As amended as of January 4, 1998
Management Incentive Compensation Plan
I. Compensation Plan
This Management Incentive Compensation Plan is administered by the
Compensation and Organization Committee (the "Committee") of the Board
of Directors of The Stanley Works ("Stanley" or the "Company"). Members
of management and other key employees of Stanley and its affiliates are
eligible to receive incentive compensation under this plan. Incentive
compensation can be paid under this plan only when certain "performance
goals" determined by the Committee in advance are attained. The
business criteria upon which the performance goals are based are Core
Net Earnings, Core Net Earnings Per Share, and Core Return On Capital
Employed.
The Committee determines the specific dollar amount of incentive
compensation that may be awarded under this plan to each executive
officer of Stanley and the chief executive officer determines the
specific dollar amount of incentive that may be awarded under this plan
to each other eligible employee of Stanley for a given year, provided
that the aggregate amount of all awards paid to any employee under this
plan in a single year cannot exceed one half of one percent of
Stanley's Shareholders' Equity as of the last day of the preceding
year. The Committee may, in its discretion and at any time, reduce the
incentive compensation to be paid to any employee hereunder.
II. Definition of Terms
A. Core Net Earnings - Net Earnings of the Company, exclusive of
restructuring charges, restructuring-related transition costs,
and other unusual events, as set forth in the Company's annual
report.
B. Core Net Earnings Per Share - core net earnings divided by the
average shares outstanding (basic), as set forth in the Company's
annual report.
C. Core Return On Capital Employed - core net earnings divided by
adjusted capital employed, as set forth in the Company's annual
report.
D. Salary - Base salary for the Plan Year.
E. Plan Year - The fiscal year of the Company.
III. Limitations
A. To be eligible to receive incentive compensation under this plan,
the employee must be employed by the Company and rendering
services at the end of the Plan
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Year, except in the case of retirement, death, or disability or
special circumstances as determined by the Chief Executive
Officer, in which event incentive compensation shall be paid on
the basis of that portion of the year for which services were
rendered prior to such retirement, death, or disability. Periods
of vacation will be considered periods during which services are
being rendered.
B. This plan does not constitute a contract between The Stanley
Works and the employee. Participation in the plan in no way
constitutes an employment agreement or guarantee of employment.
IV. Definition of Change in Control
For purposes of this Plan, a "Change in Control" shall be deemed to
have occurred if
A. any "person," as such term is defined in Section 3(a)(9) and
modified and used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (other than
the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any subsidiary
of the Company, or any corporation owned, directly or indirectly
by the shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of
the Company's then outstanding securities;
B. during any period of two consecutive years individuals who at the
beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
entered into an agreement with the Company to effect a
transaction described in clause (A), (C) or (D) of this
definition) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof;
C. the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (1) a
merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
more than 75% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (2) a merger or
consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no "person" (with the
exceptions specified in clause (A) of this definition) acquires
25% or more of the combined voting power of the Company's then
outstanding securities; or
D. the shareholders of the Company approve a plan of complete
liquidation of the
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Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
V. Pro-Rata Payment Following Change in Control
Notwithstanding any of the preceding provisions of this plan, upon the
occurrence of any Change in Control of the Company it shall be deemed,
solely for purposes of this plan, that the employment of each
individual who is covered under this plan for the Plan Year in which
such Change in Control occurs has terminated on the date of such Change
in Control by reason of retirement. As soon as may be practicable, each
such individual shall be paid incentive compensation for such Plan Year
in accordance with Section III(A) hereof but without the application of
the discretion referred to in Section I; provided, however, that the
calculation of such incentive compensation shall be based on Net Sales,
Core Net Income, Core Earnings Per Share, and Core Return On Capital
Employed and the employee's Salary during an abbreviated Plan Year
which shall include only those fiscal months completed prior to the
Change in Control for which Salary was paid to the individual; and
provided further that all elements entering into such calculation shall
be appropriately adjusted for such abbreviated Plan Year.
VI. Payment of Previously Unpaid Amount Following Change in Control
Notwithstanding any of the preceding provisions of this Plan, upon the
occurrence of any Change in Control of the Company, if any incentive
compensation which any individual earned under this Plan during any
Plan Year which ended prior to the Change in Control has neither been
paid to such individual nor credited to such individual's deferred
account under The Stanley Deferred Compensation Plan for Participants
in Stanley's Management Incentive Plans, such incentive compensation
shall be paid to such individual immediately following the first date
on which such incentive compensation can be calculated and shall in no
event be paid later than the later of (I) the first March 1 following
the Plan Year with respect to which such incentive compensation was
earned or (ii) the fifteenth (15th) day following the Change in
Control.
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