Exhibit 10(d)(x) to the Annual Report
on Form 10-K of W.W. Grainger, Inc.
for the year ended December 31, 1998
CHANGE IN CONTROL EMPLOYMENT AGREEMENT
(Senior Executive)
AGREEMENT by and between W.W. Grainger, Inc., an Illinois corporation
(the "Company"), and [[Officer]] ("Executive"), dated as of March ___ , 1999
(the "Agreement Date").
Recitals
A. The Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of Executive,
notwithstanding the possibility, threat, or occurrence of a Change in Control
(as defined below) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control, to encourage Executive's
full attention and dedication to the Company, and to provide Executive with
compensation and benefits arrangements upon a Change in Control which (i) will
satisfy Executive's compensation and benefits expectations and (ii) are
competitive with those of other major corporations.
Agreement
In consideration of the mutual agreements contained herein, the Company
and Executive hereby agree as follows:
1. Certain Definitions. The terms set forth below in alphabetical order
have the following meanings (such meanings to be applicable to both the singular
and plural forms):
"Accrued Annual Bonus" means the amount of any Annual Bonus accrued but
not yet paid with respect to each fiscal year of the Company ended prior to the
Date of Termination.
"Accrued Base Salary" means the amount of Executive's Annual Base
Salary which is accrued but not yet paid as of the Date of Termination.
"Accrued Obligations" -- see Section 4(a)(i)(A).
"Agreement Term" means the period commencing on the Agreement Date and
ending on the third anniversary of such date or, if later, such later date to
which the Agreement Term is extended pursuant to the following sentence. On each
day after the second anniversary of the Agreement Date, the Agreement Term shall
be automatically
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extended by one day to create a new one-year term until, at any time on or after
the second anniversary of the Agreement Date, the Company delivers a written
notice (an "Expiration Notice") to Executive stating that this Agreement shall
expire on a date specified in the Expiration Notice (the "Expiration Date") that
is at least 12 months after the date the Expiration Notice is delivered to
Executive; provided, however, that if a Change in Control occurs before the
Expiration Date specified in an Expiration Notice, then (a) such Expiration
Notice shall automatically be cancelled and of no further effect and (b) the
Company shall not give Executive any additional Expiration Notice prior to the
date which is 24 months after the Effective Date.
"Annual Base Salary" -- see Section 2(b)(i).
"Annual Bonus" -- see Section 2(b)(ii).
"Cause" -- see Section 3(b).
"Change in Control" means any one or more of the following events:
(A) approval by the shareholders of the Company of:
(i) 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 the Company's 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 beneficially owners, directly or indirectly,
of at least 60% of the then-outstanding common shares and the
combined voting power of the then-outstanding Voting
Securities ("Voting Power") of the corporation or other Person
surviving or resulting from such merger, reorganization or
consolidation (or the parent corporation thereof) in
substantially the same respective proportions as their
beneficial ownership, immediately before the consummation of
such merger, reorganization or consolidation, of the
then-outstanding Common Stock and Voting Power of the Company;
or
(ii) 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
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Power of the Company immediately before the consummation of
such sale or other disposition; or
(iii) a liquidation or dissolution of the
Company; or
(B) the following individuals cease for any reason to
constitute a majority of the directors of the Company then serving:
individuals who, on the Agreement 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 nomination for election
was previously so approved or recommended or who were directors on the
Agreement Date; or
(C) 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, the Company, any Subsidiary, any
employee benefit plan of the Company or a Subsidiary, of beneficial
ownership (as such term is used in Rule 13d-3 under the Act) of 20% or
more of either the Company's then-outstanding Common Stock or Voting
Power; provided that:
(i) 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;
(ii) no Change in Control shall be deemed to
have occurred solely by reason of any such acquisition if both
(x) after giving effect to 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 (B)
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
(iii) no Change in Control shall be deemed
to have occurred solely by reason 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 (A)(i) of
this definition.
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Notwithstanding the occurrence of any of the foregoing events, no Change in
Control shall occur with respect to Executive if (i) the event which otherwise
would have be a Change in Control (or the transaction which resulted in such
event) was initiated by Executive or was discussed by him with any third party,
in either case without the approval of the Board with respect to Executive's
initiation or discussion, as applicable, or (ii) Executive is, by written
agreement, a participant on his own behalf in a transaction in which the persons
(or their affiliates) with whom Executive has the written agreement cause the
Change in Control to occur and, pursuant to the written agreement, Executive has
an equity interest (or a right to acquire such equity interest) in the resulting
entity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Date of Termination" means the effective date of any termination of
Executive's employment for any or no reason, whether by the Company or by
Executive, as specified in the Notice of Termination; provided, however, that if
Executive's employment is terminated by reason of his death or Disability, the
Date of Termination shall be the date of death of or the Disability Effective
Date, as the case may be.
"Effective Date" means the first date during the Agreement Term on
which a Change in Control occurs. Anything in this Agreement to the contrary
notwithstanding, if Executive's employment with the Company is terminated prior
to the date on which a Change in Control occurs, and Executive reasonably
demonstrates that such termination of employment (i) was requested by a third
party who has taken steps reasonably calculated to effect the Change in Control
or (ii) otherwise arose in connection with or anticipation of the Change in
Control, then for all purposes of this Agreement the Effective Date shall be the
date immediately prior to the Date of Termination.
"Employment Period" means the period commencing on the Effective Date
and ending on the third anniversary of such date.
"Exempt Person" means any one or more of the following:
(a) 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");
(b) 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");
(c) any trust which is in existence on the Agreement 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 Agreement Date, and The
Grainger Founda-
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tion (such trusts, estates and named entity collectively defined as the
"Grainger Family Entities");
(d) any trust which is in existence on the Agreement 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 Agreement 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");
(e) any estate of a Family Member who dies after the Agreement
Date or any trust established after the Agreement Date by one or more Family
Members or Existing Family Entities; provided that one or more Family Members,
Existing Family Entities or charitable organizations which qualify as exempt
organizations under Section 501(c) of the Code ("Charitable Organizations"),
collectively are the beneficiaries of at least 50% of the actuarially-determined
beneficial interests in such estate or trust;
(f) any Charitable Organization which is established by one or
more Family Members or Existing Family Entities (a "Family Charitable
Organization");
(g) 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 (e) above, or Family Charitable Organizations; or
(h) 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 (e) above, or
Family Charitable Organizations.
"Formula Bonus" means the greater of:
(a) the average dollar amount of annual bonus paid or payable
to Executive during the three fiscal years preceding the Date of
Termination (any such annual bonus amount to be annualized for any
fiscal year consisting of less than 12 full months or with respect to
which Executive has been employed by the Company for less than 12 full
months), or
(b) the amount of the Annual Bonus which Executive was, as of
the Date of Termination, eligible to receive in respect of the fiscal
year of the Date of Termination, assuming for purposes of this
paragraph (i) that target-level performance had been achieved for such
fiscal year, (ii) that Executive's employment would have continued
until the first date on which such Annual Bonus would have been
payable, and (iii) if the amount of such Annual Bonus that Executive
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was eligible to receive was reduced after the Effective Date (whether
or not such reduction qualified as Good Reason), that such reduction
had not occurred.
"Good Reason" -- see Section 3(c).
"Gross-Up Multiple" -- see Section 9(e).
"Highest Profit Sharing Plan Contribution" -- see Section 2(b)(iii).
"Including" means including without limitation.
"Non-Employee Director" means a director of the Company who is not an
employee of (i) the Company, (ii) any Subsidiary or (iii) any Person who
beneficially owns more than 30% of the Common Stock then outstanding.
"Person" means .any individual, corporation, partnership, limited
liability company, sole proprietorship, trust or other entity.
"Policies" means policies, practices and programs.
"Prorated Annual Bonus" means (i) the product of the amount of the
Annual Bonus to which Executive would have been entitled (based on target-level
performance) if he had been employed by the Company on the last day of the
Company's fiscal year that includes the Date of Termination and if performances
were achieved at the target level for such fiscal year, multiplied by (ii) a
fraction of which the numerator is the numbers of days that have elapsed in such
fiscal year through the Date of Termination and the denominator is 365.
"Subsidiary" means corporation, limited liability company, partnership
or other business entity in which the Company, directly or indirectly, holds a
majority of the voting power of the outstanding securities.
"Taxes" means the incremental United States federal, state and local
income, excise and other taxes payable by Executive with respect to any
applicable item of income.
2. Terms of Employment. The Company shall to continue Executive in its
employ during the Employment Period on the following terms and conditions:
(a) Position and Duties.
(i) During the Employment Period, (A) Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-
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day period immediately preceding the Effective Date and (B) Executive's
services shall be performed at the location where Executive was
employed immediately preceding the Effective Date or any office or
location less than 50 miles from such location.
(ii) During the Employment Period, and excluding any
periods of vacation, sick leave and disability to which Executive is
entitled, Executive shall devote reasonable attention and time during
normal business hours to the business and affairs of the Company and,
to the extent necessary to discharge the responsibilities assigned to
Executive thereunder, to use Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period, Executive may (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities are consistent with
the policies of the Company at the Effective Date and do not
significantly interfere with the performance of Executive's
responsibilities (as set forth in this Agreement) as an employee of the
Company. To the extent that any such activities have been conducted by
Executive prior to the Effective Date and were consistent with the
policies of the Company at the Effective Date, the continued conduct of
such activities (or the conduct of activities similar in nature and
scope thereto) subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period,
Executive shall receive an annual base salary in cash ("Annual Base
Salary"), which shall be paid in a manner consistent with the Company's
payroll practices immediately preceding the Effective Date at a rate at
least equal to 12 times the highest monthly base salary (unreduced by
any salary reductions or deferrals pursuant to a plan maintained under
Section 401(k) of the Code or any similar plan) paid or payable to
Executive by the Company in respect of the 12-month period immediately
preceding the month in which the Effective Date occurs. During the
Employment Period, the Company shall review the Annual Base Salary at
least annually and shall increase Annual Base Salary at any time and
from time to time as shall be substantially consistent with increases
in base salary awarded in the ordinary course of business to peer
executives of the Company. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to Executive under this
Agreement. Annual Base Salary shall not be reduced after any such
increase and the term "Annual Base Salary" shall refer to Annual Base
Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary,
Executive shall be awarded, for each fiscal year during the Employment
Period, an annual
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bonus (the "Annual Bonus") in cash which is at least equal to the
average dollar amount of annual bonus paid or payable to Executive
during the three fiscal years preceding the Effective Date (any such
annual bonus amount to be annualized for any fiscal year consisting of
less than 12 full months or with respect to which Executive has been
employed by the Company for less than 12 full months). The Company
shall pay each such Annual Bonus no later than 90 days after the end of
the fiscal year for which the Annual Bonus is awarded, unless Executive
shall elect to defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. In
addition to Annual Base Salary and Annual Bonus payable as hereinabove
provided, Executive shall be entitled to participate during the
Employment Period in all incentive, savings and retirement plans and
Policies applicable to peer executives of the Company, but in no event
shall such plans and Policies provide Executive with incentive, savings
and retirement benefits opportunities, in each case, less favorable, in
the aggregate, than the most favorable of those provided by the Company
for Executive under such plans and Policies as in effect at any time
during the 90-day period immediately preceding the Effective Date.
Benefits to which this paragraph shall apply include, but are not
limited to, a contribution ("Highest Profit Sharing Plan Contribution")
for each calendar year of Executive's employment during the Employment
Period, on Executive's behalf to the W.W. Grainger, Inc. Profit Sharing
Plan (the "PST") and, if applicable, a credit under the W.W. Grainger,
Inc. Supplemental Profit Sharing Plan (the "Supplemental Plan" and with
the PST, collectively referred to as the "Profit Sharing Plans") equal
to not less than the product of (A) the greater of (I) 15%; or (II) the
highest percentage of the sum of Executive's base salary and annual
bonus paid or payable as a contribution to or credit under the Profit
Sharing Plans, as applicable, for any of the three fiscal years
preceding the Effective Date, and (B) the sum of Executive's Annual
Base Salary and Annual Bonus, each as of the first day of such calendar
year. In the event that a contribution or credit, as applicable, of
less than the Highest Profit Sharing Plan Contribution is made to the
Profit Sharing Plans on Executive's behalf for any calendar year of
Executive's employment during the Employment Period, Executive shall be
entitled to a cash payment equal to the difference between the Highest
Profit Sharing Plan Contribution and the amount of the Company's
contribution or credit, as applicable, to the Profit Sharing Plans on
Executive's behalf for such year, payable at the time that the
Company's contribution is made to the PST, but in no event later than
the date prescribed by law, including extensions of time, for the
filing of the Company's federal income tax return for such year.
(iv) Welfare Benefit Plans. During the Employment
Period, Executive and/or Executive's family, as the case may be, shall
be eligible to participate in and shall receive all benefits under
welfare benefit plans and Policies provided by the Company (including
medical, prescription, dental, disability, salary continuance, employee
life, group life, accidental death and travel accident
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insurance plans and programs) and applicable to peer executives of the
Company, but in no event shall such plans and Policies provide benefits
which are less favorable, in the aggregate, than the most favorable of
such plans and Policies in effect at any time during the 90-day period
immediately preceding the Effective Date.
(v) Expenses. During the Employment Period, Executive
shall be entitled to prompt reimbursement for all reasonable expenses
incurred by Executive in accordance with the most favorable Policies of
the Company in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to Executive, as in
effect at any time thereafter with respect to peer executives of the
Company.
(vi) Fringe Benefits. During the Employment Period,
Executive shall be entitled to fringe benefits in accordance with the
most favorable plans and Policies of the Company in effect at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to Executive, as in effect at any time thereafter
with respect to peer executives of the Company.
(vii) Office; Support Staff. During the Employment
Period, Executive shall be entitled to an office or offices of a size
and with furnishings and other appointments, and to personal
secretarial and other assistance, at least equal to the most favorable
of the foregoing provided to Executive by the Company at any time
during the 90-day period immediately preceding the Effective Date or,
if more favorable to Executive, as provided at any time thereafter with
respect to peer executives of the Company.
(viii) Vacation. During the Employment Period,
Executive shall be entitled to paid vacation in accordance with the
most favorable plans and Policies of the Company as in effect at any
time during the 90-day period immediately preceding the Effective Date
or, if more favorable to Executive, as in effect at any time thereafter
with respect to peer executives of the Company.
(ix) Subsidiaries. To the extent that, immediately
prior to the Effective Date, Executive has been on the payroll of, and
participated in the bonus, incentive or employee benefit plans of, a
Subsidiary, the references to the Company contained in Sections 2(b)(i)
through 2(b)(viii) and elsewhere in this Agreement referring to
benefits to which Executive may be entitled shall also refer to such
Subsidiary.
3. Termination of Employment.
(a) Death or Disability. Executive's employment shall
terminate automatically upon Executive's death during the Employment Period. If
the Company determines in good faith that the Disability of Executive has
occurred during the Employment
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Period, it may give to Executive written notice of its intention to terminate
Executive's employment. In such event, Executive's employment with the Company
shall terminate as of the 30th day after Executive's receipt of such notice (the
"Disability Effective Date"); provided that, within the 30 days after such
receipt, Executive shall not have returned to full-time performance of his
duties. "Disability" means the absence of Executive from Executive's duties with
the Company on a full-time basis for a period of time equal to the Waiting
Period as a result of incapacity due to mental or physical illness that is
determined to be total and permanent by a physician selected by the Company or
its insurers and acceptable to Executive or Executive's legal representative
(such agreement as to acceptability not to be unreasonably withheld or delayed).
"Waiting Period" means the waiting period under a long-term disability plan of
the Company that is applicable to Executive and satisfies the requirements of
Section 2(b)(iv).
(b) Cause. The Company may terminate Executive's employment
during the Employment Period for Cause. "Cause" means the occurrence of any one
or more of the following actions or failures to act as determined by the Board
in its reasonable judgment and in good faith:
(i) embezzlement, fraud or theft with respect to the
property of the Company or a conviction for any felony involving moral
turpitude or causing material harm, financial or otherwise, to the
Company;
(ii) habitual neglect in the performance of
Executive's significant duties (other than on account of incapacity due
to physical or mental illness or Disability); or
(iii) a demonstrably deliberate act or failure to
act, including a violation of the rules or policies of the Company,
which causes a material financial or other loss, damage or injury to
the property, reputation or employees of the Company; provided,
however, that, unless such an act or a failure to act was done by
Executive in bad faith or without a reasonable belief that Executive's
act or failure to act, as the case may be, was in the best interest of
the Company or was required by applicable law, such act or failure to
act shall not constitute Cause if, within 20 days after the Board or
the Chief Executive Officer of the Company gives Executive written
notice of such act or failure to act that specifically refers to this
Section, Executive cures such act or failure to act to the fullest
extent that it is curable.
"Cause" shall not mean (x) bad judgment or negligence other than habitual
neglect of significant duties or (y) any act or omission in respect of which the
Board could have properly determined that Executive met the applicable standard
of conduct for the indemnification or reimbursement under the by-laws of the
Company or applicable law, in each case as in effect at the time of such act or
omission. In addition, a termination
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of Executive's employment shall not be deemed to be for Cause unless each of the
following conditions is satisfied:
(v) The Company provides Executive a written notice
(a "Notice of Intent to Terminate") not less than 30 days prior to the
Date of Termination setting forth the Company's intention to consider
terminating Executive's employment. Such Notice shall include a
statement of the intended Date of Termination and a detailed
description of the specific facts that the Company believes to
constitute Cause.
(w) No act or omission of Executive shall constitute
Cause if such act or omission occurred more than 12 months before the
earliest date on which any member of the Board who is not a party to
the act or omission knew or in the reasonable exercise of his or her
duties as a director should have know of such act or omission.
(x) Executive is offered an opportunity to respond to
such Notice of Intent to Terminate by appearing in person, together
with Executive's legal counsel, before the Board on a date specified in
the Notice of Intent to Terminate, which date shall be at least 25 days
after Executive's receipt of the Notice of Intent to Terminate and, in
any event, at least five days prior to the Date of Termination proposed
in such Notice.
(y) By a vote of the Board that includes the
affirmative vote of at least 75% of the Non-Employee Directors, the
Board determines that the actions of Executive specified in the Notice
of Intent to Terminate constitute Cause and that Executive's employment
should accordingly be terminated for Cause.
(z) The Company provides Executive a copy of the
Board's written determination setting forth in detail (I) the specific
basis for such termination for Cause and (II) if the Date of
Termination is other than the date of Executive's receipt of such
determination, the Date of Termination (which date shall be not more
than 15 days after the giving of such notice).
By determination of the Board, the Company may suspend Executive from his duties
for a period of up to 30 days with full pay and benefits thereunder during the
period of time in which the Board is determining whether to terminate Executive
for Cause. Any purported termination for Cause by the Company that does not
satisfy each substantive and procedural requirement of this Section 3(b) shall
be treated for all purposes under this Agreement as a termination by the Company
without Cause.
(c) Good Reason. Executive may terminate his employment at any time
during the Employment Period for Good Reason. "Good Reason" means any one or
more of the following:
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(i) the assignment to Executive of any duties
inconsistent in any respect with Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 2(a), or any other
action by the Company which results in a material adverse change in
such position, authority, duties or responsibilities, excluding an
isolated, insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given by Executive;
(ii) any failure by the Company to comply with any of
the provisions of Section 2(b), other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given
by Executive;
(iii) any requirement that Executive be based at any
office or location other than the location specified in Section
2(a)(i)(B);
(iv) any purported termination by the Company of
Executive's employment otherwise than as expressly permitted by this
Agreement (it being understood that any such purported termination
shall not be effective for any other purpose of this Agreement);
(v) any failure by the Company to comply with Section
10(c); or
(vi) anything in this Agreement to the contrary
notwithstanding, any termination by Executive for any reason during the
30-day period immediately following the first anniversary of the
Effective Date.
Any good faith determination of Good Reason made by Executive shall be
conclusive.
(d) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive shall be communicated by Notice of
Termination to the other party hereto. "Notice of Termination" means a written
notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated and (iii) if the Date of Termination is other than the
date of receipt of such notice, specifies the Date of Termination (which date
shall be not more than 15 days after the giving of such notice). The failure by
Executive to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason shall not waive any right of
Executive thereunder or preclude Executive from asserting such fact or
circumstance in enforcing Executive's rights thereunder.
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4. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause or Disability. If,
during the Employment Period, Executive's employment shall be terminated by the
Company other than for Cause, death or Disability, or by Executive for Good
Reason, then the Company shall have all of the following obligations:
(i) The Company shall pay to Executive the following
amounts in a lump sum in cash within 10 days after Executive's Date of
Termination:
(A) an amount equal to the sum of
Executive's Accrued Base Salary, Accrued Annual Bonus and
accrued but unpaid vacation pay (collectively, the "Accrued
Obligations"),
(B) the Prorated Annual Bonus,
(C) the product of three (3.0) (such
number, the "Severance Multiple") times the sum of Executive's
(1) Annual Base Salary, (2) Formula Bonus and (3) Highest
Profit Sharing Plan Contribution; and
(D) an amount equal to the value of
the unvested portion of Executive's accounts under the Profit
Sharing Plans as of the Date of Termination.
(ii) (A) During the period commencing on the
Date of Termination and continuing thereafter for a number of
years equal to the Severance Multiple, or such longer period
as any plan or Policy in which Executive is a participant as
of the Date of Termination (such eligibility to be determined
based on the terms of such plan or Policy as in effect on the
Effective Date or, if more favorable to Executive, the terms
of such plan or Policy as in effect on the Date of
Termination), the Company shall continue to provide, at no
cost to Executive, medical (including post-retirement medical
benefits to the extent that Executive is or becomes eligible
for such benefits as of the Date of Termination after giving
effect to paragraph (C) of this Section 4(a)(ii)),
prescription, dental and similar health care benefits (or, if
such benefits are not available, the after-tax economic value
thereof determined pursuant to paragraph (D) of this Section
4(a)(ii)) to Executive and his family.
(B) The terms of such benefits shall
be at least as favorable to Executive as the terms of the most
favo-
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rable plans or Policies of the Company applicable to peer
executives at Executive's Date of Termination, but in no event
less favorable to Executive than the most favorable plans or
Policies of the Company applicable to peer executives during
the 90-day period immediately preceding the Effective Date.
(C) For purposes of determining
whether, and on what terms and conditions, Executive is
eligible to receive the post-retirement medical benefits
specified in paragraph (A) above, Executive shall on the Date
of Termination be credited with three (3.0) additional years
for purposes of attained age and years of service.
(D) The after-tax economic value of
any benefit to be provided pursuant to paragraph (A) above
shall be deemed to be the present value of the premiums
expected to be paid for all such benefits that are to be
provided on an insured basis. The after-tax economic value of
all other benefits shall be deemed to be the present value of
the expected net cost to the Company of providing such
benefits.
(iii) The Company shall cause Executive to receive,
at the Company's expense, standard outplacement services from a
nationally-recognized firm selected by Executive; provided that the
cost of such services to the Company shall not exceed 15% of
Executive's Annual Base Salary in effect on the Date of Termination.
(b) Cause; Other than for Good Reason. If, during the
Employment Period, Executive's employment is terminated by the Company for Cause
or by Executive other than for Good Reason, the Company shall pay to Executive
in a lump sum in cash within no more than 10 days after the Date of Termination,
any Accrued Obligations.
(c) Death or Disability. If, during the Employment Period,
Executive's employment is terminated by reason of Executive's death or
Disability, the Company shall pay to Executive in cash a lump sum amount equal
to all Accrued Obligations within no more than 10 days after the Date of
Termination.
5. Non-exclusivity of Rights. If Executive receives payments pursuant
to Section 4(a), Executive hereby waives the right to receive severance payments
under any other plan, policy or agreement of the Company. Except as provided in
the previous sentence, nothing in this Agreement shall prevent or limit
Executive's continuing or future participation in any benefit, bonus, incentive
or other plans or Policies provided by the Company or any of its Subsidiaries
and for which Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any other agreements
with the Company or any of its Subsidiaries.
6. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be
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affected by any circumstances, including set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against
Executive or others.
7. No Duty to Mitigate. Executive shall not be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to Executive under any of the provisions of this Agreement, nor shall the amount
of any payment hereunder be reduced by any compensation earned by Executive as
result of employment by another employer or by any retirement benefits which may
be paid or payable to Executive; provided, however, that any continued welfare
benefits provided for pursuant to Section 4(a)(ii) shall not duplicate any
benefits that are provided to Executive and his family by such other employer
and shall be secondary to any coverage provided by such other employer.
8. Enforcement.
(a) If Executive incurs legal, accounting, expert witness or
other fees and expenses in an effort to establish entitlement to compensation
and benefits under this Agreement, the Company shall, regardless of the outcome
of such effort, pay or reimburse Executive for such fees and expenses, together
with an additional amount such that, after providing for the Taxes payable by
Executive in respect of such additional amount, there remains a balance
sufficient to pay the Taxes payable by Executive in respect of such payment or
reimbursement of fees and expenses by the Company. The Company shall reimburse
Executive for such fees and expenses on a monthly basis within 10 days after its
receipt of his request for reimbursement accompanied by reasonable evidence that
the fees and expenses were incurred.
(b) If Executive does not prevail (after exhaustion of all
available judicial remedies), and the Company establishes before a court of
competent jurisdiction that Executive had no reasonable basis for bringing an
action hereunder and acted in bad faith in doing so, no further reimbursement
for legal fees and expenses shall be due to Executive and Executive shall refund
any amounts previously reimbursed hereunder with respect to such action.
(c) If the Company fails to pay any amount provided under this
Agreement when due, the Company shall pay interest on such amount at a rate
equal to 200 basis points over the prime commercial lending rate published from
time to time in The Wall Street Journal; provided, however, that if the interest
rate determined in accordance with this Section shall in no event exceed the
highest legally-permissible interest rate.
9. Certain Additional Payments by the Company.
(a) Gross-Up. If it is determined (by the reasonable
computation of the Company's independent auditors, which determination shall be
certified to by such auditors and set forth in a written certificate
("Certificate") delivered to Executive) that
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any monetary or other benefit received or deemed received by Executive from the
Company or any Subsidiary or affiliate pursuant to this Agreement or otherwise,
whether or not in connection with a Change in Control (such monetary or other
benefits collectively, the "Potential Parachute Payments"), is or will become
subject to any excise tax under Section 4999 of the Code or any similar tax
under any United States federal, state, local or other law (such excise tax and
all such similar taxes collectively, "Excise Taxes"), then the Company shall,
subject to Section 9(h), within five business days after such determination, pay
Executive an amount (the "Gross-Up Payment") equal to the product of:
(i) the amount of such Excise Taxes
multiplied by
(ii) the Gross-Up Multiple.
The Gross-Up Payment is intended to compensate Executive for the Excise Taxes
and any other Taxes payable by Executive with respect to the Gross-Up Payment.
(b) Timing. Executive or the Company may at any time request
the preparation and delivery to Executive of a Certificate. The Company shall,
in addition to complying with Section 9(c), cause all determinations and
certifications under this Article to be made as soon as reasonably possible and
in adequate time to permit Executive to prepare and file his individual tax
returns on a timely basis.
(c) Determination by Executive.
(i) If (A) the Company shall fail to deliver a
Certificate to Executive within 30 days after receipt from Executive of
a written request for a Certificate, (B) the Company shall deliver a
Certificate to Executive but shall fail to pay to Executive the full
amount of the Gross-Up Payment set forth therein, or (C) at any time
following his receipt of a Certificate, Executive disputes either (x)
the amount of the Gross-Up Payment set forth therein or (y) the
determination set forth therein to the effect that no Gross-Up Payment
is due by reason of Section 9(h)), then Executive may elect to require
the Company to pay a Gross-Up Payment in the amount determined by
Executive, in accordance with an Executive Counsel Opinion (as defined
in Section 9(f)). Executive shall make any such demand by delivery to
the Company of a written notice that specifies the Gross-Up Payment
determined by Executive and an Executive Counsel Opinion regarding such
Gross-Up Payment (such written notice and opinion collectively, the
"Executive's Determination"). Within 15 days after delivery of
Executive's Determination to the Company, the Company shall either (1)
pay Executive the Gross-Up Payment set forth in the Executive's
Determination (less the portion of such amount, if any, previously paid
to Executive by the Company) or (2) deliver to Executive a Certificate
specifying the Gross-Up Payment determined by the
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Company's independent auditors, together with a Company Counsel Opinion
(as defined in Section 9(f)), and pay Executive the Gross-Up Payment
specified in such Certificate. If for any reason the Company fails to
comply with the preceding sentence, the Gross-Up Payment specified in
the Executive's Determination shall be controlling for all purposes.
(i) If Executive does not request a Certificate, and
the Company does not deliver a Certificate to Executive, the Company
shall, for purposes of Section 9(h), be deemed to have determined that
no Gross-Up Payment is due.
(d) Additional Gross-Up Amounts. If for any reason (whether
pursuant to subsequently-enacted provisions of the Code, final regulations or
published rulings of the Internal Revenue Service ("IRS"), a final judgment of a
court of competent jurisdiction or a determination of the Company's independent
auditors) it is later determined that the amount of Excise Taxes payable by
Executive is greater than the amount determined by the Company or Executive
pursuant to Section 9(a) or 9(b), as applicable, then the Company shall pay
Executive an amount (which shall also be deemed a Gross-Up Payment) equal to the
product of:
(i) the sum of (A) such additional Excise Taxes and
(B) any interest, fines, penalties, expenses or other costs incurred by
Executive as a result of having taken a position in accordance with a
determination made pursuant to Section 9(a) or 9(b), as applicable,
multiplied by:
(ii) the Gross-Up Multiple.
(e) Gross-Up Multiple. The Gross-Up Multiple shall equal a
fraction, the numerator of which is one (1.0), and the denominator of which is
one (1.0) minus the sum, expressed as a decimal fraction, of the effective
after-tax marginal rates of all Taxes and any Excise Taxes applicable to the
Gross-Up Payment; provided that such sum of rates shall not exceed 0.8 and if it
does exceed 0.8, it shall be deemed to be 0.8. If different rates of tax are
applicable to various portions of a Gross-Up Payment, the weighted average (not
to exceed 0.80) of such rates shall be used.
(f) Opinion of Counsel. "Executive Counsel Opinion" means a
legal opinion of nationally-recognized executive compensation counsel to the
effect that the amount of the Gross-Up Payment determined by Executive is the
amount that courts of competent jurisdiction, based on a final judgment not
subject to further appeal, are most likely to decide to have been calculated in
accordance with this Article and applicable law. "Company Counsel Opinion" means
a legal opinion of nationally-recognized executive compensation counsel to the
effect that (i) the amount of the Gross-Up Payment set forth in the Certificate
of the Company's independent auditors is the
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amount that courts of competent jurisdiction, based on a final judgment not
subject to further appeal, are most likely to decide to have been calculated in
accordance with this Article and applicable law, and (ii) there is no reasonable
basis for the calculation of the Gross-Up Payment determined by Executive.
(g) Amount Increased or Contested. Executive shall notify the
Company in writing of (i) any claim by the IRS or other taxing authority that,
if successful, would require the payment by Executive of Excise Taxes in respect
of Potential Parachute Payments or (ii) of any intention by Executive to pay any
Excise Taxes in respect of Potential Parachute Payments notwithstanding the
absence of such a claim. Such notice shall include the nature of such claim and
the date on which such claim is due to be paid. Executive shall give such notice
as soon as practicable, but no later than 10 business days, after Executive
first obtains actual knowledge of such claim; provided, however, that any
failure to give or delay in giving such notice shall affect the Company's
obligations under this Article only if and to the extent that such failure
results in actual prejudice to the Company. Executive shall not pay such claim
less than 30 days after Executive gives such notice to the Company (or, if
sooner, the date on which payment of such claim is due). If the Company notifies
Executive in writing before the expiration of such 30-day period that the
Company desires to contest such claim, Executive shall:
(i) give the Company any information that it
reasonably requests relating to such claim,
(ii) take such action in connection with contesting
such claim as the Company reasonably requests in writing from time to
time, including accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith to
contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or income
tax, including related interest and penalties, imposed as a result of
such representation and payment of costs and expenses. Without limiting
the foregoing, the Company shall control all proceedings in connection
with such contest and, at its sole option, may pursue or forego any and
all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole
option, either direct Executive to pay the
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tax claimed and sue for a refund or contest the claim in any
permissible manner. Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to
pay such claim and sue for a refund, the Company shall advance the
amount of such payment to Executive, on an interest-free basis and
shall indemnify Executive, on an after-tax basis, for any Excise Tax or
income tax, including related interest or penalties, imposed with
respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable
year of Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. The
Company's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable. Executive shall
be entitled to settle or contest, as the case may be, any other issue
raised by the IRS or other taxing authority.
(h) Limitation on Gross-Up Payments. Notwithstanding any other
provision of this Section 9, if it shall be determined (by the reasonable
computation of the Company's independent auditors, which determination shall be
certified to by such auditors and set forth in the Certificate delivered to
Executive) that the aggregate amount of the Potential Parachute Payments that,
but for this Section 9(h), would be payable to Executive, does not exceed 110%
of the greatest amount of Potential Parachute Payments that could be paid to
Executive without giving rise to any liability for Excise Taxes in connection
therewith (such greatest amount, the "Floor Amount"), then:
(i) no Gross-Up Payment shall be made to Executive;
and
(ii) the aggregate amount of Potential Parachute
Payments payable to Executive shall be reduced (but not below the Floor
Amount) to the largest amount which would both (A) not cause any Excise
Taxes to be payable by Executive and (B) not cause any Potential
Parachute Payments to become nondeductible by the Company by reason of
Section 280G of the Code (or any successor provision); provided,
however, that in no event shall any such reduction (x) in any way
affect any Potential Parachute Payments that are provided to Executive
in any form other than cash or (y) reduce the aggregate amount of
Potential Parachute Payment that are payable in cash to an amount below
the aggregate amount of Taxes payable by Executive in respect of all
Potential parachute Payments received by him (whether in cash or
otherwise).
For purposes of the preceding sentence, Executive shall be deemed to be subject
to the highest effective after-tax marginal rate of federal and Illinois Taxes.
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(i) Refunds. If, after the receipt by Executive of any payment
or advance of Excise Taxes by the Company pursuant to this Article, Executive
becomes entitled to receive any refund with respect to such Excise Taxes,
Executive shall (subject to the Company's complying with any applicable
requirements of Section 9(g)) promptly pay the Company the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Executive of an amount advanced by the
Company pursuant to Section 9(g), a determination is made that Executive shall
not be entitled to any refund with respect to such claim and the Company does
not notify Executive in writing of its intent to contest such determination
before the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid. Any contest of a denial of refund shall be controlled by
Section 9(g).
10. Successors.
(a) This Agreement is personal to Executive and without the
prior written consent of the Company shall not be assignable by Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Company may not assign its rights and obligations
under this Agreement without the prior written consent of Executive except to a
successor which has satisfied the provisions of Section 10(c). This Agreement
shall inure to the benefit of the Company and such permitted assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. All references to the Company shall also refer to any such
successor, and the Company and such successor shall be jointly and severally
liable for all obligations of the Company under this Agreement.
11. Miscellaneous.
(a) Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois, without
reference to such State's principles of conflict of laws.
(b) Notices. All notices hereunder shall be in writing and
shall be given by hand delivery, nationally-recognized courier service that
provides overnight delivery, or by registered or certified mail, return receipt
requested, postage prepaid, addressed as follows:
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If to Executive, at his most recent home address on file with the
Company.
If to the Company, to: W.W. Grainger, Inc.
455 Knightsbridge Parkway
Lincolnshire, Illinois 60069-3620
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice shall be effective when actually received
by the addressee.
(c) Severability. If any part of this Agreement is declared by
any court or governmental authority to be unlawful or invalid, such unlawfulness
or invalidity shall not serve to invalidate any part of this Agreement not
declared to be unlawful or invalid. Any paragraph or part of a paragraph so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such paragraph or part of a paragraph to
the fullest extent possible while remaining lawful and valid.
(d) Tax Withholding. The Company may withhold from any amounts
payable under this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) Amendments; Waiver. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the Company and
Executive. A waiver of any term, covenant or condition contained in this
Agreement shall not result in a waiver of any other term, covenant or condition,
and any waiver of any default shall not result in a waiver of any later default.
(f) Entire Agreement. This Agreement contains the entire
understanding of the Company and Executive with respect to the subject matter
hereof, and shall supersede all prior agreements, promises and representations
of the parties regarding employment or severance, whether in writing or
otherwise.
(g) No Right to Employment. Except as may be provided under
any other agreement between Executive and the Company, the employment of
Executive by the Company is at will, and, prior to the Effective Date, may be
terminated by either Executive or the Company at any time. Upon a termination of
Executive's employment prior to the Effective Date, there shall be no further
rights under this Agreement.
(h) Sections. Except where otherwise indicated by the context,
any reference to a "Section" shall be to a section of this Agreement.
(i) Survival of Executive's Rights. All of Executive's rights
hereunder shall survive the termination of Executive's employment.
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(j) Number and Gender. Wherever appropriate, the singular
shall include the plural, the plural shall include the singular, and the
masculine shall include the feminine.
(k) Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date first above written.
W.W. GRAINGER, INC.
By:
---------------------------
Richard L. Keyser
Chairman and Chief Executive Officer
EXECUTIVE:
--------------------------------
[[Officer]]
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