<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
W.W. GRAINGER, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
455 Knightsbridge Parkway, Lincolnshire, IL 60069-3620
(847) 793-9030
March 26, 1996
TO OUR SHAREHOLDERS:
The 1996 annual meeting of shareholders of W.W. Grainger, Inc., an
Illinois corporation, will be held at Company offices located at 5500
W. HOWARD ST., SKOKIE, ILLINOIS (see map overleaf), on Wednesday,
April 24, 1996 at 10:00AM (Central).
We will report at the meeting on our operations and other matters
of current interest. The Board of Directors and management cordially
invite you to attend.
The formal notice of the annual meeting and the proxy statement
follow. Whether or not you plan to attend the meeting, please sign,
date, and return the enclosed proxy promptly to ensure that your
shares will be represented.
<TABLE>
<S> <C>
Office of the Chairman
[SIG]
D. W. Grainger
Chairman of the Board
[SIG] [SIG]
J. D. Fluno R. L. Keyser
Vice Chairman President and
Chief Executive Officer
</TABLE>
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE AND
RETURN YOUR PROXY PROMPTLY.
<PAGE>
[LOGO]
1996 Annual Shareholders' Meeting
Wednesday, April 24, 1996 --
10:00AM (Central)
Location: W.W. Grainger, Inc.
5500 W. HOWARD ST.
SKOKIE, IL 60077-2699
(Building Entrance: 7650
Frontage Rd.)
[MAP -- of Chicago and Niles/Skokie, IL areas showing location of the Annual
Meeting.]
<PAGE>
[LOGO]
455 Knightsbridge Parkway, Lincolnshire, IL 60069-3620
(847) 793-9030
---------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 24, 1996
The annual meeting of shareholders of W.W. Grainger, Inc. will be held at
Company offices located at 5500 W. HOWARD ST., SKOKIE, ILLINOIS (see map on
previous page), on April 24, 1996 at 10:00AM (Central) for the following
purposes:
1. To elect eleven directors for the ensuing year;
2. To consider and act upon a proposal to ratify the appointment of
Grant Thornton LLP as independent auditors for the year ending December 31,
1996; and
3. To transact such other business as may properly come before the
meeting and any adjournment thereof.
The Board has fixed the close of business on March 4, 1996, as the record
date for the meeting. Shareholders may vote either in person or by proxy.
By order of the Board of Directors.
J. M. BAISLEY
Secretary
Lincolnshire, Illinois
March 26, 1996
<PAGE>
[LOGO]
455 Knightsbridge Parkway, Lincolnshire, IL 60069-3620
(847) 793-9030
March 26, 1996
PROXY STATEMENT
INTRODUCTION
This proxy statement is furnished in connection with the solicitation on
behalf of the Board of Directors of W.W. Grainger, Inc., an Illinois corporation
(the "Company"), of proxies to be voted at the annual meeting of shareholders of
the Company to be held on April 24, 1996, and at any adjournment thereof. It is
anticipated that this proxy statement and the accompanying form of proxy will be
mailed to shareholders commencing on or about March 26, 1996.
VOTING AT THE MEETING
The Board has fixed the close of business on March 4, 1996, as the record
date for determining shareholders entitled to notice of and to vote at the
meeting. On that date, there were outstanding on the books of the Company
50,961,490 shares of Company common stock. A majority of the shares having
voting power at the meeting will constitute a quorum for the transaction of
business.
In the election of directors, shareholders have the right to cumulative
voting. "Cumulative voting" means that each shareholder has that number of votes
equal to the number of directors to be elected, times the number of shares owned
by such shareholder. The total number of these votes may be cast for one nominee
or apportioned among two or more nominees, as the shareholder desires. In any
matter other than the election of directors, each share is entitled to one vote.
Shares of record on the record date and represented by each properly
executed proxy received by the Company in time to permit its use at the meeting
will be voted in accordance with the instructions indicated in the proxy. If no
instructions are indicated, such shares will be voted as recommended by the
Board. A shareholder who has given a proxy may revoke it by voting in person at
the meeting, or by giving written notice of revocation or a later-dated proxy to
the Secretary of the Company at any time before the voting.
1
<PAGE>
EXPENSES OF SOLICITATION
The expenses of soliciting proxies will be paid by the Company. In addition
to the use of the mails, proxies may be solicited personally, or by telephone or
other means, by directors, officers, and regular employees of the Company and
its subsidiaries who, except for normal overtime pay in certain instances, will
not receive additional compensation therefor, and by representatives of the
Company's stock transfer agent. Arrangements will also be made with brokerage
firms and other custodians, nominees, and fiduciaries for the forwarding of
proxy soliciting material to certain beneficial owners of Company common stock,
and the Company will reimburse such brokerage firms, custodians, nominees, and
fiduciaries for reasonable expenses incurred by them in connection therewith.
BOARD OF DIRECTORS
ELECTION OF DIRECTORS
Eleven directors are to be elected to hold office until the next annual
meeting of shareholders and until their successors shall have been elected and
qualified. When authorized to vote for any of the directors, as set forth in the
proxy, the person or persons voting the proxy, voting cumulatively, are
permitted to and may apportion the total votes represented by the proxy to one
or more of the nominees as he or they shall determine. Directors are elected by
the votes of a majority of the shares represented in person or by proxy at the
meeting. Broker non-votes and directions to withhold authority will not count as
votes in the election.
If any nominee named herein should not continue to be available for
election, a circumstance which is not expected, discretionary authority may be
exercised to vote for a substitute. Shareholder nominations of persons for
election as directors are subject to the notice requirements described under the
caption OTHER MATTERS appearing later in this proxy statement.
The following pages contain certain information about the nominees. All of
the nominees are presently directors and, except for Ms. Webb, were previously
elected by the shareholders. Unless otherwise indicated, each of the nominees
has served for at least the past five years in the principal business position
currently or most recently held. For the nominees' beneficial ownership of
shares of Company common stock, see STOCK OWNERSHIP appearing later in this
proxy statement.
2
<PAGE>
[PHOTO 1]
GEORGE R. BAKER, age 66, is a corporate director/advisor.
Until 1985, he was a special limited partner of Bear,
Stearns & Co. Inc., investment bankers. Mr. Baker is also a
director of The Midland Company, Reliance Group Holdings,
Inc., Reliance Insurance Company, Williams Hospitality
Group Inc., and WMS Industries, Inc. He was first elected a
director of the Company in 1976 and is a member of the
Audit Committee and the Board Affairs and Nominating
Committee.
[PHOTO 2]
ROBERT E. ELBERSON, age 67, retired in 1989 as Vice
Chairman and a director of Sara Lee Corporation, a
marketer, manufacturer, and distributor of consumer
products and food services. Until 1986, he served that
company as President and Chief Operating Officer. Mr.
Elberson is also a director of Sonoco Products Company. He
was first elected a director of the Company in 1982 and is
a member of the Audit Committee and the Board Affairs and
Nominating Committee.
[PHOTO 3]
JERE D. FLUNO, age 54, is Vice Chairman of the Company. Mr.
Fluno, who joined the Company in 1969, is a member of the
Office of the Chairman. He is also a director of Andrew
Corporation, a member of the Board of Governors of the
Chicago Stock Exchange, Incorporated, and a director of the
Chicago Stock Exchange subsidiaries, Midwest Clearing
Corporation, Midwest Securities Trust Company, and
Securities Trust Company of New Jersey. Mr. Fluno was first
elected a director of the Company in 1975.
[PHOTO 4]
WILBUR H. GANTZ, age 58, is President and Chief Executive
Officer of PathoGenesis Corporation, a health care company
discovering and developing therapeutics for infectious
diseases. Prior to assuming this position in 1992, he
served as President of Baxter International Inc., a
manufacturer and distributor of health care products and
services. Mr. Gantz is also a director of Bank of Montreal
and its subsidiaries, Harris Bankcorp, Inc. and Harris
Trust and Savings Bank; The Gillette Company; and
PathoGenesis Corporation. He was first elected a director
of the Company in 1985 and is the chairman of the
Compensation Committee.
3
<PAGE>
[PHOTO 5]
DAVID W. GRAINGER, age 68, is Chairman of the Board and,
from 1992 to 1994, was President of the Company. Mr.
Grainger, who joined the Company in 1952, is a member of
the Office of the Chairman. He is also a director of Baxter
International Inc. Mr. Grainger was first elected a
director of the Company in 1953 and is a member of the
Board Affairs and Nominating Committee.
[PHOTO 6]
RICHARD L. KEYSER, age 53, is the Company's President, a
position assumed in 1994, and Chief Executive Officer, a
position assumed in 1995. Mr. Keyser, who joined the
Company in 1986, is a member of the Office of the Chairman.
Other positions in which he served during the past five
years were Chief Operating Officer of the Company,
Executive Vice President of the Company, and President of
the Grainger Division. Mr. Keyser is also a director of
Morton International, Inc. He was first elected a director
of the Company in 1992.
[PHOTO 7]
JOHN W. MCCARTER, JR., age 58, is a Senior Vice President
of Booz, Allen & Hamilton Inc., a management consulting
firm. Mr. McCarter is also a director of A.M. Castle & Co.
and HT Insight Funds, Inc., and a trustee of Harris Insight
Funds Trust. He was first elected a director of the Company
in 1990 and is a member of the Board Affairs and Nominating
Committee and the Compensation Committee.
[PHOTO 8]
JAMES D. SLAVIK, age 43, is President of Mark IV Capital,
Inc., an investment company dealing in real estate and
corporate investments. Until 1987, he served as an
investment real estate broker of Coldwell Banker Commercial
Real Estate Services, a real estate brokerage company. Mr.
Slavik is also a director of Mark IV Capital, Inc. He was
first elected a director of the Company in 1987 and is the
chairman of the Audit Committee.
4
<PAGE>
[PHOTO 9]
HAROLD B. SMITH, age 62, is Chairman of the Executive
Committee of Illinois Tool Works Inc., a manufacturer and
marketer of engineered components and industrial systems
and consumables. He is also a director of Illinois Tool
Works Inc. and Northern Trust Corporation, and a trustee of
Northwestern Mutual Life Insurance Company. Mr. Smith was
first elected a director of the Company in 1981 and is a
member of the Compensation Committee.
[PHOTO 10]
FRED L. TURNER, age 63, is Senior Chairman of the Board and
Chairman of the Executive Committee of McDonald's
Corporation, a restaurant licensor. He joined McDonald's
Corporation in 1956 and assumed his current position in
1990, after serving that company as Chairman of the Board
and Chief Executive Officer. Mr. Turner is also a director
of Aon Corporation, Baxter International Inc., McDonald's
Corporation, and Ronald McDonald Children's Charities. He
was first elected a director of the Company in 1984 and is
the chairman of the Board Affairs and Nominating Committee.
[PHOTO 11]
JANIECE S. WEBB, age 42, is a Corporate Vice President of
Motorola, Inc., a leading provider of electronic equipment,
systems, components and services produced for both U.S. and
international markets, and the General Manager of the
International Networks Division of Motorola's Messaging,
Information and Multimedia Sector. She first became a
director of the Company in 1995 and is a member of the
Audit Committee.
MEETINGS AND COMMITTEES OF THE BOARD
Six meetings of the Board were held in 1995. In addition, the directors
acted twice during the year by unanimous consent.
The Board has three standing committees: Audit, Board Affairs and
Nominating, and Compensation. Committee members are elected by the Board shortly
following the annual meeting of shareholders.
Directors who presently serve on the Audit Committee are J.D. Slavik
(Chairman), G.R. Baker, R.E. Elberson, and J.S. Webb. The Audit Committee met
five times in 1995. Each year, the Audit Committee reviews the annual audit plan
with the independent auditors and also reviews the results of the annual audit
with them. In addition, the Audit Committee reviews the adequacy of internal
5
<PAGE>
controls with both the independent auditors and the Company's internal auditors,
and has oversight responsibilities for various aspects of certain employee
benefit plans. Although the Audit Committee, as well as the Board, is apprised
of the nature and costs of the non-audit professional services provided by the
independent auditors, neither the Audit Committee nor the Board reviews all
non-audit services in advance. All services and fees, however, are subsequently
reviewed and approved by the Audit Committee. The Audit Committee reviews the
independence of the independent auditors, giving consideration to the possible
effect of each audit and non-audit service on such independence.
Directors who presently serve on the Board Affairs and Nominating Committee
are F. L. Turner (Chairman), G.R. Baker, R.E. Elberson, D.W. Grainger, and J.W.
McCarter, Jr. The Board Affairs and Nominating Committee, which met three times
in 1995, recommends to the Board the size of the Board, criteria for Board
membership, and prospective nominees. It also recommends to the Board the
make-up of the Board committees (Audit, Board Affairs and Nominating, and
Compensation), makes periodic reviews with respect to senior management
organization and succession, and makes initial assessments and recommendations
to the Board regarding major issues or proposals. The Board Affairs and
Nominating Committee has not established any policy or procedure for considering
nominees recommended by shareholders.
Directors who presently serve on the Compensation Committee are W.H. Gantz
(Chairman), J.W. McCarter, Jr., and H.B. Smith. The Compensation Committee,
which met five times in 1995, reviews compensation policy and objectives as
recommended by management (generally with regard to all employees and
specifically with regard to officers), reviews proposed major compensation
program modifications, and makes appropriate reports and recommendations to the
Board. The Compensation Committee also acts as the Administration Committee of
Company stock incentive plans.
Each director who is not an employee of the Company or any subsidiary
thereof is an alternate member of each Board committee of which he has not been
specifically appointed a member. An alternate committee member may serve for all
purposes at a committee meeting in place of a specifically appointed committee
member who is absent.
DIRECTORS' FEES AND RELATED INFORMATION
Directors who are not employees of the Company or any subsidiary thereof
receive for their services (i) a retainer fee at the rate of $25,000 per annum,
(ii) an additional retainer fee for serving as chairman of any Board committee
at the rate of $4,000 per annum, and (iii) a fee of $1,000 for each meeting of
the Board and for each meeting of a committee thereof attended. The Company
reimburses related travel expenses. Directors who are employees of the Company
do not receive any fees for Board or Board committee service.
Under the Plan for Payment of Directors' Fees, a director may elect to defer
payment of all or any portion of the directors' fees until cessation of service
as a director. In the case of deferral, the
6
<PAGE>
fees are payable in either a lump sum or periodic installments. Such deferred
fees bear interest at the ten-year constant maturity Treasury yield, plus
one-half of one percent (0.5%). One director has elected to defer payment of the
1995 fees.
Under the Post-Service Benefit Plan for Non-Management Directors, a benefit
is provided with respect to any non-employee director who ceases to be a
director (i) after reaching age 70; (ii) after at least five years of service as
a director; or (iii) by reason of permanent disability or death. The benefit is
80% of the retainer for serving as a director at the time of payment, payable
for a number of years equal to the lesser of ten, or the number of years of
service as a director. If the director dies before all payments are made, such
payments are made to the director's spouse, but cease upon the spouse's death.
In the ordinary course of business during 1995, the Company and its
subsidiaries engaged in various types of business transactions with, and with
affiliates of, organizations with which directors of the Company are associated
in their principal business occupations or otherwise. The transactions are not
deemed material to any of the directors. Similar transactions are likely to
occur in the future.
7
<PAGE>
STOCK OWNERSHIP
The table below, which is based upon information furnished to the Company by
the individuals involved, sets forth the number of shares of Company common
stock beneficially owned (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) on March 4, 1996 by each of the directors, the
nominees and certain executive officers of the Company, and by all directors and
executive officers of the Company as a group. Unless otherwise indicated in the
footnotes following the table, each of the named persons had beneficial
ownership with respect to the shares shown by sole voting and investment power.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY OF COMMON
BENEFICIAL OWNER OWNED(1) STOCK(2)
- --------------------------------------------------------- ------------ ---------
<S> <C> <C>
David W. Grainger(3,4,5,6)
5500 W. Howard St.
Skokie, IL 60077..................................... 5,642,317 11.07%
James D. Slavik(3,7,8,9,10)
100 Bayview Circle
Suite 4500
Newport Beach, CA 92660.............................. 4,390,156 8.62%
James M. Baisley(11,12).................................. 23,180 *
George R. Baker.......................................... 800 *
Donald E. Bielinski(11,13)............................... 60,712 *
Robert E. Elberson....................................... 11,600 *
Jere D. Fluno(11,14)..................................... 136,160 *
Wilbur H. Gantz.......................................... 4,100 *
Richard L. Keyser(11,15)................................. 67,287 *
John W. McCarter, Jr.(16)................................ 2,500 *
Harold B. Smith(17)...................................... 17,000 *
Fred L. Turner........................................... 3,000 *
Janiece S. Webb.......................................... 200 *
Directors and Executive Officers as a group(11,18,19).... 10,558,048 20.72%
<FN>
- ------------
(1) In some instances, shares are included as to which beneficial ownership
has been disclaimed in reports filed with the Securities and Exchange
Commission.
(2) An asterisk (*) indicates less than 1%.
(3) Messrs. Grainger and Slavik are the only persons known by the Company to
be beneficial owners of more than 5% of the Company's common stock.
(4) Includes 673,498 shares held by The Grainger Foundation Inc., a
charitable foundation, as to which shares Mr. Grainger has shared voting
and investment power.
(5) Includes 762,360 shares held by various family trusts, as to which shares
Mr. Grainger has shared voting and investment power.
8
<PAGE>
(6) Includes 356,155 shares held by various family trusts, as to which shares
Mr. Grainger, alone or with his wife, has voting and investment power.
(7) Excludes 344 shares held by Mr. Slavik's wife, as to which shares Mr.
Slavik disclaims voting or investment power.
(8) Includes 3,218,680 shares held by certain family-owned corporations, as
to which shares Mr. Slavik has sole voting power and shared investment
power.
(9) Includes 707,006 shares held by various family trusts, as to which shares
Mr. Slavik has shared voting and investment power.
(10) Includes 82,810 shares held by various family trusts or as custodian for
family members, as to which shares Mr. Slavik, alone or with his wife,
has voting and investment power.
(11) Includes shares that may be acquired within 60 days after March 4, 1996
upon exercise of employee stock options as follows: Mr. Baisley, 23,090
shares; Mr. Bielinski, 55,726 shares; Mr. Fluno, 66,160 shares; Mr.
Keyser, 64,530 shares; and all directors and executive officers of the
Company as a group, 367,454 shares. In computing the percentage of shares
owned by each such person and by the group, such shares were added to the
total number of outstanding shares for the separate calculations.
(12) Excludes 150 shares held by Mr. Baisley's son who resides in the same
household, as to which shares Mr. Baisley disclaims voting or investment
power.
(13) Includes 4,260 shares as to which Mr. Bielinski has shared voting and
investment power with his wife.
(14) Includes 62,612 shares as to which Mr. Fluno has shared voting and
investment power with his wife.
(15) Includes 1,200 shares as to which Mr. Keyser has shared voting and
investment power with his wife.
(16) As to such shares, Mr. McCarter has shared voting and investment power
with his wife.
(17) Includes 16,000 shares as to which Mr. Smith has shared voting and
investment power.
(18) Includes 5,740,932 shares as to which members of the group have shared
voting and/or investment power and 1,000 shares as to which members of
the group have sole voting and no investment power.
(19) Excludes 1,089 shares held by certain family members, as to which shares
members of the group disclaim voting or investment power.
</TABLE>
9
<PAGE>
MANAGEMENT COMPENSATION AND BENEFITS
SUMMARY COMPENSATION INFORMATION
Set forth below is certain summary information concerning compensation paid
to or accrued for those persons who, at December 31, 1995, were (i) the
Company's Chief Executive Officer and (ii) each of the four other most highly
compensated executive officers of the Company (the "Named Executive Officers")
for services in all capacities to the Company and its subsidiaries for the
fiscal years ended December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
AWARDS ALL OTHER
ANNUAL COMPENSATION --------------- COMPENSATION(2)
STOCK -------------
NAME AND PRINCIPAL POSITION -------------------- OPTIONS
(AT 12/31/95) YEAR SALARY BONUS(1) (SHARES)
- ------------------------------------------- --- --------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Richard L. Keyser 1995 $ 511,950 $ 673,700 14,840 $ 205,576
President and 1994 458,880 690,000 13,100 128,877
Chief Executive Officer 1993 394,000 490,000 11,830 112,359
James M. Baisley 1995 $ 262,080 $ 176,433 4,690 $ 77,584
Senior Vice President, General 1994 249,600 192,217 4,740 60,635
Counsel, and Secretary 1993 240,000 164,283 4,820 60,607
Donald E. Bielinski 1995 $ 303,000 $ 235,976 6,320 $ 95,287
Senior Vice President, 1994 285,900 254,708 8,380 72,608
Marketing and Sales 1993 268,800 222,267 6,480 75,069
Jere D. Fluno 1995 $ 472,800 $ 539,277 13,360 $ 198,873
Vice Chairman 1994 458,880 690,000 13,100 128,877
1993 437,000 490,000 13,160 134,310
David W. Grainger 1995 $ 612,000 $ 161,568 -0- $ 164,868
Chairman of the Board 1994 612,000 352,000 -0- 147,725
1993 607,000 389,000 -0- 149,136
<FN>
- ---------------
(1) Includes amounts paid with respect to performance during the indicated
fiscal year under the Company's Management Incentive Program.
(2) The amounts shown were accrued under the Company's non-contributory
profit sharing plan, in which most Company employees participate, and the
related supplemental profit sharing plan.
</TABLE>
10
<PAGE>
STOCK OPTION GRANTS
Set forth below is further information concerning Company grants of stock
options during the fiscal year ended December 31, 1995 to the Named Executive
Officers other than Mr. Grainger, to whom no stock options were granted during
the year. No stock appreciation rights were granted during the year.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL OPTIONS EXERCISE OR
OPTIONS GRANTED TO BASE PRICE EARLIEST GRANT DATE
GRANTED EMPLOYEES IN (PER EXERCISE EXPIRATION PRESENT
NAME (SHARES) FISCAL 1995 SHARE)(1) DATE(2) DATE VALUE(3)
- -------------------------- ----------- ---------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Keyser......... 14,840 7.18% $ 62.125 4/26/98 4/25/05 $ 361,206
James M. Baisley.......... 4,690 2.27% 62.125 4/26/98 4/25/05 114,155
Donald E. Bielinski....... 6,320 3.06% 62.125 4/26/98 4/25/05 153,829
Jere D. Fluno............. 13,360 6.47% 62.125 4/26/98 4/25/05 325,182
<FN>
- ---------------
(1) The per-share option exercise price equals the per-share closing price of
Company common stock reported in the Composite Tape for New York Stock
Exchange listed stocks on the business day preceding the date of grant.
Stock optionees presently may make payment of the exercise price of stock
options by delivering already owned shares of Company common stock (based on
the fair market value of the shares at the time). Stock optionees presently
may also direct that shares of Company common stock otherwise deliverable
upon exercise (based on the fair market value of the shares at the time) be
withheld in satisfaction of withholding tax obligations arising from
exercise.
(2) All options granted to the Named Executive Officers were granted on April
26, 1995, and become exercisable three years following the date of grant.
(3) The amounts shown are based on the Black-Scholes option pricing model.
Material assumptions incorporated into this model in estimating the value of
the options include the following:
a. Exercise price of $62.125.
b. Term of ten years.
c. Interest rate of 7.01%, representing the ten-year constant maturity
Treasury yield at April 25, 1995.
d. Volatility of 16.63%, an annualized number using weekly prices of
Company common stock for the six-month period prior to April 26, 1995.
e. Dividend yield of 1.48%, calculated by dividing the annualized
dividend payout by the closing price of Company common stock on the
business day preceding the date of grant.
The actual value, if any, an executive may realize will depend on the excess
of the stock price over the exercise price on the date the option is
exercised. There is no assurance the value realized by an executive will be
at or near the value estimated by the Black-Scholes model.
</TABLE>
STOCK OPTION EXERCISES AND HOLDINGS
Set forth below is information relating to stock options exercised by the
Named Executive Officers during the 1995 fiscal year and the number of shares of
Company common stock covered by,
11
<PAGE>
and the value of, outstanding stock options held by them at December 31, 1995.
At no time during the year did the Company have any outstanding stock
appreciation rights. Mr. Grainger is excluded from the table as he did not hold
any stock options during the year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/95 OPTIONS AT 12/31/95(3)
SHARES ACQUIRED VALUE -------------------------- ---------------------------
NAME ON EXERCISE(1) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------- ------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Richard L. Keyser...... -0- -0- 56,150 39,770 $ 1,719,684 $ 212,165
James M. Baisley....... 7,000 $ 224,375 22,770 14,250 586,171 78,011
Donald E. Bielinski.... -0- -0- 52,662 21,180 1,645,658 114,475
Jere D. Fluno.......... 51,240 $ 1,763,446 53,000 39,620 1,272,623 216,035
<FN>
- ------------
(1) The figures shown are the numbers of shares covered by the exercised
stock options.
(2) The amounts shown are the differences between the per-share stock option
exercise prices and fair market values of Company common stock on the
dates of exercise, multiplied by the number of shares covered by the
exercised stock options.
(3) The amounts shown are the differences between the per-share stock option
exercise prices and the closing price of Company common stock on December
29, 1995 of $66.25 per share, as reported in the Composite Tape for New
York Stock Exchange listed stocks, multiplied by the number of shares
covered by the unexercised stock options.
</TABLE>
OTHER BENEFITS
The Executive Deferred Compensation Plan, an unfunded plan administered by a
committee of management, permitted participants selected by the committee and
the committee to agree on a salary reduction of between 5% and 15% (or more with
special agreement) for up to four years. The Company allocated to participants'
accounts an additional 15% of the salary reduction to reflect reduced profit
sharing plan contributions. Under the related Plan Agreement, a participant is
entitled to 180 monthly payments, commencing at age 65, in an annual amount that
is based upon the amount of the salary reduction, the additional amount
allocated by the Company, and the number of years from deferment to normal
retirement age. Reduced or increased payments are provided in the event that the
participant begins receiving payments before or after age 65. If a participant
terminates his service with the Company prior to qualifying for early benefits
pursuant to the terms of the Plan, or if the Company reduces benefits or
terminates the Plan, or if there is a "change of control" of the Company, the
Plan provides for various benefits to the participant, ranging from a return of
the amount of salary deferral, plus interest, to a lump-sum benefit equal to the
present value of a projected payment stream. If a participant dies before
retirement or before having received the full amount of his benefits, the
balance will be paid to his designated beneficiary. Although the initiation of
salary payment deferrals has not been permitted for several years and there were
no such deferrals for 1995, all of the Named Executive Officers and certain
other members of management have deferred salary payments under the Plan for
prior years. Payments
12
<PAGE>
under the Plan have commenced with respect to Mr. Grainger, who is receiving
$12,280 per month in this regard. If Messrs. Keyser, Baisley, Bielinski, and
Fluno remain employees of the Company until age 65 and then commence receiving
payments under the Plan, the monthly payments would amount to $10,509, $5,545,
$3,664, and $26,207, respectively.
Participation of employees in the Executive Death Benefit Plan, which is
unfunded, is determined by a committee of management. The beneficiary of a
participant who dies while employed by the Company is generally entitled to 120
monthly payments of 50% of the participant's monthly compensation, calculated on
the basis of salary and target bonus under the Company's Management Incentive
Program. A lump-sum benefit in an amount which, after taxes, approximates the
participant's last year's compensation, calculated on the same basis, is payable
to a participant's designated beneficiary upon death after retirement, as
defined in the Plan. All of the Named Executive Officers and certain other
members of management participate in the Plan.
The Company has minimized its exposure relating to the Executive Deferred
Compensation Plan and the Executive Death Benefit Plan by purchasing life
insurance contracts, which are owned by the Company.
The Management Incentive Program (MIP), which is unfunded, is administered
by a committee of management. MIP accounts have been established in the names of
participants. Initial MIP account balances of participants who were participants
in the superseded long-term incentive plan reflect amounts accrued but not paid
under that plan. MIP account balances are adjusted periodically as a result of
MIP bonuses earned, MIP bonuses paid, and merit salary budget guidelines
applicable to salaried employees generally. MIP account balances are generally
paid out upon death, retirement, or long term disability, but are subject to
forfeiture in the event of voluntary resignation or termination for misconduct.
Messrs. Keyser, Baisley, Bielinski, Fluno, and Grainger currently have MIP
account balances of $12,984, $28,103, $33,045, $73,275, and $244,135,
respectively.
The Company provides a separation benefit to certain full-time employees
upon termination of employment (other than for cause) at age 55 or later with at
least 15 years service. This benefit, which is unfunded, is equal to one week's
regular pay for each two full years of continuous employment accrued prior to
December 31, 1984, with a maximum of 13 weeks pay. Mr. Keyser joined the Company
after December 31, 1984 and, accordingly, will not receive the separation
benefit. Had they been eligible and terminated their employment as of the date
of this proxy statement, Messrs. Baisley, Bielinski, Fluno, and Grainger would
have received a separation benefit of $5,140, $35,834, $65,585, and $153,000,
respectively.
13
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD
This report of the Compensation Committee of the Board (the "Committee")
discusses the Company's compensation policy and programs for the executive
officers, including members of the Office of the Chairman who consist of Messrs.
Grainger, Fluno, and Keyser, respectively the Chairman, Vice Chairman, and
President and Chief Executive Officer.
The Committee administers the Company's executive compensation programs and
recommends to the Board the compensation of all executive officers. In this
connection, the Committee considers information and data supplied by management
and by an independent compensation and benefits consultant. All members of the
Committee are non-employee directors.
Executive Compensation Policy
The purpose of the executive compensation programs is to enable the Company
to attract and retain qualified executives and to provide appropriate
incentives, including equity incentives, to support the achievement of the
Company's business goals. The overall program includes variable pay components
which link total executive compensation to the creation of shareholder value
over the long term.
When Company performance is at target, the Company's objective is to pay
total compensation at least at the size-adjusted median of a peer group of
companies approved by the Committee. All elements of compensation are valued to
determine the Company's posture relative to the comparator group. For 1995, the
Company met its total compensation objective. Based on the Company's
performance, total compensation paid for 1995 was above the peer group median.
The companies used for compensation comparator purposes are not the same
companies used to compare total shareholder return in the stock price
performance graph. The companies in the stock price performance graph are those
comprising the Dow Jones Electrical Components & Equipment Index. However, the
Company's "market" for executive talent is broader than that index. The
compensation comparator group used is representative of the types of major
companies with whom the Company historically competes for its executive talent.
Total compensation for purposes of the Company's total compensation
objective consists of base salary, cash incentive compensation, stock options,
and benefits. Programs relative to each of these elements are discussed herein.
Base Salaries
The Committee reviews base salaries annually. Adjustments to base salaries
are determined based on an evaluation of the competitive market, individual
performance, position in salary range (where applicable), experience of the
executive, and internal equity issues. After evaluating the competitive market,
a merit increase guideline program for all exempt employees was approved by the
Committee for 1995. Salary increases to the executive officers in 1995 were
consistent with this program.
14
<PAGE>
In determining the salary compensation of the members of the Office of the
Chairman, the Committee considers the financial and non-financial performance of
the Company, as well as an analysis of their salaries in relation to those for
comparable positions in the comparator group of companies approved by the
Committee. The Committee's 1995 salary adjustment recommendations for the
incumbents reflected Mr. Keyser's appointment as Chief Executive Officer during
the year. Mr. Grainger elected not to accept a 1995 salary increase.
Cash Incentives
For executive officers and other key executives, the Management Incentive
Program (MIP) rewards participants for improvements in economic earnings. The
concept of economic earnings recognizes the fact that capital providers have a
required rate of return on their investment. Economic earnings occur only after
the Company's earnings exceed this required return. The MIP emphasizes the need
to continually improve economic earnings. The basic concept underlying the MIP
is that improved economic earnings result from one or more of the following:
- Increasing the return on existing investments,
- Making new investments that have returns exceeding the
Company's cost of capital, and
- Reducing or eliminating investments that have returns which
fail to meet the Company's cost of capital.
The MIP is structured to provide an appropriate balance between short-term
and long-term results. The program emphasizes the common interests of management
and shareholders with long-term improvements in economic earnings expected to
correspond with long-term improvement in shareholder value.
The MIP is based on quantitative measures, but also provides for utilization
of a qualitative component. The quantitative component is built around target
bonuses which are stated as a percentage of base salary. These target bonuses
were established based on a review of competitive market practice and are
similar to the targets in prior programs. Target bonuses range from 25 percent
to 90 percent of base salary. The qualitative component consists of a
discretionary factor under which, if used, total bonuses can be adjusted up or
down as much as 10 percent of participants' base salaries to account for
economic or other conditions outside the participants' control. Annually, actual
results are compared to targets to determine the amount of the bonus earned.
During 1995, significant progress was made in restructuring operations and
implementing long-term, strategic investments. Since 1995 economic earnings were
slightly below target, the percentage multiple applicable to executive officers
was less than the 1994 multiple. Bonuses were calculated under the MIP formula
based on Company-wide performance for all executive officers with the exception
of two business unit presidents whose bonuses were based in part on their
15
<PAGE>
individual unit programs. No discretionary adjustment was made in this year's
bonuses. The Committee did make an adjustment to the target bonuses in the
Office of the Chairman in recognition of Mr. Keyser's appointment as Chief
Executive Officer.
Special bonuses, which are included in the summary compensation table
appearing earlier in this proxy statement, were granted to Messrs. Fluno and
Keyser during the year in connection with the reorganization of the Office of
the Chairman.
Stock Option Program
Stock options are granted at an option price not less than the fair market
value of the underlying Company common stock on the date of grant. The stock
option program is considered an important means of aligning the financial
interests of executive officers and other key employees to the longer term
financial interests of the shareholders. The number of shares granted at each
level in the organization is designed to provide an economic value that is
competitive with grants made by other companies for comparable jobs. It is the
current expectation of the Committee to ensure that gains realized upon exercise
of stock options are not subject to any limits on deductibility by the Company
for federal income tax purposes under Section 162(m) of the Internal Revenue
Code of 1986, as amended.
Stock option grants made in prior years as well as the total number of
options to be granted relative to the total number of Company shares outstanding
also were factors considered in determining an appropriate grant for 1995.
Mr. Grainger, as in prior years, elected not to accept stock option grants.
Benefits
With the exception of the Executive Death Benefit Plan, which is discussed
in an earlier section, the profit sharing and welfare benefits provided to
executives are comparable to those provided to most Company employees, both
salaried and hourly.
Wilbur H. Gantz, Chairman
John W. McCarter, Jr.
Harold B. Smith
Members of the Compensation
Committee of the Board of Directors
16
<PAGE>
STOCK PRICE PERFORMANCE
The following stock price performance graph compares the cumulative total
return on an investment in Company common stock against the cumulative total
return of an investment in each of the S&P 500 Stock Index and the Dow Jones
Electrical Components & Equipment Index for the period commencing December 31,
1990 and ending December 31, 1995. The graph assumes that the value for the
investment in Company common stock and in each index was $100 on December 31,
1990 and that all dividends were reinvested.
[Perf graph filed with Branch Chief]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
RETURN
<S> <C> <C> <C>
W.W. Grainger, Inc. S&P 500 Stock Index
1990 100 100
1991 166 130
1992 186 140
1993 180 155
1994 183 157
1995 213 215
Fiscal Year Ended December 31
<CAPTION>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL
RETURN
<S> <C>
Dow Jones Electrical Components & Equipment Index
1990 100
1991 126
1992 126
1993 137
1994 143
1995 187
Fiscal Year Ended December 31
</TABLE>
PROPOSAL TO RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
Upon the recommendation of its Audit Committee, the Board has appointed
Grant Thornton LLP as independent auditors of the Company for the fiscal year
ending December 31, 1996 which appointment will be submitted for ratification at
the meeting. Grant Thornton LLP and its predecessors have served as independent
auditors of the Company for approximately 60 years. It is expected that
representatives of Grant Thornton LLP will be present at the meeting to respond
to appropriate questions of shareholders and to make any desired statements.
17
<PAGE>
THE BOARD RECOMMENDS A VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT AUDITORS.
Approval of the proposal requires the affirmative votes of a majority of the
shares of Company common stock represented in person or by proxy at the meeting.
Broker non-votes and abstentions will have the same effect as votes against the
proposal. In the event the proposal is not approved, the Board will consider the
negative vote as a mandate to appoint other independent auditors of the Company
for the next fiscal year.
OTHER MATTERS
NOTICE REQUIREMENTS
Any shareholder who desires to have a proposal included in the Company's
proxy soliciting material relating to the Company's 1997 annual meeting of
shareholders (in accordance with Rule 14a-8 of Regulation 14A under the
Securities Exchange Act of 1934, as amended) should send to the Secretary of the
Company at the Company headquarters a signed notice of intent to submit the
proposal at the meeting. The notice, including the text of the proposal, must be
received at such offices no later than November 26, 1996 in order for the
proposal to be considered for inclusion in such proxy soliciting material.
The Company's By-Laws require that there be furnished to the Company written
notice with respect to the nomination of a person for election as a director
(other than a person nominated at the direction of the Board), as well as the
submission of a proposal (other than a proposal submitted at the direction of
the Board), at a meeting of shareholders. In order for the nomination or
submission to be proper, the notice must contain certain information concerning
the nominating or proposing shareholder, and the nominee or proposal, as the
case may be. For a nomination, the notice must be furnished no later than the
date calculated in accordance with the notice requirements referred to in the
preceding paragraph. For a proposal, the notice must be furnished generally not
less than 30 days nor more than 60 days before the meeting. A copy of the
applicable By-Law provisions may be obtained without charge upon written request
to the Secretary of the Company.
DISCRETIONARY AUTHORITY
The Board does not know of any matters other than those described in this
proxy statement that will be presented for consideration at the meeting. If any
matter not described in this proxy statement should properly be so presented, it
is intended that the proxies will be voted on the matter in accordance with the
judgment of the person or persons voting them.
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE AND SIGN
THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE
ACCOMPANYING POSTPAID ENVELOPE.
18
<PAGE>
[LOGO]
- --------------------------------------------------------------
NOTICE
of annual
meeting of
shareholders
and PROXY
STATEMENT
April 24, 1996
M Printed on recycled paper.
<PAGE>
DRAFT
3/5/96
COMMON PROXY COMMON PROXY
W.W. GRAINGER, INC.
455 Knightsbridge Parkway, Lincolnshire, IL 60069
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Proxy for Annual Shareholders' Meeting April 24, 1996
The undersigned hereby appoints James M. Baisley, Jere D. Fluno, and
David W. Grainger, and each of them, proxies of the undersigned with full power
of substitution to represent the undersigned and to vote all of the shares of
the Common Stock of the Company which the undersigned is entitled to vote at
the Annual Meeting of Shareholders of W.W. Grainger, Inc. to be held on
April 24, 1996 and at any and all adjournments thereof, with all the powers the
undersigned would possess if personally present and voting thereat.
A majority of said proxies or substitutes who shall be present at the
meeting may exercise all powers hereunder. All proxies will be voted as
specified. IF NO SPECIFICATION IS MADE, THE PROXY WILL BE VOTED FOR ITEMS 1
AND 2. IF AUTHORITY IS GIVEN TO VOTE FOR THE ELECTION OF DIRECTORS, THIS
PROXY MAY BE VOTED CUMULATIVELY FOR DIRECTORS AS SET FORTH IN THE PROXY
STATEMENT.
CONTINUED, AND TO BE SIGNED AND DATED, ON REVERSE SIDE
<PAGE>
/x/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
MANAGEMENT RECOMMENDS A VOTE FOR ITEMS 1 AND 2
---
FOR ALL WITHHELD FROM
NOMINEES ALL NOMINEES
1. Election of Directors // //
NOMINEES: George R. Baker,Robert E.
Elberson, Jere D. Fluno, Wilbur H.
Gantz, David W. Grainger, Richard L.
Keyser, John W. McCarter, Jr., James
D. Slavik, Harold B. Smith, Fred L.
Turner, Janiece S. Webb
- ---------------------------------------------------
FOR, except vote withheld from nominees named above
FOR AGAINST ABSTAIN
2. Proposal to ratify appointment of // // //
Grant Thornton LLP as independent
auditors for the year ending
December 31, 1996.
CHECK HERE CHECK HERE
FOR ADDRESS IF YOU PLAN
CHANGE AND TO ADDEND
NOTE CHANGE BELOW THE MEETING
3. In their discretion upon such other // //
matters as may properly come before the
meeting.
SIGNATURE: ________________________________ DATE: _____________________
SIGNATURE: ________________________________ DATE: _____________________
Please sign exactly as your name or names appear hereon. Joint owners should
each sign personally. If signing in a fiduciary or representative capacity,
give full title as such.
<PAGE>
APPENDIX
1. On Inside Front Cover - a map representing location of the Annual Meeting.
2. On pages 3 through 5 - 11 photos of the Board of Directors nominees.
3. On page 17 - Stock Price Performance graph filed with Branch Chief.
