if Shares granted pursuant to an Award have been conveyed back
to the Company pursuant to the terms of an Award Agreement, the Shares for which the Option was not
exercised or the Shares that were conveyed back to the Company may again be the subject of one or
more Options or Awards granted pursuant to the Plan.

     7. Term of the Plan. The amended and restated Plan is effective as of March 23, 2004 (the
“Approval Date”), subject to the approval of the amended and restated Plan within twelve months
after the Approval Date by a majority of the votes cast at a duly called meeting of the
shareholders at which a quorum representing a majority of all outstanding voting interests of the
Company is, either in person or by proxy, present and

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voting, or by a method and in a degree that would be treated as adequate under applicable
state law in the case of an action requiring shareholder approval. No Option or Award may be
granted under the Plan ten years after the Approval Date.

     8. Option Documents and Terms. Each Option granted under the Plan shall be a Non-qualified
Stock Option unless the Option shall be specifically designated at the time of grant to be an ISO
for federal income tax purposes. To the extent any Option designated an ISO is determined for any
reason not to qualify as an incentive stock option within the meaning of Section 422 of the Code,
such Option shall be treated as a Non- qualified Stock Option for all purposes under the provisions
of the Plan. Options granted pursuant to the Plan shall be evidenced by the Option Documents in
such form as the Committee shall from time to time approve, which Option Documents shall comply
with and be subject to the following terms and conditions and such other terms and conditions as
the Committee shall from time to time require which are not inconsistent with the terms of the
Plan. However, the provisions of this Section 8 shall not be applicable to Options granted to
non-employee members of the Board of Trustees, except as otherwise provided in Subsection 9(c).

     (a) Number of Option Shares. Each Option Document shall state the number of Shares to
which it pertains. An Optionee may receive more than one Option, which may include Options
which are intended to be ISO’s and Options which are not intended to be ISO’s, but only on
the terms and subject to the conditions and restrictions of the Plan. Notwithstanding
anything to the contrary contained herein, no employee shall be granted Options to acquire
more than Seven Hundred Fifty Thousand (750,000) Shares during any calendar year.

     (b) Option Price. Each Option Document shall state the Option Price which, for a
Non-qualified Stock Option, may be less than, equal to, or greater than the Fair Market
Value of the Shares on the date the Option is granted and, for an ISO, shall be at least
100% of the Fair Market Value of the Shares on the date the Option is granted as determined
by the Committee in accordance with this Subsection 8(b); provided, however, that if an ISO
is granted to an Optionee who then owns, directly or by attribution under Section 424(d) of
the Code, interests in the Company or any parent or subsidiary corporation possessing more
than ten percent of the total combined voting power of all classes of interests of the
Company or such parent or subsidiary, then the Option Price shall be at least 110% of the
Fair Market Value of the Shares on the date the Option is granted. If the Shares are traded
in a public market, then the Fair Market Value per Share shall be, if the Shares are listed
on a national securities exchange or included in the NASDAQ National Market System, the
last reported sale price thereof on the relevant date, or, if the Shares are not so listed
or included (or if there was no reported sale on the relevant date), the mean between the
last reported “bid” and “asked” prices thereof on the relevant date, as reported on NASDAQ
or by the exchange, as applicable, or, if not so reported, as reported by the National
Daily Quotation Bureau, Inc. or as reported in a customary financial reporting service, as
applicable, or, in the event such method of determination of fair market value is

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determined to be inaccurate or such information as is needed for such determination as
set forth above is not available, as the Committee determines in good faith.

     (c) Exercise. No Option shall be deemed to have been exercised prior to the receipt
by the Company of written notice of such exercise and of payment in full of the Option
Price for the Shares to be purchased. Each such notice shall specify the number of Shares
to be purchased and shall (unless the Shares are covered by a then current registration
statement or qualified Offering Statement under Regulation A under the Securities Act of
1933, as amended (the “Act”), contain the Optionee’s acknowledgment in form and substance
satisfactory to the Company that (a) such Shares are being purchased for investment and not
for distribution or resale (other than a distribution or resale which, in the opinion of
counsel satisfactory to the Company, may be made without violating the registration
provisions of the Act), (b) the Optionee has been advised and understands that (i) the
Shares have not been registered under the Act and are “restricted securities” within the
meaning of Rule 144 under the Act and are subject to restrictions on transfer and (ii) the
Company is under no obligation to register the Shares under the Act or to take any action
which would make available to the Optionee any exemption from such registration, (c) such
Shares may not be transferred without compliance with all pplicable federal and state
securities laws, and (d) an appropriate legend referring to the foregoing restrictions on
transfer and any other restrictions imposed under the Option Documents may be endorsed on
the certificates. Notwithstanding the foregoing, if the Company determines that issuance
of Shares should be delayed pending (A) registration under federal or state securities
laws, (B) the receipt of an opinion of counsel satisfactory to the Company that an
appropriate exemption from such registration is available, (C) the listing or inclusion of
the Shares on any securities exchange or an automated quotation system or (D) the consent
or approval of any governmental regulatory body whose consent or approval is deemed
necessary in connection with the issuance of such Shares, the Company may defer exercise of
any Option granted hereunder until any of the events described in this sentence has
occurred.

     (d) Medium of Payment. An Optionee shall pay for Shares (i) in cash, (ii) by
certified or cashier’s check payable to the order of the Company, or (iii) by such other
mode of payment as the Committee may approve, including payment through a broker in
accordance with procedures permitted by Regulation T of the Federal Reserve Board.
Furthermore, the Committee may provide in an Option Document that payment may be made in
whole or in part in Shares held by the Optionee. If payment is made in whole or in part in
Shares, then the Optionee shall deliver to the Company certificates registered in the name
of such Optionee representing the Shares owned by such Optionee, free of all liens, claims
and encumbrances of every kind and having an aggregate Fair Market Value on the date of
delivery that is at least as great as the Option Price of the Shares (or relevant portion
thereof) with respect to which such Option is to be exercised by

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the payment in Shares, endorsed in blank or accompanied by stock powers duly endorsed
in blank by the Optionee. In the event that certificates for Shares delivered to the
Company represent a number of Shares in excess of the number of Shares required to make
payment for the Option Price of the Shares (or relevant portion thereof) with respect to
which such Option is to be exercised by payment in Shares, the certificate or certificates
issued to the Optionee shall represent (i) the Shares in respect of which payment is made,
and (ii) such excess number of Shares. Notwithstanding the foregoing, the Committee may
impose from time to time such limitations and prohibitions on the use of Shares to exercise
an Option as it deems appropriate.

     (e) Termination of Options.

     (i) No Option shall be exercisable after the first to occur of the following:

     (A) Expiration of the Option term specified in the Option Document,
which, in the case of an ISO, shall not occur after (1) ten years from the
date of grant, or (2) five years from the date of grant of an ISO if the
Optionee on the date of grant owns, directly or by attribution under
Section 424(d) of the Code, interests in the Company or any parent or
subsidiary corporation possessing more than ten percent (10%) of the total
combined voting power of all classes of interests of the Company or such
parent or subsidiary;

     (B) The third month anniversary of the date of termination of the
Optionee’s services or employment with the Company or an Affiliate for any
reason other than death, Disability or Retirement, or the thirty-sixth
month anniversary of the date of termination of the Optionee’s services or
employment with the Company or an Affiliate as a result of the Optionee’s
death, Disability or Retirement;

     (C) A finding by the Committee, after full consideration of the facts
presented on behalf of both the Company and the Optionee, that the
Optionee has breached his or her employment or service contract with the
Company or an Affiliate, or has been engaged in disloyalty to the Company
or an Affiliate, including, without limitation, fraud, embezzlement,
theft, commission of a felony or proven dishonesty in the course of his or
her employment or service, or has disclosed trade secrets or confidential
information of the Company or an Affiliate. In such event, in addition to
immediate termination of the Option, the Optionee shall automatically
forfeit all Shares for which the Company has not yet delivered the Share
certificates upon refund by the Company of the

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Option Price. Notwithstanding anything herein to the contrary, the
Company may withhold delivery of Share certificates pending the resolution
of any inquiry that could lead to a finding resulting in a forfeiture;

     (D) The date, if any, set by the Board of Trustees as an accelerated
expiration date in the event of the liquidation or dissolution of the
Company; or

     (E) The occurrence of such other event or events as may be set forth
in the Option Document as causing an accelerated expiration of the Option.

     (ii) Notwithstanding the foregoing, the Committee may extend the period during
which all or any portion of an Option may be exercised to a date no later than the
Option term specified in the Option Document pursuant to Subsection 8(e)(i)(A),
provided that any change pursuant to this Subsection 8(e)(ii) which would cause an
ISO to become a Non-qualified Stock Option may be made only with the consent of the
Optionee.

     (iii) The terms of an executive severance agreement or other agreement between
the Company and an Optionee, approved by the Committee, whether entered into prior
or subsequent to the grant of an Option, which provide for Option exercise dates
later than those set forth in Subsection 8(e)(i) but permitted by this Subsection
8(e)(ii) shall be deemed to be Option terms approved by the Committee and consented
to by the Optionee.

     (iv) Unless otherwise expressly permitted in the Option Document, no Option
granted pursuant to this Section 8 shall be exercisable following the termination
of the Optionee’s services as a member of the Board of Trustees or employment with
the Company or any Affiliate for any reason other than death, Disability, or
Retirement with respect to any Shares in excess of those which could have been
acquired by exercise of the Option on the date of such termination of services or
employment. Unless otherwise specified in the Option Document, upon termination of
the Optionee’s services as a member of the Board of Trustees or employment with the
Company or any Affiliate as a result of death, Disability, or Retirement, the
portion of the Option not exercisable upon such termination shall become
exercisable.

     (f) Transfers. No Option granted under the Plan may be transferred, except by will or
by the laws of descent and distribution. During the lifetime of the person to whom an
Option is granted, such Option may be exercised only by such person. Notwithstanding the
foregoing, (1) a Non-qualified Stock Option

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may be transferred pursuant to the terms of a “qualified domestic relations order,”
within the meaning of Sections 401(a)(13) and 414(p) of the Code or within the meaning of
Title I of the Employee Retirement Income Security Act of 1974, as amended, and (2) the
Committee may provide, in an Option Document, that an Optionee may transfer Options to his
or her children, grandchildren or spouse or to one or more trusts for the benefit of such
family members or to partnerships in which such family members are the only partners (a
“Family Transfer”), provided that the Optionee receives no consideration for such Family
Transfer and the Option Documents relating to Options transferred in such Family Transfer
continue to be subject to the same terms and conditions that were applicable to such
Options immediately prior to the Family Transfer.

     (g) Limitation on ISO Grants. In no event shall the aggregate Fair Market Value of
the Shares with respect to which ISOs issued under the Plan and incentive stock options
issued under any other incentive stock option plans of the Company or its Affiliates which
are exercisable for the first time by the Optionee during any calendar year exceed
$100,000. Any ISOs issued in excess of this limitation shall be treated as Non-qualified
Stock Options issued under the Plan. For purposes of this subsection 8(g), the Fair Market
Value of Shares shall be determined as of the date of grant of the ISO or other incentive
stock option.

     (h) Other Provisions. Subject to the provisions of the Plan, the Option Documents
shall contain such other provisions including, without limitation, provisions authorizing
the Committee to accelerate the exercisability of all or any portion of an Option granted
pursuant to the Plan, additional restrictions upon the exercise of the Option or additional
limitations upon the term of the Option, as the Committee shall deem advisable.

     (i) Amendment. Subject to the provisions of the Plan, the Committee shall have the
right to amend Option Documents issued to an Optionee, subject to the Optionee’s consent if
such amendment is not favorable to the Optionee, except that the consent of the Optionee
shall not be required for any amendment made pursuant to Subsection 8(e)(i)(C) or Section
10 of the Plan, as applicable.

     (j) Five or Fewer. No Options shall be granted under the Plan if, taking into account
the grant of such options, five or fewer individuals would own more than 50% of the
outstanding Shares, as computed for purposes of Code Section 856(h).

     9. Special Provisions Relating to Grants of Options to Non-Employee Members of the Board of
Trustees. Options granted pursuant to the Plan to non-employee members of the Board of Trustees
shall be granted, without any further action by the Committee, in accordance with the terms and
conditions set forth in this Section 9. Options granted pursuant to this Section 9 shall be
evidenced by Option Documents in such form as the Committee shall from time to time approve, which
Option Documents shall comply with and be subject to the following terms and conditions and such
other terms and conditions

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as the Committee shall from time to time require which are not inconsistent with the terms of
the Plan and would not cause a Non-employee Trustee to lose his or her status as a “non-employee
director” (as that term is used for purposes of Rule 16b-3) due to the grant of Options to such
person pursuant to this Section 9.

     (a) Timing of Grants; Number of Shares Subject of Options; Exercisability of Options;
Option Price. Each non-employee member of the Board of Trustees shall be granted annually,
commencing on the date of the initial public offering of Shares, and on each anniversary of
such date thereafter, an Option to purchase five thousand (5,000) Shares provided such
person is a member of the Board of Trustees on such grant date. Each such Option shall be a
Non-qualified Stock Option exercisable with respect to twenty percent (20%) of the Shares
subject to such Option after the first anniversary of the date of grant, exercisable with
respect to fifty percent (50%) of the Shares after the second anniversary of the date of
grant, and fully exercisable after the third anniversary of the date of grant. The Option
Price shall be equal to the Fair Market Value of the Shares on the date the Option is
granted.

     (b) Termination of Options Granted Pursuant to Section 9. No Option granted pursuant
to this Section 9 shall be exercisable after the first to occur of the following:

     (i) The tenth anniversary of the date of grant.

     (ii) The third month anniversary of the date of termination of the Optionee’s
services as a member of the Board of Trustees for any reason other than death,
Disability or Retirement, or the thirty-sixth month anniversary of the date of
termination of the Optionee’s services as a member of the Board of Trustees as a
result of the Optionee’s death, Disability or Retirement.

     Except as provided in Subsection 8(e)(iv), no Option granted pursuant to this Section
9 shall be exercisable following the termination of the Optionee’s services as a member of
the Board of Trustees with respect to any Shares in excess of those which could have been
acquired by exercise of the Option on the date of such termination of services.

     (c) Applicability of Section 8 to Options Granted Pursuant to Section 9. The
following provisions of Section 8 shall be applicable to Options granted pursuant to this
Section 9: Subsection 8(a) (provided that all Options granted pursuant to this Section 9
shall be Non-qualified Stock Options); the last sentence of Subsection 8(b); Subsection
8(c); Subsection 8(d) (provided that Option Documents relating to Options granted pursuant
to this Section 9 shall provide that payment may be made in whole or in part in Shares);
and Subsection 8(f) (provided that Option Documents relating to Options granted pursuant to
this Section 9 shall not permit Family Transfers).

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     10. Change of Control. In the event of a Change of Control, the Committee may take whatever
action it deems necessary or desirable with respect to the Options and Awards outstanding (other
than Options granted pursuant to Subsection 8(j) and Section 9), including, without limitation,
accelerating the expiration or termination date in the respective Option Documents to a date no
earlier than thirty (30) days after notice of such acceleration is given to the Optionees. The
Committee shall have the authority to set forth in each individual Option Document or Grant
Agreement the effect of a Change of Control on the provisions of the Option Document or Grant
Agreement including, but not limited to, provisions relating to the exercise of Options or the
lapse of the restrictions on Restricted Shares. Any amendment to this Section 10 which diminishes
the rights of Optionees, shall not be effective with respect to Options outstanding at the time of
adoption of such amendment, whether or not such outstanding Options are then exercisable.

     A “Change of Control” shall be deemed to have occurred upon the earliest to occur of the
following events: (i) the date on which the shareholders of the Company (or the Board of Trustees,
if shareholder action is not required) approve a plan or other arrangement pursuant to which the
Company will be dissolved or liquidated, or (ii) the date on which the transactions contemplated by
a definitive agreement to sell or otherwise dispose of substantially all of the assets of the
Company are consummated, other than a transaction in which the holders of the Shares immediately
prior to the transaction will have at least fifty percent (50%) of the voting power of the
acquiring entity’s voting securities immediately after such transaction (without regard to such
holders’ ownership of such acquiring entity’s voting securities immediately before or
contemporaneously with such transaction), which voting securities are to be held by such holders
immediately following such transaction in substantially the same proportion among themselves as
such holders’ ownership of the Shares immediately before such transaction, or (iii) the first date
on which (A) the transactions contemplated by a definitive agreement to merge or consolidate the
Company with or into the other constituent entity, or to merge such other entity with or into the
Company, have been consummated, other than, in any such case, a merger or consolidation of the
Company in which the holders of the Shares immediately prior to the merger or consolidation will
have at least fifty percent (50%) of the voting power of the surviving entity’s voting securities
immediately after such merger or consolidation (without regard to such holders’ ownership of such
acquiring entity’s voting securities immediately before or contemporaneously with such merger or
consolidation), which voting securities are to be held by such holders immediately following such
merger or consolidation in substantially the same proportion among themselves as such holders’
ownership of the Shares immediately before such merger or consolidation, and (B) members of the
Board of Trustees prior to the consummation of such merger or consolidation cease to constitute a
majority of the Board of Trustees, or (iv) the date on which any entity, person or group, within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended (other than the Company or any Subsidiary or any employee benefit plan sponsored or
maintained by the Company or any Subsidiary), shall have become the beneficial owner of, or shall
have obtained voting control over, more than

12

 

twenty percent (20%) of the outstanding Shares (without regard to any contractual or other
restriction on the conversion or other exchange of securities into or for Shares), or (v) the first
day after which a majority of the members of the Board of Trustees shall have been members of the
Board of Trustees for less than two (2) years, unless the nomination for election of each new
trustee who was not a trustee at the beginning of such two (2)-year period was approved by a vote
of at least two-thirds of the trustees then still in office who were trustees at the beginning of
such period.

     11. Adjustments on Changes in Capitalization.

     (a) Corporate Transactions. In the event that the outstanding Shares are changed by
reason of a reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination or exchange of shares and the like (not including the issuance
of Shares on the conversion of other securities of the Company which are outstanding on the
date of grant and which are convertible into Shares) or dividends payable in Shares, an
equitable adjustment shall be made by the Committee in the aggregate number of Shares
available under the Plan and in the number of Shares and price per Share subject to
outstanding Options. Unless the Committee makes other provisions for the equitable
settlement of outstanding options, if the Company shall be reorganized, consolidated, or
merged with another corporation, or if all or substantially all of the assets of the
Company shall be sold or exchanged, an Optionee shall at the time of issuance of the Shares
under such corporate event be entitled to receive upon the exercise of his or her Option
the same number and kind of shares or the same amount of property, cash or securities as he
or she would have been entitled to receive upon the occurrence of any such corporate event
as if he or she had been, immediately prior to such event, the holder of the number of
            shares covered by his or her Option.

     (b) Proportionate Application. Any adjustment under this Section 11 in the number of
Shares subject to Options shall apply proportionately to only the unexercised portion of
any Option granted hereunder. If fractions of a Share would result from any such
adjustment, the adjustment shall be revised to the next lower whole number of Shares.

     (c) Committee Authority. The Committee shall have authority to determine the
adjustments to be made under this Section, and any such determination by the Committee
shall be final, binding and conclusive.

     12. Terms and Conditions of Awards. Awards granted pursuant to the Plan shall be evidenced by
written Award Agreements in such form as the Committee shall from time to time approve, which Award
Agreements shall comply with and be subject to the following terms and conditions and such other
terms and conditions which the Committee shall from time to time require which are not inconsistent
with the terms of the Plan. The Committee may, in its sole discretion, shorten or waive any term or
condition with respect to all or any portion of any Award. Notwithstanding the

13

 

foregoing, all restrictions shall lapse or terminate with respect to Restricted Shares upon
the death or Disability of the Awardee. The total number of Shares which may be granted pursuant
to Awards under the Plan shall not exceed Two Million (2,000,000).

     (a) Number of Shares. Each Award Agreement shall state the number of Shares to which
it pertains.

     (b) Purchase Price. Each Award Agreement shall specify the purchase price, if any,
which applies to the Award. If the Board of Trustees specifies a purchase price, the
Awardee shall be required to make payment on or before the date specified in the Award
Agreement. An Awardee shall pay for such Shares (i) in cash, (ii) by certified check
payable to the order of the Company, or (iii) by such other mode of payment as the
Committee may approve.

     (c) Restrictions on Transfer and Forfeitures. A share certificate representing the
Restricted Shares granted to an Awardee shall be registered in the Awardee’s name but shall
be held in escrow by the Company or an appropriate officer of the Company, together with an
undated share transfer power executed by the Awardee with respect to each share certificate
representing Restricted Shares in such Awardee’s name. The Awardee shall generally have the
rights and privileges of a shareholder as to such Restricted Shares including the right to
vote such Restricted Shares and to receive and retain all cash dividends with respect to
such Shares, except that the following restrictions shall apply: (i) the Awardee shall not
be entitled to delivery of the certificate until the expiration or termination of any
period designated by the Committee (“Restricted Period”) and the satisfaction of any other
conditions prescribed by the Committee; and (ii) all distributions with respect to the
Restricted Shares other than cash dividends, such as share dividends, share splits or
distributions of property, and any distributions (other than cash dividends) subsequently
made with respect to other distributions, shall be delivered to the Company or an
appropriate officer of the Company, together with appropriate share transfer powers or
other instruments of transfer signed and delivered to the Company or appropriate officer of
the Company by the Awardee, to be held by the Company or appropriate officer of the Company
and released to either the Awardee or the Company, as the case may be, together with the
Shares to which they relate; (iii) the Awardee will have no right to sell, exchange,
transfer, pledge, hypothecate or otherwise dispose of any of the Restricted Shares or
distributions (other than cash dividends) with respect thereto; and (iv) all of the
Restricted Shares shall be forfeited and all rights of the Awardee with respect to such
Restricted Shares shall terminate without further obligation on the part of the Company
unless the Awardee has remained a regular full-time employee of the Company or an
Affiliate, any of its subsidiaries or any parent or any combination thereof until the
expiration or termination of the Restricted Period and the satisfaction of any other
conditions prescribed by the Committee applicable to such Restricted Share. Upon the
forfeiture of any Restricted Share, such forfeited shares shall be transferred to the
Company without further action by the Awardee.

14

 

     (d) Lapse of Restrictions. Upon the expiration or termination of the Restricted
Period and the satisfaction of any other conditions prescribed by the Committee as provided
for in the Plan, the restrictions applicable to the Restricted Share shall lapse and a
stock certificate for the number of shares of Common Stock with respect to which the
restrictions have lapsed shall be delivered, free of all such restrictions, except any that
may be imposed by law, to the Awardee or the beneficiary or estate, as the case may be. The
Company shall not be required to deliver any fractional share of Common Stock but will pay,
in lieu thereof, the fair market value (determined as of the date the restrictions lapse)
of such fractional share to the Awardee or the Awardee’s beneficiary or estate, as the case
may be. The Award may provide for the lapse of restrictions on transfer and forfeiture
conditions in installments. Notwithstanding the foregoing, unless the Shares are covered by
a then current registration statement or a Notification under Regulation A under the Act,
the Company may require as a condition to the transfer of Share certificates to an Awardee
under this Subsection 12(d) that the Awardee provide the Company with an acknowledgment in
form and substance satisfactory to the Company that (a) such Shares are being purchased for
investment and not for distribution or resale (other than a distribution or resale which,
in the opinion of counsel satisfactory to the Company, may be made without violating the
registration provisions of the Act), (b) the Optionee has been advised and understands that
(i) the Shares have not been registered under the Act and are “restricted securities”
within the meaning of Rule 144 under the Act and are subject to restrictions on transfer
and (ii) the Company is under no obligation to register the Shares under the Act or to take
any action which would make available to the Optionee any exemption from such registration,
(c) such Shares may not be transferred without compliance with all applicable federal and
state securities laws, and (d) an appropriate legend referring to the foregoing
restrictions on transfer may be endorsed on the certificates. Notwithstanding the
foregoing, if the Company determines that the transfer of Share certificates should be
delayed pending (A) registration under federal or state securities laws, (B) the receipt of
an opinion of counsel satisfactory to the Company that an appropriate exemption from such
registration is available, (C) the listing or inclusion of the Shares on any securities
exchange or an automated quotation system or (D) the consent or approval of any
governmental regulatory body whose consent or approval is necessary in connection with the
issuance of such Shares, the Company may defer transfer of Share certificates hereunder
until any of the events described in this sentence has occurred.

     (e) Section 83(b) Election. An Awardee who files an election with the Internal
Revenue Service to include the fair market value of any Restricted Share in gross income
while they are still subject to restrictions shall promptly furnish the Company with a copy
of such election together with the amount of any federal, state, local or other taxes
required to be withheld to enable the Company to claim an income tax deduction with respect
to such election.

15

 

     (f) Rights as Shareholder. Upon payment of the purchase price, if any, for Shares
covered by an Award and compliance with the acknowledgment requirement of subsection 12(d),
the Grantee shall have all of the rights of a shareholder with respect to the Shares
covered thereby, including the right to vote the Shares and receive all dividends and other
distributions paid or made with respect thereto, except to the extent otherwise provided by
the Committee or in the Award Agreement.

     (g) Amendment. Subject to the provisions of the Plan, the Committee shall have the
right to amend Awards issued to an Awardee, subject to the Awardee’s consent if such
amendment is not favorable to the Awardee, except that the consent of the Awardee shall not
be required for any amendment made pursuant to Section 10 of the Plan.

     13. Amendment of the Plan. The Board of Trustees of the Company may amend the Plan from time
to time in such manner as it may deem advisable. Nevertheless, the Board of Trustees of the Company
may not change the class of individuals eligible to receive an ISO or increase the maximum number
of Shares as to which Options or Awards may be granted without obtaining approval, within twelve
months before or after such action, by vote of a majority of the votes cast at a duly called
meeting of the shareholders at which a quorum representing a majority of all outstanding voting
interests of the Company is, either in person or by proxy, present and voting on the matter, or by
a method and in a degree that would be treated as adequate under applicable state law in the case
of an action requiring shareholder approval. No amendment to the Plan shall adversely affect any
outstanding Option or Award, however, without the consent of the Grantee.

     14. No Commitment to Retain. The grant of an Option or an Award pursuant to the Plan shall
not be construed to imply or to constitute evidence of any agreement, express or implied, on the
part of the Company or any Affiliate to retain the Grantee in the employ of the Company or an
Affiliate and/or as a member of the Company’s Board of Trustees or in any other capacity.

     15. Withholding of Taxes. Whenever the Company proposes or is required to deliver or transfer
Shares in connection with an Award or the exercise of an Option, the Company shall have the right
to (a) require the recipient to remit or otherwise make available to the Company an amount
sufficient to satisfy any federal, state and/or local withholding tax requirements prior to the
delivery or transfer of any certificate or certificates for such Shares or (b) take whatever other
action it deems necessary to protect its interests with respect to its tax liabilities. The
Company’s obligation to make any delivery or transfer of Shares shall be conditioned on the
Grantee’s compliance, to the Company’s satisfaction, with any withholding requirement.

     16. Interpretation. The Plan is intended to enable transactions under the Plan with respect
to Trustees and officers (within the meaning of Section 16(a) under the Securities Exchange Act of
1934, as amended) to satisfy the conditions of Rule 16b-3; to

16

 

the extent that any provision of the Plan would cause a conflict with such conditions or would
cause the administration of the Plan as provided in Section 3 to fail to satisfy the conditions of
Rule 16b-3, such provision shall be deemed null and void to the extent permitted by applicable law.
This section shall not be applicable if no class of the Company’s equity securities is then
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

     17. Non-Executive Officer Award Committee. The Board of Trustees may establish a
Non-Executive Officer Award Committee which, notwithstanding anything in this Plan to the contrary,
shall have the power, solely with respect to employees of the Company who are not executive
officers of the Company, to make Awards, subject to the following terms and limitations:

     (a) The Non-Executive Officer Award Committee may make Awards only to employees who
are not executive officers of the Company.

     (b) The maximum number of Shares that may be awarded by the Non-Executive Officer
Award Committee during any calendar year is 8,000. The maximum number of Shares that may
be granted with respect to any one Award is 1,000. No individual may receive in excess of
two Awards made by the Non-Executive Officer Award Committee in any calendar year.

     (c) The Non-Executive Officer Award Committee may set such vesting terms with respect
to the Awards as it deems appropriate.

     (d) In all other respects, the Awards made by the Non-Executive Officer Award
Committee shall be governed by the terms of the Award Agreement relating to the Award, as
appropriate and in the form then authorized by the Committee.

     (e) The powers of the Non-Executive Officer Award Committee shall be as enumerated in
this section; the Non-Executive Officer Award Committee shall not otherwise perform the
functions of the Committee under this Plan.

     (f) The Committee may also make Awards to non-executive officer employees in
accordance with the provisions of the Plan.

17SNAP-ON INCORPORATED 

COMBINED PERFORMANCE
SHARE AND 
MANAGEMENT INCENTIVE AWARD AGREEMENT 

        THIS
AGREEMENT (“Agreement”) is made and entered into as of _______, ____ by and
between SNAP-ON INCORPORATED, a Delaware corporation (the “Company”), and
_______________, an employee of the Company or of a subsidiary of the Company (the
“Key Employee”). 

W I T N E S S E T H : 

        WHEREAS,
the Organization and Executive Compensation Committee of the Board of Directors of the
Company (such committee, whether acting as such or through the ad hoc committee of the
Board to which such committee delegated its authority in connection with this Agreement,
the “Committee”), by actions of the Committee on ______, approved the grant (the
“Grant”) to the Key Employee of _______ (the “Grant Number”)
Performance Shares and the opportunity to receive a cash amount (the “Incentive
Award”) pursuant to the Company’s 2001 Incentive Stock and Awards Plan (the
“Awards Plan”), to be effective ________; 

        WHEREAS,
the Key Employee may elect to defer receipt of the Performance Shares and/or the Incentive
Award by executing an Election to Defer Compensation (the “Deferral Election”)
at a later date; and 

        WHEREAS,
the Grant contemplated that the Grant will also be subject to the terms of an award
agreement, the form of which is to be determined by the Company, and this Agreement is
intended to serve as the additional agreement that the Grant contemplated. 

        NOW,
THEREFORE, in consideration of the premises and of the covenants and agreements herein set
forth, the parties hereby mutually covenant and agree as follows: 

     	1.	
          Performance Shares. Subject to the terms and conditions set forth herein,
          as of _______, _____, the Company hereby awards to the Key Employee ______
          Performance Shares which the Key Employee shall have the right to receive
          subject to the conditions set forth below. Except as otherwise provided herein,
          no Performance Share may be sold, transferred or otherwise alienated or pledged. 

          

	 	
Performance
Shares are used solely to calculate the number of actual Shares that the Key Employee may
earn in accordance with this Agreement, and do not create any separate rights or
entitlements. Performance Shares represent the Company’s unfunded and unsecured
promise to issue Shares at a future date, subject to the terms and conditions of this
Agreement and the Awards Plan. The Key Employee has no rights under this Agreement other
than the rights of a general unsecured creditor of the Company. 

	 	
Capitalized
terms used but not defined in this Agreement shall have the meanings assigned to them in
the Awards Plan.  

2 

	2. 	Right
to Receive and Forfeiture Based on Performance. Subject to the
                    terms and conditions set forth herein,  

	 	(a)  	The
number of Performance Shares earned, and payment of the Incentive Award, is
                    dependent upon performance relative to revenue growth and RONAEBIT
goals during                     fiscal 2005, fiscal 2006 and fiscal 2007. The threshold,
target and maximum                     goals for revenue growth and RONAEBIT during
fiscal 2005, fiscal 2006 and fiscal                     2007 are as shown on Exhibit 1,
and the Key Employee will be entitled to                     Shares subject to
Performance Shares, and the Incentive Award will be earned, in
                    accordance with the vesting matrix attached hereto as Exhibit 1 based
on                     actual performance of the Company relative to the goals subject to
the terms                     attached hereto as Exhibit 2. As soon as practicable
after the                     Company’s audited financial statements for fiscal
2005, fiscal 2006 and                     fiscal 2007 are available to the Committee, the
Committee shall calculate the                     Company’s revenue growth and
RONAEBIT data for such years in accordance                     with the terms attached
hereto as Exhibit 2. The Committee shall then                     plot the revenue
growth and RONAEBIT data on the vesting matrix. The resulting
                    position on the matrix shall determine the percentage of the Grant
Number of                     Performance Shares and the Incentive Award that the Key
Employee will earn, as                     set forth below. In the course of calculating
the Company’s revenue growth                     and RONAEBIT data and plotting the
revenue growth and RONAEBIT data on the                     vesting matrix, the Committee
shall have the discretion to take action in light                     of the effects of
Costs for Continuous Improvement Initiatives (as defined on Exhibit 2) that
reduces the resulting percentage in such manner and to                     such extent as
the Committee determines in its sole discretion. However, the
                    Committee shall have no discretion to take into account the effects
of Special                     Charges in a manner that increases the resulting
percentage. The Company shall                     promptly communicate this information
to the Key Employee.  

	 	(b)  	Unless
the Key Employee has previously forfeited such Performance Shares and the
                    Incentive Award, if the position on the matrix reflects a percentage
greater                     than 25% and less than or equal to 100%, then the number of
Performance Shares                     that the Key Employee shall earn shall be equal to
the product of such                     percentage and the Grant Number. In addition, the
Key Employee will earn an                     Incentive Award equal to the product of the
number of the Performance Shares                     that the Key Employee earned and
$31.73 (the closing price for a share of the                     Company’s Common
Stock on March 18, 2005). Upon the Committee’s                     determination as
provided above, the Key Employee will forfeit any Performance                     Shares
that the Key Employee has not become entitled to.  

	 	(c)  	If
the position on the matrix reflects a percentage greater than 100%, then the
                    Key Employee shall earn the Grant Number of Performance Shares and
cash with                     respect to the Incentive Award equal to the Grant Number
multiplied by $31.73.                     Unless the Key Employee has previously
forfeited the right to earn the Incentive                     Award, if the position on
the matrix reflects a percentage greater than 100%,                     then the Key
Employee will receive additional cash in respect the Incentive                     Award
equal to the product of the percentage in excess of 100%, but not greater
                    than 50%, multiplied by the Grant Number of Performance Shares
multiplied by two                     multiplied by $31.73.  

3 

	 	(d)  	Following
the Committee’s determination of the number of Performance Shares
                    that have been earned, such Performance Shares will be converted into
an                     equivalent number of Shares that will be distributed to the Key
Employee or, in                     the event of the Key Employee’s death, to the
Beneficiary (as defined                     below), as soon as practicable. The
distribution to the Key Employee, or in the                     case of the Key Employee’s
death, to the Beneficiary, of Shares in respect                     of the Performance
Shares that were earned shall be evidenced by a stock                     certificate or
other appropriate means as determined by the Company.  

	 	(e)  	If
any calculation of Shares to be awarded would result in a fraction, any
                    fraction of 0.5 or greater will be rounded to one, and any fraction
of less than                     0.5 will be rounded to zero.  

	3. 	Forfeiture
Based on Employment Status. Subject to the terms and                     conditions
set forth herein,  

	 	(a)  	In
addition to any rights of the Company under Section 4, the Key Employee will
                    not have a right to any Performance Shares or any Incentive Award
payment as to                     which the Committee has not made its determination
under Section 2 and not                     otherwise vested under Section 5 if the Key
Employee’s employment with the                     Company or its subsidiaries is
terminated for any reason prior to such                     determination unless in the
case of termination by the Company or a subsidiary                     the Committee
determines, on such terms and conditions, if any, as the Committee
                    may impose, that there may nonetheless be the right to receive all or
a portion                     of the award at the time of such determination or at any
other time. Absence of                     the Key Employee on leave approved by a duly
elected officer of the Company,                     other than the Key Employee, shall
not be considered a termination of employment                     during the period of
such leave.  

	 	(b)  	Notwithstanding
the foregoing, in the case of termination of employment as a                     result
of death, Disability (as defined below) or Retirement (as defined below),
                    the Key Employee will have the right to earn Performance Shares, and
the Key                     Employee’s entitlement to cash in respect of the
Incentive Award will be                     determined, based upon the Company’s
actual performance relative to the                     revenue growth and RONAEBIT goals
over the full performance period, but in lieu                     of the amounts under
Section 2(b) and (c), the respective amounts, if any,                     determined
under those subsections shall be reduced by multiplying such amounts
                    by a fraction representing the portion of the three-year period that
elapsed                     before the termination of the Key Employee’s employment.  

	 	(c)  	Whether
or not a divestiture of a subsidiary, division or other business unit
                    (including through the formation of a joint venture) results in
termination of                     employment with the Company and its subsidiaries will
be at the discretion of                     the Committee, which discretion the Committee
may exercise on a case by case                     basis.  

4 

	 	(d)  	As
used herein,  

               	 	(i) 	
                    “Disability” means a medically-determinable physical or mental
                    condition that is expected to be permanent and that results in the Key Employee
                    being unable to perform one or more of the essential duties of the Key
                    Employee’s occupation or a reasonable alternative offered by the Company or
                    its subsidiaries, all as determined by the Committee or any successor to such
                    committee that administers the Awards Plan (as the same may be amended). 

                    

               	 	(ii) 	
                    “Retirement” means termination of employment from the Company and its
                    subsidiaries on or after satisfying the early or normal retirement age and
                    service conditions specified in the retirement policy or retirement plan of the
                    Company or one of its subsidiaries applicable to such Key Employee as in effect
                    at the time of such termination. 

                    

	4. 	Detrimental
Activity.  

	 	(a)  	Activity
During Employment. If, prior to termination of the Key                     Employee’s
employment with the Company or during the one-year period                     following
termination of the Key Employee’s employment with the Company,
                    the Company becomes aware that, prior to termination, the Key
Employee had                     engaged in detrimental activity, then the Committee in
its sole discretion, for                     purposes of this Agreement, may characterize
or recharacterize termination of                     the Key Employee’s employment
as a termination to which this Section 4                     applies and may determine or
redetermine the date of such termination, and the                     Key Employee’s
rights with respect to the Grant shall be determined in                     accordance
with the Committee’s determination.  

	 	(b)  	Activity
Following Termination. If, within the three-month period
                    following the Key Employee’s termination of employment with the
Company,                     the Company becomes aware that the Key Employee has engaged
in detrimental                     activity subsequent to termination, then the Key
Employee’s rights with                     respect to the Grant shall be determined
in accordance with any determination by                     the Committee under this
Section 4.  

	 	(c)  	Remedies.
If the Key Employee has engaged in detrimental activity as                     described
in subsections (a) and (b), then the Committee may, in its discretion,
                    declare that the Key Employee has forfeited the Grant in whole or in
part and                     cause the Company to cause the Key Employee to return any
cash or property                     actually realized by the Key Employee (directly or
indirectly) in respect of the                     Grant, in each case whether or not the
Committee has made a vesting                     determination under Section 2 in respect
thereof before or after the date the                     Key Employee engaged in the
detrimental activity or before or after the date of                     termination as
determined or redetermined under subsection (a).  

5 

	 	(d)  	Allegations
of Activity. If an allegation of detrimental activity by the                     Key
Employee is made to the Committee, then the Committee may suspend the Key
                    Employee’s rights in respect of the Grant to permit the
investigation of                     such allegation.  

	 	(e)  	Definition
of “Detrimental Activity.” For purposes of this
                    Agreement, “detrimental activity” means activity that is
determined by                     the Committee in its sole discretion to be detrimental
to the interests of the                     Company or any of its subsidiaries, including
but not limited to situations                     where the Key Employee (i) divulges
trade secrets of the Company, proprietary                     data or other confidential
information relating to the Company or to the                     business of the Company
or any subsidiaries, (ii) enters into employment with a                     competitor
under circumstances suggesting that the Key Employee will be using
                    unique or special knowledge gained as an employee of the Company to
compete with                     the Company, (iii) uses information obtained during the
course of his prior                     employment with the Company for his own purposes,
such as for the solicitation                     of business and competition with the
Company, (iv) is determined to have                     engaged (whether or not
prior to termination due to retirement) in either gross                     misconduct or
criminal activity harmful to the Company, or (v) takes any
                    action that harms the business interests, reputation or goodwill of
the Company                     and/or its subsidiaries.  

	5. 	Change
in Control. In the event of a “Change of Control” (as
                    defined in the Awards Plan) prior to the Committee’s
determination under                     Section 2(a),  

	 	(a)  	Any
Performance Shares shall be treated as provided in the Awards Plan, unless
                    the Key Employee has previously forfeited the right to receive such
Performance                     Shares; and  

	 	(b)  	Notwithstanding
their treatment under the terms of the Awards Plan, the Company                     will
immediately make payment in respect of the Incentive Award assuming
                    performance at maximum levels for the entire period.  

	6. 	Voting
Rights; Dividends and Other Distributions.  

	 	(a)  	Until
the Key Employee receives Shares pursuant to Section 2(d), the Key
                    Employee will not have any voting rights with respect to the
Performance Shares.  

	 	(b)  	Until
the Key Employee is entitled to receive Shares pursuant to Section 2(d)
                    and subject to any forfeiture thereof, all dividends and other
distributions                     that would be paid with respect to the Performance
Shares shall be subject to                     the same restrictions as the Performance
Shares with respect to which they were                     paid.  

	 	(c)  	There
shall be no dividend right associated with the Incentive Award.  

6 

	 	(d)  	Subject
to the provisions of this Agreement, the Key Employee shall have, with
                    respect to the Performance Shares, all other rights of holders of
Common Stock.  

	7. 	Tax
Withholding; Repurchase.  

	 	(a)  	It
shall be a condition of the obligation of the Company to issue Shares subject
                    to the Performance Share to the Key Employee or the Beneficiary, and
the Key                     Employee agrees, that the Key Employee shall pay to the
Company, upon its                     demand, such amount as may be requested by the
Company for the purpose of                     satisfying its liability to withhold
federal, state, or local income or other                     taxes incurred by reason of
the award or as a result of the vesting hereunder or                     shall provide
evidence satisfactory to the Company that the Company has no
                    liability to withhold. The Company may withhold from cash payable in
respect of                     the Incentive Award such amount as may be determined by
the Company for the                     purpose of satisfying its liability to withhold
federal, state, or local income                     or other taxes incurred by reason of
such payment.  

	 	(b)  	At
each time the Company is obligated to issue Shares subject to the Performance
                    Shares to the Key Employee or the Beneficiary, the Key Employee or
the                     Beneficiary, as the case may be, may elect to have the Company
repurchase up to                     40% of the Shares to be so issued or released at a
price equal to the Fair                     Market Value (as defined below) on the Tax
Date (as defined below). The election                     must be delivered to the
Company within 30 days after the Tax Date. If the                     number of shares so
determined shall include a fractional share, then the                     Company shall
not be obligated to repurchase such fractional share. All                     elections
shall be made in a form acceptable to the Company. As used herein, (i)
                    “Tax Date” means the date on which the Key Employee must
include in                     his gross income tax purposes the fair market value of the
Performance Shares                     and (ii) “Fair Market Value” means the
per share closing price on the                     date in question in the principal
market in which the Common Stock is then                     traded or, if no sales of
Common Stock have taken place on such date, the                     closing price on the
most recent date on which selling prices were quoted.  

	8. 	Beneficiary.  

	 	(a)  	The
person whose name appears on the signature page hereof after the caption
                    “Beneficiary” or any successor that the Key Employee
designates in                     accordance herewith (the person who is the Key Employee’s
Beneficiary at                     the time of his death herein referred to as the “Beneficiary”)
shall                     be entitled to receive the Shares subject to the Performance
Shares that the Key                     Employee was entitled to and the Incentive Award
that is earned following the                     death of the Key Employee. The Key
Employee may from time to time revoke or                     change his Beneficiary
without the consent of any prior Beneficiary by filing a                     new
designation with the Committee. The last such designation that the Committee
                    receives shall be controlling; provided, however, that no
designation, or change                     or revocation thereof, shall be effective
unless received by the Committee prior                     to the Key Employee’s
death, and in no event shall any designation be                     effective as of a
date prior to such receipt.  

7 

	 	(b)  	If
no such Beneficiary designation is in effect at the time of the Key
                    Employee’s death, or if no designated Beneficiary survives the
Key Employee                     or if such designation conflicts with law, then the Key
Employee’s estate                     shall be entitled to receive the Shares
subject to the Performance Shares that                     the Key Employee was entitled
to and the Incentive Award that is earned                     following the death of the
Key Employee. If the Committee is in doubt as to the                     right of any
person to receive such Shares and/or Incentive Award, then the
                    Company may retain such Performance Shares and the cash payment
associated with                     the Incentive Award, without liability for any
interest thereon, until the                     Committee determines the person entitled
thereto, or the Company may deliver                     such Shares and the cash payment
associated with the Incentive Award to any                     court of appropriate
jurisdiction, and such delivery shall be a complete                     discharge of the
liability of the Company therefor.  

	9. 	Adjustments
in Event of Change in Stock. In the event of any
                    reclassification, subdivision or combination of shares of Common
Stock, merger                     or consolidation of the Company or sale by the Company
of all or a portion of                     its assets, or other event which could, in the
judgment of the Committee,                     distort the implementation of the Grant or
the realization of its objectives,                     the Committee may make such
adjustments in the Grant Number and the number of                     Performance Shares
under this Agreement, or in the terms, conditions or                     restrictions of
this Agreement, as the Committee deems equitable; provided that                     in
the absence of express action by the Committee, adjustments that apply
                    generally to Performance Shares granted under the Awards Plan shall
apply                     automatically to the Performance Shares under this Agreement.  

	10. 	Powers
of the Company Not Affected. The existence of the Grant shall not
                    affect in any way the right or power of the Company or its
stockholders to make                     or authorize any combination, subdivision or
reclassification of the Common                     Stock or any reorganization, merger,
consolidation, business combination,                     exchange of shares, or other
change in the Company’s capital structure or                     its business, or
any issue of bonds, debentures or stock having rights or                     preferences
equal, superior or affecting the Common Stock or the rights thereof,
                    or dissolution or liquidation of the Company, or any sale or transfer
of all or                     any part of its assets or business, or any other corporate
act or proceeding,                     whether of a similar character or otherwise.
Nothing in this Agreement shall                     confer upon the Key Employee any
right to continue in the employment of the                     Company or interfere with
or limit in any way the right of the Company to                     terminate the Key
Employee’s employment at any time.  

	11. 	Interpretation
by Committee. The Key Employee agrees that any dispute or
                    disagreement that may arise in connection with this Agreement shall
be resolved                     by the Committee, in its sole discretion, and that any
interpretation by the                     Committee of the terms of this Agreement or the
Awards Plan and any                     determination made by the Committee under this
Agreement or such plan may be                     made in the sole discretion of the
Committee and shall be final, binding, and                     conclusive.  

8 

	12. 	Miscellaneous.  

	 	(a)  	This
Agreement shall be governed and construed in accordance with the laws of
                    the State of Wisconsin applicable to contracts made and to be
performed therein                     between residents thereof.  

	 	(b)  	This
Agreement may not be amended or modified except by the written consent of
                    the parties hereto.  

	 	(c)  	The
captions of this Agreement are inserted for convenience of reference only
                    and shall not be taken into account in construing this Agreement.  

	 	(d)  	Any
notice, filing or delivery hereunder or with respect to the Grant shall be
                    given to the Key Employee at either his usual work location or his
home address                     as indicated in the records of the Company, and shall be
given to the Committee                     or the Company at 10801 Corporate Drive,
Kenosha, Wisconsin 53142, Attention:                     Secretary. All such notices
shall be given by first class mail, postage                     pre-paid, or by personal
delivery.  

	 	(e)  	This
Agreement shall be binding upon and inure to the benefit of the Company and
                    its successors and assigns and shall be binding upon and inure to the
benefit of                     the Key Employee, the Beneficiary and the personal
representative(s) and heirs                     of the Key Employee, except that the Key
Employee may not transfer any interest                     in any Performance Shares.  

9 

        IN
WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly
authorized officer, and the Key Employee has hereunto affixed his hand, all on the day and
year set forth above. 

		
	 	SNAP-ON INCORPORATED
	 	

By: ______________________________________
	 	Title:
	 	

Key Employee:

__________________________________________
	 	
Beneficiary: _________________________________
	 	
Address of Beneficiary:

___________________________________________

___________________________________________
	 	

Beneficiary Tax Identification
	 	
No. _______________________________________

10 

Exhibit 2  

		 

	1. 	“RONAEBIT” for
purposes of the vesting matrix means a fraction                expressed as a percentage
where (i) the numerator is Operating Income (as                defined below) and (ii)
the denominator is average net assets employed.                “Operating Income” means
earnings from continuing operations before                income taxes (including net
finance income) plus interest expense less other                income (expense) – net
(i.e., less other income plus other expense)                plus Costs for
Continuous Improvement Initiatives (as defined below). “Net                assets
employed” means total assets minus cash and cash equivalents and
               minus all liabilities excluding short-term and long-term debt. “Average
net                assets employed” for a period means the average of net assets
employed at                the end of the immediately preceding fiscal period and at the
end of each fiscal                quarter during the period as reflected in the Company’s
final consolidated                balance sheet for the quarter that is prepared as part
of the financial                statements used in the preparation of the Company’s
externally reported                financial statements.  

	2. 	RONAEBIT
for purposes of the vesting matrix will be calculated based upon                Operating
Income for the period consisting of fiscal 2005, fiscal 2006 and                fiscal
2007 and average net assets employed for the same period.  

	3. 	Revenue
growth for purposes of the vesting matrix will be calculated by                comparing
the Company’s consolidated net sales for fiscal 2007 with the net
               sales amounts set forth on the matrix.  

	4. 	The
amount of each component of a calculation will be determined by reference to
               the Company’s audited financial statements for the year(s) in
question or                the notes thereto to the extent reflected therein and, if not
reflected therein,                by reference to the Company’s unaudited financial
statements or the notes                thereto contained in the Company’s periodic
reports filed with the                Securities and Exchange Commission to the extent
reflected therein and, if not                reflected therein, by reference to the
Company’s publicly disclosed                earnings release for the relevant period
and, if not reflected therein, by                reference to the Company’s final
consolidated balance sheet for the month                that is prepared as part of the
financial statements used in the preparation of                the Company’s
externally reported financial statements.  

	5. 	There
is graduated, proportionate vesting between the threshold and target
               goals. There is also graduated, proportionate vesting between the target
and                outstanding goals.  

	6. 	“Costs
for Continuous Improvement Initiatives” consist of costs                associated
with exit or disposal activities (as defined by Statement of                Financial
Accounting Standards (“SFAS”) No. 146), non-recurring                charges
and non-comparable charges. Costs or charges will not be Cost for
               Continuous Improvement Initiatives if: (i) the cost or charge would cause
an                award to fail to qualify for the performance-based exception under
               Section 162(m) of the Internal Revenue Code or (ii) the
committee of                the Board that the Board has established to assist in the
administration of the                Plan (the “Ad Hoc Committee”) in its sole
discretion determines that a                charge or other expense shall not be
considered a Cost for Continuous                Improvement Initiatives (regardless of
whether the cost or charge would                otherwise qualify as a Cost for
Continuous Improvement Initiatives).                Non-recurring charges consist of
charges related to exit or disposal activities                that do not meet the
requirements of SFAS No. 146, such as the write-off of                inventory or
transition costs that are incurred as a result of exit or disposal
               activities and will benefit future operations, as well as non-exit or
disposal                activity related charges that are considered non-recurring in
nature.                Non-comparable charges consist of costs that do not qualify to be
included in                one of the two proceeding categories but are considered
one-time, unusual                charges and are reflected as such in the Company’s
publicly disclosed                earnings release for the relevant period. To the extent
terms used above have                meanings under U.S. GAAP, such meanings shall
control.  

11 

	7. 	Except
to the extent that doing so would cause an award to fail to qualify for
               the performance-based exception under Section 162(m) of the Internal
               Revenue Code, the threshold, target and maximum goals for revenue growth
and                RONAEBIT will be adjusted upward or downward as appropriate to
eliminate the                effects of acquisitions and divestitures subject to the
following.  

          	 	(a) 	
               There will be adjustments only where there is an acquisition or divestiture (or
               a combination of multiple acquisitions or divestitures) of a subsidiary,
               division or other business unit that had revenues during its last full fiscal
               year equal to 1% or more of the Company’s budgeted consolidated net sales
               during the year the acquisition or divestiture occurs as reflected in the
               Company’s overall annual operating plan as of the commencement of the year
               as presented to the Company’s Board of Directors at its February meeting
               (the “Final AOP”). 

               

          	 	(b) 	
               Adjustments to Revenue Goals. If an acquisition occurs in 2005 or 2006,
               then the Ad Hoc Committee will adjust the net sales amounts set forth on the
               vesting matrix upward by an amount that is at least equal to the projected
               revenue for the acquired business in 2007 as reflected in the financial
               projections for the acquired business used as the basis for approval of the
               Company’s acquisition purchase price decision by the Company’s Board
               of Directors or the highest authority within the Company approving that decision
               (the “Pricing Projections”). If an acquisition occurs in 2007, then
               the Ad Hoc Committee will adjust the net sales amounts set forth on the vesting
               matrix upward by an amount that is at least equal to the projected revenue for
               the acquired business in 2007, as reflected in the Pricing Projections for the
               acquired business, multiplied by a fraction representing the portion of fiscal
               2007 occurring after the acquisition. If a divestiture occurs in 2005 or 2006,
               then the Ad Hoc Committee will adjust the net sales amounts set forth on the
               vesting matrix downward by an amount that is no greater than the budgeted
               revenue for the divested business in the last Final AOP for which the divested
               business was included. If a divestiture occurs in 2007, then the Ad Hoc
               Committee will adjust the net sales amounts set forth on the vesting matrix
               downward on a pro rata basis by an amount that is no greater than the budgeted
               revenue for the divested business in 2007, as reflected in the Final AOP as of
               the commencement of fiscal 2007, multiplied by a fraction representing the
               portion of fiscal 2007 occurring after the divestiture. 

               

          	 	(c) 	
               Adjustments to RONAEBIT Goals. If there is an acquisition or divestiture,
               then the RONAEBIT percentages on the vesting matrix will be recalculated as set
               forth below. 

               

12 

	 	
“Unadjusted
Operating Income” will be estimated as the product obtained by multiplying the
RONAEBIT percentage on the vesting matrix by $1,291,800,000 (which is the net assets of
the close of fiscal 2004). 

	 	
For
an acquisition, the Company’s Unadjusted Operating Income will be adjusted upward by
an amount determined by the Ad Hoc Committee that is at least equal to the projected
Operating Income for the acquired business for the remaining term of the plan cycle, as
reflected in the Pricing Projections for the acquired business, divided by the total
number of years in the plan cycle. For an acquisition, the Company’s net assets as of
the close of fiscal 2004 will be adjusted upward by an amount determined by the Ad Hoc
Committee that is no greater than the projected average net assets of the acquired
business for the remaining term of the plan cycle, as reflected in the Pricing Projections
for the acquired business, multiplied by the number of quarter ends remaining in the plan
cycle and divided by thirteen. 

	 	
For
a divestiture, the Company’s Unadjusted Operating Income will be adjusted downward by
an amount determined by the Ad Hoc Committee that is no greater than the budgeted
Operating Income for the divested business for the year in which the divestiture occurs as
reflected in the Final AOP as of the commencement of such year divided by twelve and
multiplied by the number of months remaining in the plan cycle divided by the total number
of months in the plan cycle. For a divestiture, the Company’s net assets as of the
close of fiscal 2004 will be adjusted downward by an amount determined by the Ad Hoc
Committee that is at least equal to the budgeted net assets for the divested business for
the year in which the divestiture occurs as reflected in the Final AOP as of the
commencement of such year multiplied by the number of quarter ends remaining in the plan
cycle divided by thirteen. 

	 	
The
RONAEBIT percentages on the vesting matrix will be recalculated by dividing the adjusted
Operating Income by the adjusted net assets (on an annualized basis). 

13

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