As amended October 26, 1994
Management Incentive Compensation
Corporate Plan
I. Compensation Plan
The Plan will be based upon (a) the consolidated net earnings of the
Company for the Plan year as a percentage return on shareholders' equity,
and (b) growth in net sales.
II. Definition of Terms
A. Shareholder Equity - the average of the opening and closing
"Shareholders' equity" of the Company.
B. Net Earnings - Consolidated full year's net earnings as shown in the
Annual Report to Shareholders.
C. Growth in Net Sales - Consolidated net sales in the Plan Year compared
to consolidated net sales in the year immediately preceding the Plan
Year, in each case as shown in the Annual Report to Shareholders,
expressed as a percent.
D. Salary - Base salary for the Plan Year.
E. Threshold - (i) In the case of return on shareholders' equity, the
earnings reflecting minimum acceptable performance in terms of return
on shareholders' equity, at which incentive compensation based on
return on shareholders' equity is warranted; and (ii) in the case of
growth in net sales, the percentage increase in net sales reflecting
minimum acceptable performance in terms of growth in net sales at
which incentive compensation based on growth in net sales is
warranted; provided that incentive based on growth in net sales shall
not be warranted unless both the return on shareholders' equity
threshold and the growth in net sales threshold have been achieved.
F. Targeted Performance - (i) In the case of return on shareholders'
equity, the ratio of return on shareholders' equity that is considered
satisfactory and at which performance level management will be
compensated at certain targeted incentive compensation levels; and
(ii) in the case of growth in net sales, the percentage increase in
net sales that is considered satisfactory and at which performance
level management will be compensated at certain targeted incentive
compensation levels.
G. Targeted Incentive Rate - The percent of base salary that would be
paid if targeted performance is met. A fraction (initially 2/3) of the
payment will be based on return on shareholders' equity, and a
fraction (initially 1/3) of the payment will be based on net sales
growth.
H. Maximum Payment - The percentage of targeted incentive rate
which reflects the maximum annual payment which will be made. A
fraction (initially 2/3) of the payment will be based on return on
shareholders' equity, and a fraction (initially 1/3) of the payment
will be based on net sales growth.
I. Plan Year - The fiscal year of the Company.
III. Limitations
A. To be eligible to receive incentive compensation under this plan, the
individual must be employed by the Company and rendering services at
the end of the fiscal year, except in the case of retirement, death,
or disability in which event incentive compensation shall be paid on
the basis of the portion of the year for which services were rendered
prior to such retirement, death, or disability. Periods of vacation
will be considered periods during which services are being rendered.
B. This plan does not constitute a contract between The Stanley Works and
the employee. Participation in the plan in no way constitutes an
employment agreement or guarantee of employment.
IV. Definition of Change in Control
For purposes of this Plan, a "Change in Control of the Company" shall be
deemed to have occurred if
A. any "person," as such term is defined in Section 3(a)(9) and modified
and used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (other than the Company, any
trustee or other fiduciary holding securities under an employee
benefit plan of the Company (or of any subsidiary of the Company), or
any corporation owned, directly or indirectly by the shareholders of
the Company in substantially the same proportions as their ownership
of stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities;
B. during any period of two consecutive years (not including any period
prior to the adoption of this amendment to this Plan), individuals who
at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described
in clause (a), (c) or (d) of this definition) whose election by the
Board or nomination for election by the Company's shareholders was
approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority
thereof;
C. the shareholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than (1) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 75% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or
(2) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (with the
exceptions specified in clause (a) of this definition) acquires 25% or
more of the combined voting power of the Company's then outstanding
securities; or
D. the shareholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
V. Pro-Rata Payment Following Change in Control
Notwithstanding any of the preceding provisions of this Plan, upon the
occurrence of any Change in Control of the Company, it shall be deemed,
solely for purposes of this Plan, that the employment of each individual
who is covered under this Plan for the Plan Year in which such Change in
Control occurs has terminated on the date of such Change in Control by
reason of retirement. As soon as may be practicable, each such individual
shall then be paid incentive compensation for such Plan Year in accordance
with Section III(A) hereof; provided, however, that the calculation of
such incentive compensation shall be based on the Net Earnings and the Net
Sales of the Company and the individual's Salary during an abbreviated
Plan Year which shall include only those Company fiscal months completed
prior to the Change in Control for which Salary was paid to the
individual; and provided further that all elements entering into such
calculation shall be appropriately adjusted for such short Plan Year.
VI. Payment of Previously Unpaid Amount Following Change in Control
Notwithstanding any of the preceding provisions of this Plan, upon the
occurrence of any Change in Control of the Company, if any incentive
compensation which any individual earned under this Plan during any Plan
Year which ended prior to the Change in Control has neither been paid to
such individual nor credited to such individual's deferred account under
The Stanley Deferred Compensation Plan for Participants in Stanley's
Management Incentive Plans, such incentive compensation shall be paid to
such individual immediately following the first date on which such
incentive compensation can be calculated and shall in no event be paid
later than the later of (i) the first March 1 following the Plan Year with
respect to which such incentive compensation was earned or (ii) the
fifteenth (15th) day following the Change in Control.