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 Rule 14a-11(c) or Rule 14a-12
The Stanley Works (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/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)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:
(4) Proposed maximum aggregate value of transaction:
(5) Total Fee paid:
/ / Fee paid previously with preliminary materials.
[LOGO OF STANLEY WORKS]
The Stanley Works
March 20, 2001
Dear Fellow Shareowner:
You are cordially invited to attend Stanley's Annual
Meeting of Shareowners to be held at 9:30 a.m. on
Wednesday, April 18, 2001, at the Renaissance Dallas
Hotel, 2222 Stemmons Freeway, Dallas, Texas (see
directions, inside back cover).
At the meeting, management will report on Stanley's
affairs and a discussion period will be provided for
questions and comments.
You will be asked at the meeting to elect directors and
to approve Ernst & Young LLP as Stanley's independent
auditors for 2001. You will also be asked to approve a
Long-Term Incentive Plan.
In the accompanying Proxy Statement your Board of
Directors recommends that you vote "FOR" the proposals.
The Board appreciates and encourages shareowner
participation in Stanley's affairs. Whether or not you
plan to attend the meeting, it is important that your
shares be represented. PLEASE SIGN, DATE, AND MAIL THE
ENCLOSED PROXY IN THE ENVELOPE PROVIDED AT YOUR EARLIEST
CONVENIENCE, OR REGISTER YOUR VOTE BY TELEPHONE OR THE
INTERNET.
Thank you for your cooperation.
Very truly yours,
John M. Trani
Chairman and
Chief Executive Officer
The Stanley Works
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREOWNERS
March 20, 2001
To the Shareowners:
The Annual Meeting of Shareowners of The Stanley Works will be held at the
Renaissance Dallas Hotel, 2222 Stemmons Freeway, Dallas, Texas on Wednesday,
April 18, 2001, at 9:30 a.m. for the following purposes:
(1) To elect three directors.
(2) To approve the 2001 Long-Term Incentive Plan.
(3) To approve Ernst & Young LLP as independent auditors of the Corporation
for the year 2001.
(4) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareowners of record at the close of business on February 15, 2001 are
entitled to vote at the meeting.
Bruce H. Beatt
Secretary
Important
WHETHER YOU OWN ONE SHARE OR MANY, PLEASE SIGN AND RETURN PROMPTLY THE ENCLOSED
PROXY IN THE POSTAGE PAID ENVELOPE PROVIDED, OR REGISTER YOUR VOTE BY TELEPHONE
OR THE INTERNET
THE STANLEY WORKS
1000 Stanley Drive
New Britain, Connecticut 06053
Telephone (860) 225-5111
March 20, 2001
PROXY STATEMENT
FOR THE ANNUAL MEETING OF SHAREOWNERS
APRIL 18, 2001
Stanley is sending you the accompanying proxy and this proxy statement on or
about March 20, 2001.
Please sign, date, and mail the enclosed proxy in the envelope provided at your
earliest convenience, or register your vote by telephone or the internet.
ELECTION OF DIRECTORS
At the 2001 annual meeting the shareowners will elect three directors.
Stanley's Bylaws require all shareowner nominations to be made by proper notice
given to the Corporation's Secretary not later than March 19, 2001. The
nominations of the Board of Directors are set forth below. Those elected as
directors will serve until the Annual Meeting of Shareowners indicated, and
until the particular director's successor has been elected and qualified.
The Board recommends a vote FOR the nominees. If for any reason any nominee
should not be a candidate for election at the time of the meeting, the proxies
may be voted, in the discretion of those named as proxies, for a substitute
nominee.
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
TERMS EXPIRING AT 2004 ANNUAL MEETING
[PHOTO]
John G. Breen, retired, served as Chairman of The Sherman Williams Company; he
had been Chief Executive Officer since 1979. He is a director of The Sherman
Williams Company, National City Corporation, Goodyear Tire & Rubber Company,
Mead Corporation, and Parker-Hannifin Corporation. He also is a Trustee of John
Carroll University.
Mr. Breen, a director since July 2000, is a member of the Audit Committee and
the Finance and Pension Committee. He is 66 years old and owns 849 shares.
1
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
TERMS EXPIRING AT 2004 ANNUAL MEETING
[PHOTO]
John D. Opie, retired, served as Vice Chairman of the Board and Executive
Officer of General Electric Company since 1995; he served as President and
Chief Executive Officer of GE Lighting from 1986 to 1995 and also held other
key leadership positions at GE from 1961. He is a director of Delphi Automotive
Systems Corporation.
Mr. Opie, a director since July 2000, is a member of the Board Affairs
Committee and the Compensation and Organization Committee. He is 63 years old
and owns 2,677 shares.
[PHOTO]
Hugo E. Uyterhoeven, Timken Professor of Business Administration Emeritus,
Graduate School of Business Administration, Harvard University, where he has
been a member of the faculty since 1960. He is a director of Bombardier, Inc.,
Ecolab, Inc., and Harcourt General, Inc.
Professor Uyterhoeven has been a director since 1975 and is a member of the
Compensation and Organization Committee and Chair of the Board Affairs
Committee. He is 69 years old and owns 31,281 shares.
INFORMATION CONCERNING DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING AT 2002 ANNUAL MEETING
[PHOTO]
Stillman B. Brown, Managing General Partner, Harcott Associates, since 1987.
Formerly, he was Executive Vice President, Corporate Development of United
Technologies Corporation where he was chief financial officer from 1979 until
1986. He is a life member of the Board of Regents of the University of Hartford
and a regent of the University of California - Berkeley Foundation.
Mr. Brown has been a director since 1985. He is Chair of the Compensation and
Organization Committee and a member of the Executive Committee and the Finance
and Pension Committee. He is 67 years old and owns 50,500 shares.
[PHOTO]
Mannie L. Jackson, majority owner and Chairman of Harlem Globetrotters
International, Inc., a division of MJA, Inc. He retired in 1995 as Senior Vice
President Corporate Marketing and Corporate Administration of Honeywell Inc.
after a 27 year career. He is a director of Ashland Inc., Jostens, Inc., and
Reebok International Ltd.
Mr. Jackson, a director since 1995, is Chair of the Finance and Pension
Committee and a member of the Audit Committee. He is 61 years old and owns
19,680 shares.
2
INFORMATION CONCERNING DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING AT 2002 ANNUAL MEETING
[PHOTO]
Kathryn D. Wriston, trustee of the John A. Hartford Foundation, Practicing Law
Institute, and The Northwestern Mutual Life Insurance Company. She is a
director of HomePlace of America, Inc.
Mrs. Wriston, a director since 1996, is Chair of the Audit Committee and a
member of the Board Affairs Committee and the Executive Committee. She is 62
years old and owns 19,500 shares.
INFORMATION CONCERNING DIRECTORS CONTINUING IN OFFICE
TERMS EXPIRING AT 2003 ANNUAL MEETING
[PHOTO]
Eileen S. Kraus, retired. Served as Chairman, Fleet Bank, Connecticut, a
subsidiary of Fleet Boston Financial, a position she held from 1995 to 2000.
She had been President, Shawmut Bank Connecticut, N.A., and Vice Chairman of
Shawmut National Corporation since 1992; Vice Chairman, Connecticut National
Bank and Shawmut Bank, N.A. since 1990; and Executive Vice President of those
institutions since 1987. She is Chairman of ConnectiCare Holding Company, Inc.
and ConnectiCare, Inc., a director of Kaman Corporation, member of the advisory
board of Yankee Energy System, Inc./Northeast Utilities System, and chairman of
the advisory board of Iron Bridge Mezzanine Fund. She is also a Trustee of
Mount Holyoke College.
Mrs. Kraus was elected a director in 1993 and is a member of the Audit
Committee, the Executive Committee and the Compensation and Organization
Committee. She is 62 years old and owns 20,866 shares.
[PHOTO]
John M. Trani, Chairman and Chief Executive Officer of Stanley. Mr. Trani
joined the Corporation December 31, 1996 after an 18 year career with General
Electric Company, the last 10 years as President and Chief Executive Officer of
GE Medical Systems.
Mr. Trani is Chair of the Executive Committee. He is 56 years old and owns
1,840,343 shares.
3
BOARD INFORMATION
Meetings. The Board of Directors met seven times during 2000. The various Board
committees met the number of times shown in parentheses: Executive (0), Audit
(7), Board Affairs (3), Finance and Pension (3), and Compensation and
Organization (6). The members of the Board serve on the committees described in
their biographical material on pages 1, 2, and 3. Each incumbent director had
an attendance record of 75% or greater at meetings, including meetings of
committees on which he or she served, except John D. Opie. Mr. Opie, who joined
the Board in July of 2000, missed two meetings, both of which were held on the
same day. It was understood and agreed at the time Mr. Opie became a member of
the Board that he would be unavailable to attend those meetings.
Executive. The Executive Committee exercises all the powers of the Board of
Directors during intervals between meetings of the Board; however, the
Committee does not have the power to declare dividends or to do other things
reserved by law to the Board.
Audit. The Audit Committee nominates the Corporation's independent auditing
firm, reviews the scope of the audit, and approves in advance management
consulting services, and reviews with the independent auditors and the internal
auditors their activities and recommendations including their recommendations
regarding internal controls. The Committee meets with the independent auditors,
the internal auditors, and management, each of whom has direct and open access
to the Committee. All members of the Audit Committee are independent (as
independence is defined in Sections 303.01(B)(2)(a) and (3) of the NYSE's
listing standards). Directors who are not Committee members may attend any of
the Committee's meetings they wish to attend. The Audit Committee operates
under a charter, a copy of which is set forth as Appendix A.
Board Affairs. The Board Affairs Committee makes recommendations to the Board
as to board membership and considers names submitted to it in writing by
shareowners. The Committee recommends directors for board committee membership
and as committee chairs, and recommends director compensation. The Committee
has taken the lead in articulating Stanley's corporate governance guidelines,
preparing a director job description, establishing a procedure for evaluation
of incumbent directors, and establishing a procedure for evaluating Board
performance. The Committee also provides guidance on major issues in areas of
corporate social responsibility and public affairs, and reviews and approves
policy guidelines on charitable contributions.
Compensation and Organization. The Compensation and Organization Committee
determines the compensation of executive officers and of non-officer senior
executives. The Committee also administers the Corporation's executive
compensation plans.
Finance and Pension. The Finance and Pension Committee advises in major areas
concerning the finances of the Corporation and oversees the Corporation's
administration of Stanley's pension plans.
Compensation. Stanley pays its directors who are not employees of the
Corporation or any of its subsidiaries a $30,000 annual retainer. It also pays
a fee of $1,500 for each Board of Directors meeting attended
4
($750 if attendance is by conference telephone) and a fee of $1,000 for each
meeting of a committee of the Board of Directors ($200 if attendance is by
conference telephone). Committee chairs receive an additional annual fee of
$3,000. Non-employee directors may defer any or all of their fees in the form
of Stanley shares or as cash accruing interest at the five-year treasury bill
rate; a director is required to so defer in the form of Stanley shares so long
as he or she owns fewer than 7,500 shares. It is anticipated that each non-
employee director will annually receive a ten-year option to purchase 3,000 of
the Corporation's shares at an exercise price equal to the fair market value of
such shares at the date of grant.
SECURITY OWNERSHIP
No person or group, to the knowledge of the Corporation, owns beneficially more
than five percent of the outstanding common shares, except as shown in this
table. As of February 15, 2001, Citibank, N.A. owned of record 17.7% of the
outstanding common shares as Trustee under the Corporation's ESOP for the
benefit of the plan participants. The participants make the voting and
disposition decisions for these shares.
- --------------------------------------------------------------------------------
(1)
Title
of (2) Name and address of (3) Amount and nature of (4) Percent
class beneficial owner beneficial ownership of class
- ------ ----------------------- ------------------------ -----------
Common
Stock Capital Research & Mgmt. Co. 7,730,000 shares/1/ 9.0%
$2.50 333 South Hope Street (power to dispose)
par Los Angeles, CA 90071
value
Common
Stock FMR Corp. 8,104,254 shares 9.5%
$2.50 82 Devonshire Street (4,492,426 power to vote)
par Boston, MA 02109 (8,104,254 power to dispose)
value
Common
Stock T. Rowe Price Associates, Inc. 4,354,968 shares/2/ 5.1%
$2.50 100 E. Pratt Street (1,085,427 power to vote)
par Baltimore, MD 21202 (4,354,968 power to dispose)
value
- --------------------------------------------------------------------------------
/1/Washington Mutual Investors Fund, Inc., which is advised by Capital Research
& Mgmt. Co., owns beneficially (with power to vote) 4,350,000 of these shares.
/2/These securities are owned by various individual and institutional investors
for whom T. Rowe Price Associates, Inc. ("Price Associates") serves as
investment advisor with power to direct investments and/or sole power to vote
the securities. For purposes of the reporting requirements of the Securities
Exchange Act of 1934, Price Associates is deemed to be a beneficial owner of
such securities; however, Price Associates expressly disclaims that it is, in
fact, the beneficial owner of such securities.
5
With the exception of Mr. Trani, who owns beneficially 2.1% of the outstanding
common shares, no director, nominee or executive officer owns more than 1% of
the outstanding common shares. The executive officers and directors as a group
own beneficially approximately 2.9% of the outstanding common shares, and
Stanley estimates present and former employees (including executive officers)
own approximately 33.4% of the outstanding common shares. The following table
sets forth information as of February 15, 2001 with respect to the
shareholdings of the directors, nominees, each of the executive officers named
in the table on page 10, and all directors, nominees, and executive officers as
a group (the beneficial owner of the shares shown for the most part has sole
voting and sole investment power):
- --------------------------------------------------------------------------------
Common Percent
Shares of Class
Name Owned Owned
- -------------------------------------------------------------------------------
John G. Breen ............................. 849 (1) (2) *
Stillman B. Brown ......................... 50,500 (1) *
Mannie L. Jackson ......................... 19,680 (1) (2) *
James G. Kaiser ........................... 28,707 (1) (2) *
Eileen S. Kraus............................ 20,866 (1) (2) *
Kenneth O. Lewis........................... 61,343 (1) (3) *
James M. Loree ............................ 136,314 (1) (3) (4) *
Donald R. McIlnay ......................... 82 (3) *
John D. Opie .............................. 2,677 (1) (2) *
Paul W. Russo ............................. 89,570 (1) (3) *
John M. Trani ............................. 1,840,343 (1) (3) (4) 2.1
Hugo E. Uyterhoeven ....................... 31,281 (1) (2) *
Kathryn D. Wriston ........................ 19,500 (1) *
Directors and executive officers as a group
.......................................... 2,486,512 (1) (2) (3) (4) 2.9
-----------------------------------------------------------------------------
* Less than 1%
(1) Includes shares which may be acquired by the exercise of stock options, as
follows: Mr. Trani, 1,600,000; Mr. Lewis, 60,000; Mr. Loree, 50,000; Mr.
Russo, 76,600, Mr. Uyterhoeven, 9,500; Mrs. Wriston, 8,500; each other non-
employee director, 10,500; and all directors and executive officers as a
group, 1,996,100.
(2) Includes the share accounts maintained by Stanley for those of its
directors who have deferred their director fees, as follows: Mr. Breen,
849; Mr. Jackson, 6,980; Mr. Kaiser, 12,563; Mrs. Kraus, 10,141; Mr. Opie,
677; Mr. Uyterhoeven, 19,881; and all directors and executive officers as a
group, 51,091.
(3) Includes shares held as of February 15, 2001 under Stanley's savings plans,
as follows: Mr. Trani, 24,881; Mr. Lewis, 600; Mr. Loree, 914; Mr. Mcllnay,
82; Mr. Russo, 8,162; and all directors and executive officers as a group,
46,584.
(4) Includes the share unit accounts maintained by Stanley, as follows: Mr.
Trani, 200,000; Mr. Loree, 80,000; and all directors and executive officers
as a group, 286,000.
6
AUDIT COMMITTEE REPORT
In connection with the December 30, 2000 financial statements, the Audit
Committee: (1) reviewed and discussed the audited financial statements with
management; (2) discussed with the independent auditors the matters required to
be discussed under Statement on Auditing Standards No. 61; (3) received the
written disclosures and the letter from the independent auditors required by
Independence Standards Board Standard No. 1 and discussed with the independent
auditors the independent auditors' independence. Based upon these reviews and
in reliance upon these discussions, the Audit Committee recommended to the
Board of Directors that the audited financial statements be included in the
Corporation's Annual Report on Form 10-K filed with the SEC.
AUDIT COMMITTEE
Kathryn D. Wriston (Chair)
John G. Breen
Mannie L. Jackson
Eileen S. Kraus
EXECUTIVE COMPENSATION
Report of the Compensation and Organization Committee of the Board of Directors
The Compensation and Organization Committee of the Board of Directors is
composed of four non-employee directors. The Committee determines the
performance and award under the Management Incentive Compensation Plan ("MICP")
for the chief executive officer and makes recommendations to the Board as to
his salary (the Board then determines such salary). The Committee, itself,
determines the salaries and MICP performance and awards for executive officers
other than the CEO. The Committee also administers the long-term incentive
plans and makes stock option grants.
Overview
In addition to providing the benefits under the Corporation's pension and
savings plans generally provided to all salaried employees in the United
States, Stanley has used a number of elements in compensating its executives:
salary; annual incentives; long-term incentives; ten-year stock options; and
share units. The Committee believes that this combination of elements results
in a substantial portion of total compensation being at risk and appropriately
relates to the achievement of increased shareowner value through profitable
growth. With the exception of certain compensation payable to Mr. Trani under
the terms of the employment agreement between him and Stanley, the Committee's
general intent is to take appropriate steps so that the compensation other than
salary paid to executive officers meets the requirements for "performance-based
compensation" (including shareowner approval) and is therefore deductible for
federal income tax purposes by Stanley under Section 162(m) of the Internal
Revenue Code.
7
Salaries
Stanley regularly participates in a survey of salaries and overall compensation
conducted by Hewitt Associates. Based on its 2000 survey, Hewitt has compared
Stanley's salary and compensation packages with those of 55 manufacturing
companies included in its survey, including 9 of those included in the Peer
Group reflected in the line graph on page 16. From these survey data, salary
ranges are established each year for all U.S. based executive positions. Actual
base salary determinations are made on the basis of (a) these salary ranges,
(b) individual performance (as evaluated by the Committee in its discretion),
and (c) other factors that the Committee deems relevant. The 2000 salary of Mr.
Trani is above the median for these market survey data. The 2000 salaries of
the other U.S. based executives named in the table on page 10 are at or above
the median for their respective positions.
Annual Incentive
In 2000 the Committee used the MICP to compensate executives based on the
Corporation's core net earnings, core net earnings per share, and core return
on adjusted capital employed. The MICP provided for annual incentive awards to
112 selected key executives for 2000.
Long-Term Incentive
The 36-month goals established in 2000 under the 1997 Long-Term Incentive Plan
provided goals of return on capital employed, core earnings per share over the
period, and cash flow over the period.
Market Appreciation of the Corporation's Shares
The Committee uses stock options to compensate executives based on market
appreciation of Stanley's shares, creating for executives an identity of
interest with the Corporation's shareowners. The Committee plans to make annual
stock option grants to its executive officers and certain other key employees,
and to make occasional grants to other key employees. It is anticipated that
the grants will be non-qualified stock options with a term of up to ten years
and an exercise price equal to at least the fair market value of Stanley's
common shares at the time of grant.
The Committee has established guidelines for minimum stock ownership. These
guidelines provide that over a five-year period stock ownership will reach the
following minimum levels, expressed as a multiple of base salary: five times
for the chief executive officer; two times for the others appearing in the
table on page 10, the other executive officers, and certain heads of product
groups; and one time for all other participants in the Company's long-term
incentive plans.
8
Conclusion
Through the programs described above, a very significant portion of the
Corporation's executive compensation is linked directly to corporate
performance and stock price appreciation. The Committee intends to continue the
policy of linking executive compensation to corporate performance and returns
to shareowners, recognizing that the ups and downs of the business cycle from
time to time may result in an imbalance for a particular period.
COMPENSATION AND ORGANIZATION COMMITTEE
Stillman B. Brown (Chair)
Eileen S. Kraus
John D. Opie
Hugo E. Uyterhoeven
9
Summary Compensation Table
This table shows the compensation earned for service in all capacities
(including director fees for Mr. Trani) during the last three fiscal years for
Stanley's chief executive officer and its next four most-highly compensated
executive officers.
LONG-TERM COMPENSATION
---------------------------------
ANNUAL
COMPENSATION AWARDS PAYOUTS
-----------------------------------------------------
(a) (b) (c) (d) (f) (g) (h) (i)
Shares
Restricted Underlying LTIP All Other
Name and Salary Stock Options Payouts Compensation
Principal Position Year ($) Bonus ($) Award(s) ($) (#) ($) ($)
- --------------------------------------------------------------------------------------------
John M. Trani 2000 1,000,000 1,800,000 0 1,400,000 0 139,669
Chairman 1999 925,000 1,400,000 0 200,000 1,684,375 86,436
and CEO 1998 850,000 900,000 0 200,000 0 111,251
Kenneth O. Lewis 2000 258,750 130,000 0 60,000 0 15,080
Vice President, 1999 245,000 115,000 0 30,000 218,750 10,953
Marketing and 1998 235,833 115,000 0 20,000 0 31,212
Brand Development
James M. Loree 2000 331,250 260,000 0 100,000 0 130,850
VP Finance 1999 148,958 687,796 2,372,504 150,000 0 25,599
and CFO 1998 -- -- -- -- -- --
Donald R. McIlnay 2000 300,000 120,000 0 20,000 0 8,760
President, Consumer 1999 75,000 30,000 0 100,000 0 1,506
Sales Americas 1998 -- -- -- -- -- --
Paul W. Russo 2000 255,000 105,000 0 15,000 0 17,674
VP, Strategy and 1999 245,000 100,000 0 15,000 0 17,086
Development 1998 237,500 100,000 0 12,000 0 17,164
-----------------------------------------------------------------------------
(a) Mr. Loree was elected VP Finance and CFO July 19, 1999. Mr. McIlnay was
elected President, Consumer Sales Americas on October 4, 1999.
(d) In 1999, Mr. Loree's MICP was $225,000; the balance resulted from sign-on
and make-whole payments in connection with his being hired.
(f) At the end of the year, Mr. Trani's aggregate restricted share units
totaled 200,000 fully vested units on which dividend equivalents are paid,
with a value, based on the year-end closing price of $31.1875, of
$6,237,500. At the end of the year, Mr. Loree's aggregate restricted share
units totaled 80,000 shares, 51,670 of which are vested, 17,670 vest in
2001, and 10,660 vest in 2002, and on which dividend equivalents are paid;
they have a value, based on the year-end closing price of $31.1875 of
$2,495,000.
10
Footnote to
Column (i) of Summary
Compensation Table
Consists of relocation expenses including gross up for taxes; company
contributions to defined contribution plans (excluding contributions to the
"cornerstone account" defined contribution plan, which will offset pension
benefits described in the tables at the bottom of page 13 and on page 14), and
life insurance premiums.
- --------------------------------------------------------------------
Defined
Relocation Contribution Column (i)
Name Year Expenses Plans Insurance Total
- --------------------------------------------------------------------
John M. Trani 2000 0 83,562 56,107 139,669
1999 0 63,875 22,561 86,436
1998 32,350 61,250 17,651 111,251
Kenneth O. Lewis 2000 0 9,660 5,420 15,080
1999 0 5,717 5,236 10,953
1998 26,338 0 4,874 31,212
James M. Loree 2000 105,926 19,469 5,455 130,850
1999 17,311 2,833 5,455 25,599
1998 -- -- -- --
Donald R. McIlnay 2000 0 0 8,760 8,760
1999 0 0 1,506 1,506
1998 -- -- -- --
Paul W. Russo 2000 0 12,425 5,249 17,674
1999 0 12,083 5,003 17,086
1998 0 12,443 4,721 17,164
11
Option Grants in 2000
The stock options granted in 2000 were granted on October 19 and are not
exercisable until the first anniversary of the date of grant. In addition, in
connection with the renewal of his employment agreement, Mr. Trani received
options covering 1,000,000 shares on April 26, 2000, exercisable on the second
anniversary of the date of grant.
- ----------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed Annual Rates of
Individual Grants Stock Price Appreciation
for Option Term
- ----------------------------------------------------------------------------------------------------
Number of % of Total
Shares Options
Underlying Granted to
Options Employees Exercise Expiration
Name Granted (#) in Fiscal Year ($/Share) Date 5% 10%
(a) (b) (c) (d) (e) (f) (g)
- ----------------------------------------------------------------------------------------------------
J.M. Trani 1,000,000 24.2% 30.125 12/31/09 $ 18,945,450 $ 48,011,492
400,000 9.7% 20.375 10/18/10 5,125,491 12,989,001
K.O. Lewis 60,000 1.5% 20.375 10/18/10 768,823 1,948,350
J.M. Loree 100,000 2.4% 20.375 10/18/10 1,286,372 3,247,250
D.R. McIlnay 20,000 .5% 20.375 10/18/10 256,274 649,450
P.W. Russo 15,000 .4% 20.375 10/18/10 192,205 487,087
All Shareowners
(based on market price
on October 19, 2000) -- -- -- -- 1,096,884,795 2,779,721,431
Named executive
officers' percentage of
realizable value gained
by all shareowners -- -- -- -- .6% .6%
- --------------------------------------------------------------------------------
Aggregated Option Exercises in 2000 and 2000 Year-End Option Values
Number of Value of
Shares Underlying Unexercised
Unexercised Options In-the-Money Options
at Fiscal Year-End at Fiscal Year-
Shares (#) End ($)
Acquired on Value
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
(a) (b) (c) (d) (e)
- ---------------------------------------------------------------------------
J.M. Trani 0 $ 0 1,600,000/1,400,000 $5,424,980/5,387,500
K.O. Lewis 0 0 60,000/60,000 242,810/648,750
J.M. Loree 0 0 50,000/200,000 76,560/1,234,370
D.R. McIlnay 0 0 0/120,000 0/652,500
P.W. Russo 0 0 76,600/15,000 348,242/162,188
12
Retirement Benefits
Employees in the United States are generally eligible to retire with unreduced
pension benefits at age 65. The following table shows the approximate annual
pension generally provided to U.S. employees employed prior to July 1, 1997,
including Messrs. Trani and Russo who have 11 years and 2 years of credited
service, respectively. Stanley has determined no service accruals will be made
under this pension plan after January 31, 1998; instead, the company makes
contributions to a "cornerstone account" defined contribution plan. Pensions
are paid monthly for life or as a lump sum (pension payments are guaranteed to
total at least as much as the lump sum would have been). The amounts shown are
in addition to any benefits the employee may be entitled to under Social
Security and include amounts restored by Stanley's supplemental retirement
plan. Covered compensation is salary and bonus, which in the case of Messrs.
Trani and Russo are the amounts shown in columns (c) and (d) of the summary
compensation table on page 10.
Average Annual
Compensation for Approximate Annual Pension
the Highest 5 Upon Retirement at Age 65
Consecutive of the -----------------------------------------------------------
Last 10 Years 15 Years of 20 Years of 25 Years of 30 Years of 35 Years of
of Employment Service Service Service Service Service
------------------ ----------- ----------- ----------- ----------- -----------
$ 400,000 ........ $ 75,887 $101,183 $126,478 $151,774 $177,070
800,000 ........ 155,297 207,063 258,828 310,594 362,360
1,200,000 ........ 234,707 312,943 391,178 469,414 547,650
1,600,000 ........ 314,117 418,823 523,528 628,234 732,940
2,000,000 ........ 393,527 524,703 655,878 787,054 918,230
2,400,000 ........ 472,937 630,583 788,228 945,874 1,103,520
2,800,000 ........ 552,347 736,463 920,578 1,104,694 1,288,810
- ---------------------------------------------------------------------------------
The following table shows the approximate annual pension provided to a number
of executives including Messrs. Trani, Lewis, Loree, and Russo (who have
credited years of service of 14 years, 3 years, 1 year and 5 years,
respectively) under Stanley's executive retirement program (inclusive of the
pension shown in the table above and inclusive of the "cornerstone account"
defined contribution plan account balance) which provides unreduced benefits at
age 60. Pensions are paid monthly for life or as a lump sum. The amounts shown
include any benefits the employee may be entitled to under Social Security.
Covered compensation is salary and bonus, which are the amounts shown in
columns (c) and (d) of the summary compensation table on page 10.
13
Average Annual Approximate Annual Pension
Compensation for Upon Retirement at Age 60
the Highest 36 -----------------------------------------------------------
Consecutive 15 Years of 20 Years of 25 Years of 30 Years of 35 Years of
Months Service Service Service Service Service
---------------- ----------- ----------- ----------- ----------- -----------
$ 400,000 ........ $140,000 $180,000 $200,000 $200,000 $200,000
800,000 ........ 280,000 360,000 400,000 400,000 400,000
1,200,000 ........ 420,000 540,000 600,000 600,000 600,000
1,600,000 ........ 560,000 720,000 800,000 800,000 800,000
2,000,000 ........ 700,000 900,000 1,000,000 1,000,000 1,000,000
2,400,000 ........ 840,000 1,080,000 1,200,000 1,200,000 1,200,000
2,800,000 ........ 980,000 1,260,000 1,400,000 1,400,000 1,400,000
- --------------------------------------------------------------------------------
The following table shows the approximate minimum annual pension provided to
Mr. Trani (who for these purposes is credited with 18 years of service as of
his start at Stanley and therefore is deemed to have 22 credited years of
service) under an enhanced retirement program provided to him which at age 60
provides benefits of 1.75% times years of service times average pay, with a
maximum benefit at age 60 (March 15, 2005 after 26 and one-half years of deemed
service) of 46.375% of average pay, less $83,280. The amounts shown are
inclusive of the pension he would receive under the immediately preceding table
(inclusive of the "cornerstone account" defined contribution plan account
balance) and will only be paid if they yield a larger pension than the benefits
shown in the immediately preceding table. The amounts shown are in addition to
any benefits he may be entitled to under Social Security. Covered compensation
is salary and bonus, i.e., the amounts shown in columns (c) and (d) of the
summary compensation table on page 10.
Average Annual Approximate Annual Pension
Compensation for Upon Retirement at Age 60
the Highest 36 -----------------------------------------------------------
Consecutive 15 Years of 20 Years of 25 Years of 30 Years of 35 Years of
Months Service Service Service Service Service
---------------- ----------- ----------- ----------- ----------- -----------
$ 400,000 ........ $105,000 $140,000 $175,000 $210,000 $245,000
800,000 ........ 210,000 280,000 350,000 420,000 490,000
1,200,000 ........ 315,000 420,000 525,000 630,000 735,000
1,600,000 ........ 420,000 560,000 700,000 840,000 980,000
2,000,000 ........ 525,000 700,000 875,000 1,050,000 1,225,000
2,400,000 ........ 630,000 840,000 1,050,000 1,260,000 1,470,000
2,800,000 ........ 735,000 980,000 1,225,000 1,470,000 1,715,000
- --------------------------------------------------------------------------------
14
Supplemental Pension Plan
5
Stanley's defined benefit retirement plan and savings plan are "qualified"
plans under the Internal Revenue Code and, accordingly, are subject to certain
limitations of benefits which apply to "qualified" plans in general. Stanley's
supplemental retirement and savings plan for salaried employees restores these
benefits on a non-qualified basis.
Executive Officer Agreements
Mr. Trani and Stanley entered into a three-year contract as of January 1, 2000
(subject to one-year renewals) providing for him to be paid an annual salary of
$1,000,000 in 2000 and an annual base salary at a rate determined by the Board
for subsequent periods; for him to participate in the Company's annual bonus
plan and to receive, for the Company's 2000 fiscal year, a bonus in the range
of 90% to 270% of his salary (assuming the Company achieved its targeted
performance); for him to receive a stock option grant covering one million
shares; and for him to receive additional stock option, share
unit and/or other equity-based awards as determined by the Compensation and
Organization Committee or the Board. Stanley's executive officers other than
Mr. Trani have agreements with Stanley, which become effective only in the
event of a change in control of the Corporation, providing for payments of up
to two years' compensation in certain cases in the event of the officer's
resignation or involuntary termination. In addition, Mr. Russo and Stanley have
agreed that in the event of his termination under certain circumstances prior
to April 17, 2001 Stanley will continue his compensation for 12 months.
15
Comparison of 5 Years' Cumulative Total Return Among The Stanley Works, S&P 500
Index and Peer Group
Set forth below is a line graph comparing the yearly percentage change in the
Corporation's cumulative total shareowner return for the last five years to
that of the Standard & Poor's 500 Stock Index (an index made up of 500
corporations including Stanley) and the Peer Group. The Peer Group is a group
of 12 companies, including Stanley, that serve the same markets Stanley serves
and many of which compete with one or more product lines of Stanley. Total
return assumes reinvestment of dividends.
The Stanley Works
Comparison of 5 Year Cumulative Total Return
[GRAPH]
Stanley S&P 500 Peer Group
End 1995 $100.00 $100.00 $100.00
End 1996 108.24 120.26 120.48
End 1997 192.71 157.56 156.21
End 1998 115.73 199.57 162.57
End 1999 128.62 238.54 147.70
End 2000 138.01 214.36 134.46
The points in the above table are as follows:
end end end end end end
1995 1996 1997 1998 1999 2000
Stanley $100.00 $108.24 $192.71 $115.73 $128.62 $138.01
S&P 500 100.00 120.26 157.56 199.57 238.54 214.36
Peer Group 100.00 120.48 156.21 162.57 147.70 134.46
Assumes $100 invested on December 31, 1995 in Stanley's common stock, S&P 500
Index and the Peer Group. The Peer Group now consists of the following
12 corporations: Armstrong World Industries, Inc., The Black & Decker
Corporation, Cooper Industries, Inc., Danaher Corporation, Illinois Tool Works
Inc., Ingersoll-Rand Company, Masco Corporation, Newell Rubbermaid Inc.,
Pentair, Inc., Snap-On Incorporated, The Sherwin-Williams Company and The
Stanley Works. One company included in the Peer Group last year, Shaw
Industries, Inc., is no longer in the Peer Group due to its acquisition by
another company.
16
APPROVAL OF THE STANLEY WORKS 2001 LONG-TERM INCENTIVE PLAN
The Board adopted The Stanley Works 2001 Long-Term Incentive Plan on January
25, 2001 (the "2001 Plan"), and is recommending that shareowners approve the
2001 Plan at the Annual Meeting. The 2001 Plan provides for incentive and other
awards that are designed to provide appropriate incentives and rewards to key
employees and certain other individuals who are contributing to Stanley's
future success and prosperity, thus enhancing the value of Stanley for its
shareowners and enabling Stanley to attract and retain exceptionally qualified
individuals upon whom, in large measure, the continued progress, growth and
profitability of Stanley depend.
The 2001 Plan permits the granting of (1) stock options, including incentive
stock options ("ISOs") entitling the optionee to favorable tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), (2)
stock appreciation rights ("SARs"), (3) restricted stock and restricted stock
units ("RSUs"), (4) performance awards, (5) dividend equivalents, and (6) other
awards valued in whole or in part by reference to or otherwise based on Stanley
common stock ("Other Stock-based Awards"). Under the 2001 Plan, awards may be
granted until January 24, 2011 to the approximately 6,000 salaried employees of
Stanley and its subsidiaries and other affiliates in which Stanley has a
significant equity interest and certain other individuals.
The Board has authorized the issuance of ten million shares of Stanley common
stock (11.7% of the total shares outstanding on February 15, 2001) in
connection with awards pursuant to the 2001 Plan. No more than one million of
those shares are available for the exercise of ISOs. In addition, no more than
one million shares are available for the granting of restricted stock and RSUs.
The number of shares with respect to which options and SARs may be granted
under the 2001 Plan to any individual participant in any three-year period
during the term of the 2001 Plan shall not exceed four million shares.
The 2001 Plan is administered by the Compensation and Organization Committee of
the Board (the "Committee"), which is constituted in compliance with applicable
rules and regulations issued under the federal securities laws and the Internal
Revenue Code. (See the description of the Compensation and Organization
Committee on page 4.) The Committee may select eligible employees to whom
awards are granted, determine the types of awards to be granted and the number
of shares covered by awards and set the terms and conditions of awards. The
Committee's determinations and interpretations under the 2001 Plan will be
binding on all interested parties. The Committee may delegate to officers or
managers of Stanley certain authority with respect to the granting,
cancellation and modification of awards other than awards to executive officers
of Stanley. The Board may amend, suspend or terminate the 2001 Plan, including
amendments that might increase the cost of the 2001 Plan to Stanley, provided
that shareowner approval must generally be obtained for any amendment that
would increase the number of shares available for awards or permit the granting
of options, SARs or other stock-based awards including rights to purchase
shares at prices below fair market value at the date of the grant of the award,
other than as described below.
17
Awards may provide that upon exercise the participant will receive cash, stock,
other securities, other awards, other property, or any combination thereof, as
the Committee shall determine, and shall be payable (or exercisable) based upon
the achievement of such performance goals during such performance periods as
the Committee shall establish. The exercise price per share under any stock
option, the grant price of any SAR, and the purchase price of any security that
may be purchased under any stock-based award shall not be less than the fair
market value of the stock or other security on the date of the grant of such
option, SAR or other right, or, if the Committee so determines, in the case of
certain awards retroactively granted in tandem with or in substitution for
other awards under the 2001 Plan or for any outstanding awards granted under
any other Stanley plan, on the date of grant of such other awards. Any exercise
or purchase price may be paid, as determined by the Committee, in cash, shares,
other awards, other property, or any combination thereof.
A participant granted an option is entitled to purchase a specified number of
shares during a specified term at a fixed price, affording the participant an
opportunity to benefit from appreciation in the market price of Stanley stock
from the date of grant. A participant granted an SAR is entitled to receive the
excess of the fair market value (calculated as of the exercise date or, if the
Committee so determines in the case of an SAR not related to an ISO, as of any
time during a specified period before or after the exercise date) of a share of
Stanley stock over the grant price of the SAR.
Restricted stock and RSUs are subject to a risk of forfeiture upon certain
kinds of employment terminations, as determined by the Committee, during a
restricted period specified by the Committee. Both restricted stock and RSUs
may be subject to restrictions imposed by the Committee, including limitations
on the right to vote shares of restricted stock and to receive dividends; such
restrictions may lapse separately or in combination, in installments or
otherwise, as the Committee deems appropriate.
Dividend equivalents represent rights to receive payments equivalent to
dividends or interest with respect to a specified number of shares; the
Committee may provide that such amounts shall be deemed to have been reinvested
in additional shares or otherwise reinvested. Other Stock-Based Awards are
other awards denominated or payable in, valued by reference to, or otherwise
based on or related to shares of Stanley stock; virtually all of the terms and
conditions of such awards are established by the Committee.
Awards are generally not transferable other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order.
The Committee may, however, grant non-qualified stock options that are
transferable to the participant's immediate family members or to trusts or
partnerships for such family members.
All shares available for granting awards in any year that are not used will be
available for use in subsequent years. If any shares subject to any award under
the 2001 Plan or under certain previous plans are forfeited, or if any such
award terminates without the delivery of shares or other consideration, the
shares previously
18
used or reserved for such awards will be available for future awards under the
2001 Plan. If another company is acquired by Stanley or a Stanley affiliate,
any awards made and any Stanley shares delivered upon the assumption of or in
substitution for outstanding grants made by the acquired company may be deemed
to be granted under the 2001 Plan but, except for grants to persons who become
executive officers of Stanley, would not decrease the number of shares
available for grant under the 2001 Plan.
The Committee may adjust the number and type of shares that may be made the
subject of new awards or are then subject to outstanding awards and other award
terms, and may provide for a cash payment to a participant relating to an
outstanding award, or may adjust the number and type of shares which may be
subject to ISOs and which constitute the three-year, per-participant
limitations on options and SARs, in the event of a stock split, stock dividend,
or other extraordinary corporate event. The Committee is also authorized, for
similar purposes, to make adjustments in performance award criteria or in the
terms and conditions of other awards in recognition of unusual or nonrecurring
events affecting Stanley or its financial statements or of changes in
applicable laws, regulations or accounting principles.
The awards that may be granted under the 2001 Plan during 2001 cannot presently
be determined. Nothing in the 2001 Plan prevents Stanley or any Stanley
affiliate from adopting or continuing other or additional compensation
arrangements.
The following is a general summary of the current Federal income tax
consequences relating to Plan awards. The grant of an option or SAR will create
no tax consequences for the participant or Stanley. A participant will have no
taxable income upon exercise of an ISO, except that the alternative minimum tax
may apply. Upon exercise of an option other than an ISO, a participant
generally must recognize ordinary income equal to the fair market value of the
shares acquired minus the exercise price. Upon a disposition of shares acquired
by exercise of an ISO before the end of the applicable ISO holding periods, the
participant generally must recognize ordinary income equal to the lesser of (i)
the fair market value of the shares at the date of exercise minus the exercise
price or (ii) the amount realized upon the disposition of the ISO shares minus
the exercise price. Otherwise, a participant's disposition of shares acquired
upon the exercise of an option (including an ISO for which the ISO holding
periods are met) generally will result in only capital gain or loss. Other
awards under the 2001 Plan, including nonqualified options and SARs, generally
will result in ordinary income to the participant at the later of the time of
delivery of cash, shares, or other property, or the time that either the risk
of forfeiture or restriction on transferability lapses on previously delivered
cash, shares, or other property. Except as discussed below, Stanley generally
will be entitled to a tax deduction equal to the amount recognized as ordinary
19
income by the participant in connection with an option, SAR, or other award,
but will be entitled to no tax deduction relating to amounts that represent a
capital gain to a participant. Thus, Stanley will not be entitled to any tax
deduction with respect to an ISO if the participant holds the shares for the
ISO holding periods.
The foregoing general tax discussion is intended for the information of
shareowners considering how to vote with respect to this proposal and not as
tax guidance to participants in the 2001 Plan. Different tax rules may apply to
specific participants and transactions under the 2001 Plan.
Any outstanding options and SARs will become immediately exercisable and all
restrictions applicable to restricted stock and restricted stock units will
lapse automatically upon a "change in control" of Stanley (as defined in the
Plan). In the event of a "change in control," grantees will also have the right
for a period of 30 days following a "change in control" to require Stanley to
purchase such options, SARs, restricted stock and restricted stock units for
cash at the Option Acceleration Price or the Restricted Stock Acceleration
Price (as those terms are defined in the Plan), as the case may be.
The Board of Directors believes the Plan's "change in control" provisions will
benefit Stanley and its shareowners by encouraging continued employment with
Stanley despite takeover threats that potentially could deprive Plan
participants of their benefits thereunder. These "change in control"
provisions, however, may deter certain mergers, tender offers, proxy contests,
or other takeover attempts.
The Board of Directors recommends a vote FOR approval of the 2001 Long-Term
Incentive Plan. The Plan is set forth in its entirety as Appendix B hereto.
INDEPENDENT AUDITORS
Approval of Independent Auditors
The third item of business to be considered is the approval of independent
auditors for the Corporation for the 2001 fiscal year. Subject to the action of
the shareowners at the Annual Meeting, the Board of Directors of the
Corporation, on recommendation of the Audit Committee, has appointed Ernst &
Young LLP, certified public accountants (Ernst & Young), as the independent
auditors to audit the financial statements of the Corporation for the current
fiscal year. The Board may appoint a new accounting firm at any time if it
believes that such a change would be in the best interest of the Corporation
and its shareowners. Ernst & Young and predecessor firms have been the
Corporation's auditors for the last 57 years. Representatives of Ernst & Young
will be present at the Annual Meeting with the opportunity to make a statement
if they desire to do so and to respond to appropriate questions.
The Board of Directors recommends a vote FOR approving Ernst & Young LLP as
independent auditors of the Corporation for the year 2001.
Fees of Independent Auditors
Audit Fees. The aggregate fees billed by Ernst & Young to the
20
Corporation for professional services rendered for the audit of the
Corporation's annual financial statements for 2000 and the reviews of the
financial statements included in the Corporation's Forms 10-Q for 2000 ("Audit
Services") was $1,000,000.
Financial Information Systems Design and Implementation Fees. There were no
fees billed by Ernst & Young to the Corporation for professional services
described in Paragraph (c) (4) (ii) of Rule 2-01 of Regulation S-X rendered by
Ernst & Young for 2000 ("Financial Information Systems Design and
Implementation Services").
All Other Fees. The aggregate fees billed by Ernst & Young to the Corporation
for services rendered by Ernst and Young, other than for Audit Services and
Financial Information Systems Design and Implementation Services, was
$2,200,000.
Audit Committee Consideration. The Audit Committee has considered whether the
provision of non-audit services described above is compatible with maintaining
Ernst & Young's independence.
OTHER MATTERS
Other Business
No business may be transacted at the meeting other than the business specified
in the notice of the meeting, business properly brought before the meeting at
the direction of the Board of Directors, and business properly brought before
the meeting by a shareowner who has given notice to Stanley's Secretary
received after January 19, 2001 and before February 18, 2001; no such notice
has been received. Management does not know of any matters to be presented at
the meeting other than the matters described in this proxy statement. If,
however, other business is properly presented to the meeting, the proxy holders
named in the accompanying proxy will vote the proxy in accordance with their
best judgment.
Shareowner proposals for 2002
Shareowner proposals intended to be presented to Stanley's 2002 Annual Meeting
must be received by the Secretary not later than November 12, 2001 for
inclusion in the proxy statement and form of proxy relating to such meeting,
and must be received after January 18, 2002 and before February 17, 2002 to
otherwise be properly presented to the meeting.
Voting
Stanley has only one class of shares outstanding. The record date for
determining the shareowners who are entitled to receive the meeting notice and
to vote at the meeting is the close of business on February 15, 2001. As of
February 15, 2001, 85,665,115 common shares of $2.50 par value were outstanding
(exclusive of shares held in treasury).
Vote Required for Approval
Each outstanding share is entitled to one vote. The 3 nominees receiving the
most votes cast will be elected directors; the favorable vote of a majority of
the votes cast is required for approval of the 2001 Long-Term Incentive Plan,
and for approval of Ernst & Young LLP. Under Connecticut law, broker non-votes
and proxies
21
marked as abstentions will not be counted as votes cast; accordingly, they will
have no effect on the outcome of the matters voted on at the meeting.
Manner for Voting Proxies
You may revoke your proxy prior to the meeting by filing a proxy with a later
date. If you attend the meeting, you may revoke your proxy at that time and
vote in person. Your proxy will be voted as you direct, and, if you check the
box on the proxy, your vote will be kept confidential under Stanley's policy on
confidential voting.
If you sign your proxy but do not mark it, your proxy will be voted for
election of the 3 nominees for director, for approval of the 2001 Long-Term
Incentive Plan and for approval of Ernst & Young LLP as the independent
auditors of the Corporation.
Telephone and Internet Voting
To vote by telephone, call toll-free on a touch-tone phone 1-877-PRX-VOTE (1-
877-779-8683). Enter the control number located on your proxy card and follow
the recorded instructions.
To vote by internet, go to the site http://www.eproxyvote.com/swk. Enter the
control number located on your proxy card and follow the instructions provided.
Solicitation of Proxies
Your proxy is solicited on behalf of the Board of Directors. Stanley will
solicit proxies by mail, telephone, other electronic means, and in person, and
will pay all the expenses of the solicitation. Morrow & Co., Inc. may also
solicit personally and by telephone; Stanley believes that the additional
expense of Morrow's assistance will not exceed
$6,500. Stanley will reimburse brokerage houses and other custodians for their
reasonable expenses in sending proxies and proxy material to beneficial owners.
For the Board of Directors
Bruce H. Beatt
Secretary
22
Appendix A
THE STANLEY WORKS
AUDIT COMMITTEE CHARTER
Oversight. The Audit Committee is a standing committee of the Board of
Directors. Its primary function is to assist the Board in fulfilling its
management oversight responsibilities by reviewing the establishment of
accounting policies; preparation of financial statements; integrity of
financial reporting; compliance with applicable laws, regulations and corporate
policies; and significant findings of the internal and independent auditors.
The Audit Committee performs this function by obtaining information and
overseeing the internal control environment through an interactive process with
the Company's senior management, internal audit staff and independent auditors.
Management and Independent Auditors. The primary responsibility of the Audit
Committee is to provide oversight and its activities in no way supersede or
alter the traditional roles of management and the independent auditors. The
Company's management is responsible for the preparation, integrity and
objectivity of the Company's financial statements and for determining the
completeness and accuracy of the financial statements and whether they have
been prepared in accordance with generally accepted accounting principles
consistently applied and are free of material misstatement. It is the
responsibility of the independent auditor to plan and conduct the audit and to
express an opinion on whether such financial statements comply with generally
accepted accounting principles. Management is also responsible for establishing
and maintaining a system of internal controls that supports the financial and
business environments and for conducting investigations, resolving
disagreement, if any, with the Company's independent auditors, and assuring
compliance with laws, regulations and the Company's Business Conduct
Guidelines.
Organization; Meetings. The members of the Audit Committee shall be appointed
by the Board and shall meet the independence and expertise requirements of the
New York Stock Exchange. The Audit Committee shall meet a minimum of three
times per year and shall report regularly to the Board. The Audit Committee
shall meet at least annually with the chief financial officer, the Director of
Internal Audit and the independent auditor in separate executive sessions. The
Audit Committee shall have the authority to retain special legal, accounting or
other consultants and to conduct special investigations. The Audit Committee
may request any officer or employee of the Company or the Company's outside
counsel or independent or internal auditor to attend a meeting or meet with any
members of, or consultants to, the Audit Committee.
Responsibilities. The Audit Committee shall:
Meet with the independent auditor prior to the audit to review the plan and
scope of the audit; meet with management and the independent auditor to
review the audited financial statements, including major issues and
developments regarding financial reporting and accounting matters; and
review the management letter prepared by the independent auditor and
management's responses.
Discuss with the independent auditor the matters required to be discussed
on an annual or quarterly basis, as the case may be, under generally
accepted auditing standards and any other applicable laws or regulations
relating to the conduct of the audit.
Meet periodically with management and the independent and internal auditors
to review the adequacy of the Company's system of internal controls over
financial reporting and the safeguarding of assets and review significant
risk and control exposures and the steps being taken by management to
monitor such exposures.
Recommend to the Board the appointment of the independent auditor, subject
to shareowner approval, which firm is ultimately
23
accountable to the Audit Committee and the Board; approve the fees to be
paid to the independent auditor; receive and review with the independent
auditor periodic reports regarding the auditor's independence and, if so
determined by the Audit Committee, recommend that the Board take
appropriate action to satisfy itself of the independence of the auditor;
and evaluate the performance of the independent auditor and, if so
determined by the Audit Committee, recommend that the Board replace the
independent auditor.
Periodically review the audit plan, the internal audit department
responsibilities, budget, resources, skills and staffing; concur in the
appointment or replacement of the Director of Internal Audit; review at
least annually a summary of audit findings prepared by the internal
auditing department and management's responses.
Review with the Company's General Counsel the Company's legal compliance,
including the Business Conduct Guidelines and legal, regulatory or
compliance matters that may have a material impact on the financial
statements.
Evaluate the adequacy of this Charter annually and recommend any changes to
the Board for adoption.
Perform any other oversight functions as requested by the Board.
24
Appendix B
THE STANLEY WORKS
2001 LONG-TERM INCENTIVE PLAN
Section 1. Purpose
The purposes of this Long-Term Incentive Plan (the "Plan") are to encourage
selected salaried employees of The Stanley Works (together with any successor
thereto, the "Company") and selected salaried employees and non-employee
directors of its Affiliates (as defined below) to acquire a proprietary
interest in the growth and performance of the Company, to generate an increased
incentive to contribute to the Company's future success and prosperity, thus
enhancing the value of the Company for the benefit of its shareowners, and to
enhance the ability of the Company and its Affiliates to attract and retain
exceptionally qualified individuals upon whom, in large measure, the sustained
progress, growth and profitability of the Company depend.
Section 2. Definitions
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or through one or
more intermediaries, is controlled by the Company and (ii) any entity
in which the Company has a significant equity interest, as determined
by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent,
or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award granted under the Plan.
(d) "Board of Directors" or "Board" shall mean the Board of Directors of
the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
(f) "Committee" shall mean the Compensation and Organization Committee of
the Board.
(g) "Dividend Equivalent" shall mean any right granted under Section 6(e)
of the Plan.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(i) "Fair Market Value" shall mean, with respect to any property other than
Shares, the fair market value of such property determined by such
methods or procedures as shall be established from time to time by the
Committee, and with respect to Shares, shall mean the mean average of
the high and the low price of a Share as quoted on the New York Stock
Exchange Composite Tape on the date as of which fair market value is to
be determined or, if there is no trading of Shares on such date, such
mean average of the high and the low price on the next preceding date
on which there was such trading.
(j) "Immediate family members" of a Participant shall mean the
Participant's children, grandchildren and spouse.
(k) "Incentive Stock Option" shall mean an option granted under Section
6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code, or any successor provision thereto.
(l) "1997 Plan" shall mean the Company's 1997 Long-Term Incentive Plan.
(m) "Non-Employee Director" shall mean any non-employee director of an
Affiliate.
(n) "Non-Qualified Stock Option" shall mean an option granted under Section
6(a) of the Plan that is not intended to be an Incentive Stock Option.
25
(o) "Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
(p) "Other Stock-Based Award" shall mean any right granted under Section
6(f) of the Plan.
(q) "Participant" shall mean a Salaried Employee or non-employee director
designated to be granted an Award under the Plan.
(r) "Performance Award" shall mean any Award granted under Section 6(d) of
the Plan.
(s) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
or government or political subdivision thereof.
(t) "Released Securities" shall mean securities that were Restricted
Securities with respect to which all applicable restrictions have
expired, lapsed, or been waived.
(u) "Restricted Securities" shall mean securities covered by Awards of
Restricted Stock or other Awards under which issued and outstanding
Shares are held subject to certain restrictions.
(v) "Restricted Stock" shall mean any Share granted under Section 6(c) of
the Plan.
(w) "Restricted Stock Unit" shall mean any right granted under Section 6(c)
of the Plan that is denominated in Shares.
(x) "Salaried Employee" shall mean any salaried employee of the Company or
of any Affiliate.
(y) "Shares" shall mean shares of the common stock of the Company, par
value $2.50 per share, and such other securities or property as may
become the subject of Awards, or become subject to Awards, pursuant to
an adjustment made under Section 4(b) of the Plan.
(z) "Stock Appreciation Right" shall mean any right granted under Section
6(b) of the Plan.
Section 3. Administration
Except as otherwise provided herein, the Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, the Committee
shall have full power and authority to: (i) designate Participants; (ii)
determine the type or types of Awards to be granted to each Participant under
the Plan; (iii) determine the number of Shares to be covered by or with respect
to which payments, rights, or other matters are to be calculated in connection
with Awards; (iv) determine the terms and conditions of any Award; (v)
determine whether, to what extent, and under what circumstances Awards may be
settled or exercised in cash, Shares, other securities, other Awards, or other
property, or canceled, forfeited, or suspended, and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended;
(vi) determine whether, to what extent, and under what circumstances cash,
Shares, other securities, other Awards, other property and other amounts
payable with respect to an Award under the Plan shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement
relating to, or Award made under, the Plan; (viii) establish, amend, suspend,
or waive such rules and regulations and appoint such agents as it shall deem
appropriate for the proper administration of the Plan; and (ix) make any other
determination and take any other action that the Committee deems necessary or
desirable for the administration of the Plan. Unless otherwise expressly
provided in the Plan, all designations, determinations, interpretations, and
other decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time, and shall be
final, conclusive, and binding upon all Persons, including the Company, any
Affiliate, any Participant, any holder or beneficiary of any Award, any
shareowner, and any employee of the Company or of any Affiliate.
26
Section 4. Shares Available for Awards
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) Calculation of Number of Shares Available. The number of Shares
authorized to be issued in connection with the granting of Awards
under the Plan is ten million (10,000,000). If any Shares covered by
an Award granted under the Plan or by an award granted under the
1997 Plan, or to which such an Award or award relates, are
forfeited, or if an Award or award otherwise terminates without the
delivery of Shares or of other consideration, or if upon the
termination of the 1997 Plan there are Shares remaining that were
authorized for issuance under that Plan but with respect to which no
awards have been granted, then the Shares covered by such Awards or
award, or to which such Award or award relates, or the number of
Shares otherwise counted against the aggregate number of Shares
available under the Plan with respect to such Award or award, to the
extent of any such forfeiture or termination, or which were
authorized for issuance under the 1997 Plan but with respect to
which no awards were granted as of the termination of the 1997 Plan
shall again be, or shall become available for granting Awards under
the Plan. Notwithstanding the foregoing but subject to adjustment as
provided in Section 4(b), (A) no more than one million (1,000,000)
Shares shall be cumulatively available for delivery pursuant to the
exercise of Incentive Stock Options and (B) no more than one million
(1,000,000) Shares shall be cumulatively available for granting as
Restricted Stock or Restricted Stock Units.
(ii) Accounting for Awards. For purposes of this Section 4,
(A) if an Award (other than a Dividend Equivalent) is denominated in
Shares, the number of Shares covered by such Award, or to which
such Award relates, shall be counted on the date of grant of such
Award against the aggregate number of Shares available for
granting Awards under the Plan; and
(B) Dividend Equivalents and Awards not denominated in Shares shall
be counted against the aggregate number of Shares available for
granting Awards under the Plan, if at all, only in such amount
and at such time as the Committee shall determine under
procedures adopted by the Committee consistent with the purposes
of the Plan; provided, however, that Awards that operate in
tandem with (whether granted simultaneously with or at a
different time from), or that are substituted for, other Awards
or awards granted under the 1997 Plan may be counted or not
counted under procedures adopted by the Committee in order to
avoid double counting. Any Shares that are delivered by the
Company, and any Awards that are granted by, or become
obligations of, the Company through the assumption by the Company
or an Affiliate of, or in substitution for, outstanding awards
previously granted by an acquired company, shall not be counted
against the Shares available for granting Awards under the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any Shares delivered
27
pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares,
other securities, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation split-up,
spin-off, combination repurchase, or exchange of Shares or other
securities of the Company, issuance of warrants or other rights to
purchase Shares or other securities of the Company, or other similar
corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall,
in such manner as it may deem equitable, adjust any or all of (i) the
number and type of Shares (or other securities or property) which
thereafter may be made the subject of Awards, (ii) the number and type
of Shares (or other securities or property) subject to outstanding
Awards, (iii) the number and type of Shares (or other securities or
property) specified as the annual per-participant limitation under
Section 6(g)(vi), and (iv) the grant, purchase, or exercise price with
respect to any Award, or, if deemed appropriate, make provision for a
cash payment to the holder of an outstanding Award; provided, however,
in each case, that with respect to Awards of Incentive Stock Options no
such adjustment shall be authorized to the extent that such authority
would cause the Plan to violate Section 422(b)(1) of the Code or any
successor provision thereto; and provided further, however, that the
number of Shares subject to any Award denominated in Shares shall
always be a whole number.
Section 5. Eligibility
Any Salaried Employee, including any officer or employee-director of the
Company or of any Affiliate, and any Non-Employee Director, who is not a member
of the Committee shall be eligible to be designated a Participant.
Section 6. Awards
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such
additional terms and conditions, in either case not inconsistent with
the provisions of the Plan, as the Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee; provided, however, that
such purchase price shall not be less than the Fair Market Value of
a Share on the date of grant of such Option (or, if the Committee so
determines, in the case of any Option retroactively granted in
tandem with or in substitution for another Award or any outstanding
award granted under any other plan of the Company, on the date of
grant of such other Award or award).
(ii) Option Term. The term of each Option shall be fixed by the
Committee.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in
part, and the method or methods by which, and the form or forms,
including, without limitation, cash, Shares, other Awards, or
other property, or any combination thereof, having a Fair Market
Value on the exercise date equal to the relevant exercise price,
in which, payment of the exercise price with respect thereto may
be made or deemed to have been made.
28
(iv) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the plan shall comply in all respects with the
provisions of Section 422 of the Code, or any successor provision
thereto, and any regulations promulgated thereunder. No Incentive
Stock Option shall be granted to any Non-Employee Director who is
not otherwise an employee of the Company or any of its Affiliates.
(v) Transferability. An Option shall not be transferable other than by
will or the laws of descent and distribution or pursuant to a
qualified domestic relations order, as defined in the Code, and,
during the Participant's lifetime, shall be exercisable only by the
Participant, except that the Committee may:
(A) permit exercise, during the Participant's lifetime, by the
Participant's guardian or legal representative; and
(B) permit transfer, upon the Participant's death, to beneficiaries
designated by the Participant in a manner authorized by the
Committee, provided that the Committee determines that such
exercise and such transfer are consonant with requirements for
exemption from Section 16(b) of the Exchange Act and, with
respect to an Incentive Stock Option, the requirements of Section
422(b)(5) of the Code; and
(C) grant Non-Qualified Stock Options that are transferable, or amend
outstanding Non-Qualified Stock Options to make them so
transferable, without payment of consideration, to immediate
family members of the Participant or to trusts or partnerships
for such family members.
(b) Stock Appreciation Rights. The Committee is hereby authorized to grant
Stock Appreciation Rights to Participants. Subject to the terms of the
Plan and any applicable Award Agreement, a Stock Appreciation Right
granted under the Plan shall confer on the holder thereof a right to
receive, upon exercise thereof, the excess of (i) the Fair Market Value
of one Share on the date of exercise or, if the Committee shall so
determine in the case of any such right other than one related to any
Incentive Stock Option, at any time during a specified period before or
after the date of exercise over (ii) the grant price of the right as
specified by the Committee, which shall not be less than the Fair
Market Value of one Share on the date of grant of the Stock
Appreciation Right (or, if the Committee so determines, in the case of
any Stock Appreciation Right retroactively granted in tandem with or in
substitution for another Award or any outstanding award granted under
any other plan of the Company, on the date of grant of such other Award
or award). Subject to the terms of the Plan and any applicable Award
Agreement, the grant price, term, methods of exercise, methods of
settlement, and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The
Committee may impose such conditions or restrictions on the exercise of
any Stock Appreciation Right as it may deem appropriate.
(c) Restricted Stock and Restricted Stock Units.
(i) Issuance. The Committee is hereby authorized to grant Awards of
Restricted Stock and Restricted Stock Units to Participants.
(ii) Restrictions. Shares of Restricted Stock and Restricted Stock Units
shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote
a Share
29
of Restricted Stock or the right to receive any dividend or other
right or property), which restrictions may lapse separately or in
combination at such time or times, in such installments or otherwise,
as the Committee may deem appropriate.
(iii) Registration. Any Restricted Stock granted under the Plan may be
evidenced in such manner as the Committee may deem appropriate,
including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock
certificate is issued in respect of Shares of Restricted Stock
granted under the Plan, such certificate shall be registered in
the name of the Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to
such Restricted Stock.
(iv) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment (as determined under criteria established
by the Committee) for any reason during the applicable restriction
period, all Shares of Restricted Stock and all Restricted Stock
Units still, in either case, subject to restriction shall be
forfeited and reacquired by the Company; provided, however, that
the Committee may, when it finds that a waiver would be in the best
interests of the Company, waive in whole or in part any or all
remaining restrictions with respect to Shares of Restricted Stock
or Restricted Stock Units. Unrestricted Shares, evidenced in such
manner as the Committee shall deem appropriate, shall be delivered
to the holder of Restricted Stock promptly after such Restricted
Stock shall become Released Securities.
(d) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants. Subject to the terms of the Plan
and any applicable Award Agreement, a Performance Award granted under
the Plan (i) may be denominated or payable in cash, Shares (including
without limitation, Restricted Stock), other securities, other Awards,
or other property and (ii) shall confer on the holder thereof rights
valued as determined by the Committee and payable to, or exercisable
by, the holder of the Performance Award, in whole or in part, upon the
achievement of such performance goals during such performance periods
as the Committee shall establish. Subject to the terms of the Plan and
any applicable Awards Agreement, the performance goals to be achieved
during any performance period, the length of any performance period,
the amount of any Performance Award granted, and the amount of any
payment or transfer to be made pursuant to any Performance Award shall
be determined by the Committee.
(e) Dividend Equivalents. The Committee is hereby authorized to grant to
Participants Awards under which the holders thereof shall be entitled
to receive payments equivalent to dividends or interest with respect to
a number of Shares determined by the Committee, and the Committee may
provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested. Subject to the
terms of the Plan and any applicable Awards Agreement, such Awards may
have such terms and conditions as the Committee shall determine.
(f) Other Stock-Based Awards. The Committee is hereby authorized to grant
to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or
related to, Shares (including, without limitation, securities
30
convertible into Shares), as are deemed by the Committee to be
consistent with the purposes of the Plan, provided, however, that such
grants must comply with applicable law. Subject to the terms of the Plan
and any applicable Award Agreement, the Committee shall determine the
terms and conditions of such Awards. Shares or other securities
delivered pursuant to a purchase right granted under this Section 6(f)
shall be purchased for such consideration, which may be paid by such
method or methods and in such form or forms, including, without
limitation, cash, Shares, other securities, other Awards, or other
property, or any combination thereof, as the Committee shall determine,
the value of which consideration, as established by the Committee, shall
not be less than the Fair Market Value of such Shares or other
securities as of the date such purchase right is granted (or, if the
Committee so determines, in the case of any such purchase right
retroactively granted in tandem with or in substitution for another
Award or any outstanding award granted under any other plan of the
Company, on the date of grant of such other Award or award).
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition
to, in tandem with, or in substitution for any other Award or any
awards granted under any other plan of the Company or any
Affiliate. Awards granted in addition to or in tandem with other
Awards, or in addition to or in tandem with awards granted under
any other plan of the Company or any Affiliate, may be granted
either at the same time as or at a different time from the grant of
such other Awards or awards.
(iii) Forms of Payment Under Awards. Subject to the terms of the Plan
and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise, or
payment of an Award may be made in such form or forms as the
Committee shall determine, including, without limitation, cash,
Shares, other securities, other Awards, or other property, or any
combination thereof, and may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee.
Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on
installment or deferred payments or the grant or crediting of
Dividend Equivalents in respect of installment or deferred
payments.
(iv) Limits on Transfer of Awards. Except as provided in Section 6(a)
above regarding Options, no Award (other than Released Securities),
and no right under any such Award, shall be assignable, alienable,
saleable, or transferable by a Participant otherwise than by will
or by the laws of descent and distribution or pursuant to a
qualified domestic relations order, as defined in the Code (or, in
the case of an Award of Restricted Securities, to the Company);
provided, however, that, if so determined by the Committee, a
Participant may, in the manner established by the Committee,
designate a beneficiary or
31
beneficiaries to exercise the rights of the Participant, and to
receive any property distributable, with respect to any Award upon
the death of the Participant. Each Award, and each right under any
Award, shall be exercisable, during the Participant's lifetime, only
by the Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative. No Award (other than
Released Securities), and no right under any such Award, may be
pledged, alienated, attached, or otherwise encumbered, and any
purported pledge, alienation, attachment, or encumbrance thereof
shall be void and unenforceable against the Company or any Affiliate.
(v) Terms of Awards. The Term of each Award shall be for such period as
may be determined by the Committee; provided, however, that in no
event shall the term of any Incentive Stock Option exceed a period
of ten years from the date of its grant.
(vi) Per-Person Limitation on Options and SARs. The number of Shares
with respect to which Options and SARs may be granted under the
Plan to an individual Participant in any three-year period from
January 24, 2001 through the end of the term shall not exceed
4,000,000 Shares, subject to adjustment as provided in Section
4(b).
(vii) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the
exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the
Plan or the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which
such Shares or other securities are then listed, and any
applicable Federal or state securities laws, and the Committee may
cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(viii) Maximum Payment Amount. The maximum fair market value of payments
to any executive officer made in connection with any long-term
performance awards (except for payments made in connection with
Options or Stock Appreciation Rights) granted under the Plan
shall not, during any three-year period, exceed two percent of
Stanley's shareowners' equity as of the end of the year
immediately preceding the commencement of such three-year period.
Section 7. Amendment and Termination
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue, or terminate the Plan, including,
without limitation, any amendment, alteration, suspension,
discontinuation, or termination that would impair the rights of any
Participant, or any other holder or beneficiary of any Award
theretofore granted, without the consent of any shareowner,
Participant, other holder or beneficiary of an Award, or other Person;
provided, however, that, notwithstanding any other provision of the
Plan or any Award Agreement, without the approval of the shareowners of
the Company no such amendment, alteration, suspension, discontinuation,
or termination shall be made that would:
(i) increase the total number of Shares available for Awards under the
Plan,
32
except as provided in Section 4 hereof; or
(ii) permit Options, Stock Appreciation Rights, or other Stock-Based
Awards encompassing rights to purchase Shares to be granted with
per Share grant, purchase, or exercise prices of less than the Fair
Market Value of a Share on the date of grant thereof, except to the
extent permitted under Sections 6(a), 6(b), or 6(f) hereof.
(b) Adjustments of Awards Upon Certain Acquisitions. In the event the
Company or any Affiliate shall assume outstanding employee awards or
the right or obligation to make future such awards in connection with
the acquisition of another business or another corporation or business
entity, the Committee may make such adjustments, not inconsistent with
the terms of the Plan, in the terms of Awards as it shall deem
appropriate in order to achieve reasonable comparability or other
equitable relationship between the assumed awards and the Awards
granted under the Plan as so adjusted.
(c) Adjustments of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make
adjustments in the terms and conditions of, and the criteria included
in, Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 4(b) hereof)
affecting the Company, any Affiliate, or the financial statements of
the Company or any Affiliate, or of changes in applicable laws,
regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits to be
made available under the Plan.
(d) Correction of Defects, Omissions and Inconsistencies. The Committee may
correct any defect, supply any omission, or reconcile any inconsistency
in the Plan or any Award in the manner and to the extent it shall deem
desirable to carry the Plan into effect.
Section 8. General Provisions
(a) No Rights to Awards. No Salaried Employee, Participant or other Person
shall have any claim to be granted any Award under the Plan, and there
is no obligation for uniformity of treatment of Salaried Employees,
Participants, or holders or beneficiaries of Awards under the Plan. The
terms and conditions of Awards need not be the same with respect to
each recipient.
(b) Delegation. The Committee may delegate to one or more officers or
managers of the Company or any Affiliate, or a committee of such
officers or managers, the authority, subject to such terms and
limitations as the Committee shall determine, to grant Awards to, or to
cancel, modify, waive rights with respect to, alter, discontinue,
suspend or terminate Awards held by, Salaried Employees who are not
officers of the Company for purposes of Section 16 of the Exchange Act.
(c) Withholding. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made
under any Award or under the Plan the amount (in cash, Shares, other
securities, other Awards, or other property) of withholding taxes due
in respect of an Award, its exercise, or any payment or transfer under
such Awards or under the Plan and to take such other action as may be
necessary in the opinion of the Company or Affiliate to satisfy all
obligations for the payment of such taxes.
(d) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and
such arrangements
33
may be either generally applicable or applicable only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at
any time dismiss a Participant from employment, free from any
liability, or any claim under the Plan, unless otherwise expressly
provided in the Plan or in any Award Agreement.
(f) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Connecticut and applicable
Federal law.
(g) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or as to any Person or Award, or would disqualify the
Plan or any Award under any law deemed applicable by the Committee,
such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended
without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to
such jurisdiction, Person, or Award, and the remainder of the Plan and
any such Award shall remain in full force and effect.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a
Participant or any other Person. To the extent that any Person acquires
a right to receive payments from the Company or any Affiliate pursuant
to an Award, such right shall be no greater than the right of any
unsecured general creditor of the Company or any Affiliate.
(i) No Fractional Shares. No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares, or whether such
fractional Shares or any rights thereto shall be canceled, terminated,
or otherwise eliminated.
(j) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings
shall not be deemed in any way material or relevant to the construction
or interpretation of the Plan or any provision thereof.
Section 9. Change in Control
(a) Upon the occurrence of a Change in Control (as hereinafter defined):
(i) all Options and Stock Appreciation Rights, whether granted as
performance awards or otherwise, shall become immediately
exercisable in full for the remainder of their terms, and Grantees
shall have the right to have the Company purchase all or any number
of such Options or Stock Appreciation Rights for cash for a period
of thirty (30) days following a Change in Control at the Option
Acceleration Price (as hereinafter defined); and
(ii) all restrictions applicable to all Restricted Stock and Restricted
Stock Units, whether such Restricted Stock and Restricted Stock
Units were granted as performance awards or otherwise, shall
immediately lapse and have no effect, and Grantees shall have the
right to have the Company purchase all or any number of such
Restricted Stock Units and shares of Restricted Stock for cash for
a period of thirty (30) days following a Change in Control at the
34
Restricted Stock Acceleration Price (as hereinafter defined).
(b)(i) The "Restricted Stock Acceleration Price" is the highest of the
following on the date of a Change in Control:
(A) the highest reported sales price of a share of the Common Stock
within the sixty (60) days preceding the date of a Change in
Control, as reported on any securities exchange upon which the
Common Stock is listed,
(B) the highest price of a share of the Common Stock reported in a
Schedule 13D or an amendment thereto as paid within the sixty
(60) days preceding the date of the Change in Control,
(C) the highest tender offer price paid for a share of the Common
Stock, and
(D) any cash merger or similar price paid for a share of the Common
Stock.
(ii) The "Option Acceleration Price" is the excess of the Restricted
Stock Acceleration Price over the exercise price of the award,
except that for Incentive Stock Options, the Option Acceleration
Price is limited to the spread between the Fair Market Value on the
date of exercise and the option price.
(c) A "Change in Control" is the occurrence of any one of the following
events:
(i) 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 Exchange Act
(other than a Grantee, the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company (or
of any subsidiary of the Company), or any corporation owned,
directly or indirectly, by the stockholders 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;
(ii) 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 (i), (iii), (iv) or (v) of this definition) whose election
by the Board or nomination for election by the Company's
shareowners 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;
(iii) the shareowners of the Company approve a merger or consolidation
of the Company with any other corporation, other than (A) 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 (B) a merger or consolidation effected to
implement a
35
recapitalization of the Company (or similar transaction) in which no
"person" (with the exceptions specified in clause (i) of this
definition) acquires 25% or more of the combined voting power of the
Company's then outstanding securities;
(iv) the shareowners of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets; or
(v) the Company consummates a merger, consolidation, stock dividend,
stock split or combination, extraordinary cash dividend, exchange
offer, issuer tender offer or other transaction effecting a
recapitalization of the Company (or similar transaction) (the
"Transaction") and, in connection with the Transaction, a Designated
Downgrading occurs with respect to the unsecured general obligations
of the Company (the "Securities"), as described below:
(A) If the rating of the Securities by both Rating Agencies (defined
hereinafter) on the date 60 days prior to the public
announcement of the Transaction (a "Base Date") is equal to or
higher than BBB Minus (as hereinafter defined), then a
"Designated Downgrading" means that the rating of the Securities
by either Rating Agency on the effective date of the Transaction
(or, if later, the earliest date on which the rating shall
reflect the effect of the Transaction) (as applicable, the
"Transaction Date") is equal to or lower than BB Plus (as
hereinafter defined); if the rating of the Securities by either
Rating Agency on a Base Date is lower than BBB Minus, then a
"Designated Downgrading" means that the rating of the Securities
by either Rating Agency on the Transaction Date has decreased
from the rating by such Rating Agency on the Base Date. In
determining whether the rating of the Securities has decreased,
a decrease of one gradation (+ and - for S&P and 1, 2 and 3 for
Moody's, or the equivalent thereof by any substitute rating
agency referred to below) shall be taken into account;
(B) "Rating Agency" means either Standard & Poor's Corporation or
its successor ("S&P") or Moody's Investor Service, Inc. or its
successor ("Moody's");
(C) "BBB Minus" means, with respect to ratings by S&P, a rating of
BBB- and, with respect to ratings by Moody's, a rating of Baa3,
or the equivalent thereof by any substitute agency referred to
below;
(D) "BB Plus" means, with respect to ratings by S&P, a rating of BB+
and, with respect to ratings by Moody's, a rating of BBB3, or
the equivalent thereof by any substitute agency referred to
below;
(E) The Company shall take all reasonable action necessary to enable
each of the Rating Agencies to provide a rating for the
Securities, but, if either or both of the Rating Agencies shall
not make such a rating available, a nationally-recognized
investment banking firm shall select a nationally-recognized
securities rating
36
agency or two nationally-recognized securities rating agencies to
act as substitute rating agency or substitute rating agencies, as
the case may be.
Section 10. Effective Date of the Plan
The Plan shall be effective as of January 25, 2001.
Section 11. Term of the Plan
No Award shall be granted under the Plan after January 24, 2011. However,
unless otherwise expressly provided in the plan or in an applicable Award
Agreement, any Award theretofore granted may extend beyond such date, and the
authority of the Committee to amend, alter, or adjust any such Award, or to
waive any conditions or rights under any such Award, and the authority of the
Board of Directors of the Company to amend the Plan, shall extend beyond such
date.
37
Directions to Stanley's Annual Meeting of Shareowners
RENAISSANCE DALLAS HOTEL
2222 Stemmons Feeway,
Dallas, Texas 75207
[MAP OF DIRECTIONS]
FROM DALLAS FORT WORTH AIRPORT:
Take South Airport exit, 183 towards Dallas. 183 merges with I-35E (Stemmons
Freeway) as you proceed southeast towards Dallas. Exit Wycliff Avenue. Turn
left at light and go under freeway. Hotel is on the left.
FROM LOVE FIELD AIRPORT:
Exit Airport, turn right on Mockingbird (west) to I-35E. Take I-35E south
towards downtown. Exit Wycliff Avenue. Turn left at light and go under freeway.
Hotel is on the left.
[LOGO OF STANLEY WORKS]
Notice of
Annual Meeting
of Shareowners
and Proxy
Statement
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Meeting Date: April 18, 2001
STWKS-PR01
THE STANLEY WORKS
PROXY FOR ANNUAL MEETING
APRIL 18, 2001
The undersigned appoints Stillman B. Brown, Eileen S. Kraus, and John M. Trani,
with full power of substitution, as proxies to act and vote on the signer's
behalf at the Annual Meeting of Shareowners of THE STANLEY WORKS, and at any
adjournments thereof, upon such business as may come before the meeting.
WHEN SIGNED AND RETURNED, THIS PROXY WILL BE VOTED AS DIRECTED BY THE SIGNER. IF
SIGNED AND RETURNED WITH NO DIRECTION, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2
and 3.
PLEASE VOTE, DATE, AND SIGN ON REVERSE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE,
OR REGISTER YOUR VOTE IMMEDIATELY VIA PHONE OR INTERNET.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------- -------------------------------------
- ------------------------------- -------------------------------------
- ------------------------------- -------------------------------------
IF YOU HAVE NOTED EITHER AN ADDRESS CHANGE OR COMMENTS ABOVE, PLEASE BE SURE TO
MARK THE APPROPRIATE BOX ON THE REVERSE SIDE OF THIS CARD.
[STANLEY LOGO]
Dear Fellow Shareowner:
The Board of Directors appreciates and encourages shareowner participation in
Stanley's affairs. Whether or not you plan to attend the meeting, it is
important that your shares be represented. Accordingly, we request that you
sign, date, and mail the enclosed proxy in the envelope provided at your
earliest convenience or register your vote by telephone or the Internet.
Thank you for your cooperation.
Very truly yours,
John M. Trani
Chairman and Chief Executive Officer
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
ITEM 1. To elect three Directors.
Nominees:
FOR All WITH- FOR ALL
NOMINEES HOLD EXCEPT
(01)John G. Breen / / / / / /
(02)John D. Opie / / / / / /
(03)Hugo E. Uyterhoeven / / / / / /
INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), mark
the "For All Except" box and strike a line through the nominee's name. Your
shares will be voted for the remaining nominee(s).
FOR AGAINST ABSTAIN
ITEM 2. Approve the 2001 Long-Term
Incentive Plan / / / / / /
FOR AGAINST ABSTAIN
ITEM 3. Approve Ernst & Young LLP
as independent auditors / / / / / /
for the year 2001.
Please sign exactly as indicated CONFIDENTIAL VOTING:
hereon. When signing as attorney MARK BOX AT RIGHT IF YOU WISH
executor, trustee, etc., please THIS VOTE TO REMAIN
give full title as such. Date____ CONFIDENTIAL. / /
- ----------Shareowner sign here Mark box at right if an
- ----------Co-owner sign here address change or comment has
been noted on the reverse
side of this card. / /
The Board of Directors recommends a vote FOR
Items 1, 2 and 3.
Vote by Telephone Vote by Internet
It's fast, convenient, and It's fast, convenient, and your
immediate! vote is immediately confirmed
Call Toll-Free on a Touch- and posted.
Tone Phone
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy Statement
Statement and Proxy Card. and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE(1-877-779-8683). http://www.eproxyvote.com/swk
There is NO CHARGE for this
call.
3. Enter your Control Number 3. Enter your Control Number
located on your Proxy Card. located on your Proxy Card.
4. Follow the recorded 4. Follow the instructions
instructions. provided.
Your vote is important! Your vote is important!
Call 1-877-PRX-VOTE Go to http:/www.eproxyvote.com/swk
Do not return your Proxy Card if you are voting by Telephone or Internet