As amended October 25, 1994
THE STANLEY WORKS
Deferred Compensation Plan for Participants
in Stanley's Management Incentive Plans
1. Purpose of the Plan.
a. To offer to certain participants in Stanley's management
incentive plans an opportunity to defer the receipt of
incentive earnings for tax or other reasons suited to the
participant's own financial plans.
b. To provide an opportunity to participants to reinvest their
incentive earnings in the Company under terms which will
provide a return related to the future earnings performance of
the Company.
c. To provide an incentive to participants, supplementing that of
the management incentive plans, for the achievement of
superior earnings performance by the Company.
2. Eligibility.
a. All participants in Stanley's management incentive plans who
are "highly compensated employees" are eligible to participate
in this Plan. A "highly compensated employee" is an employee
(i) who, for the year in which an election is made under this
Plan, is a highly compensated employee, as defined in Section
414(q) of the Internal Revenue Code of 1986, or (ii) whose
annual salary (not taking into account bonuses, fringe
benefits or non-cash compensation, but including amounts
deferred under Section 125 or 401(k) of the Internal Revenue
Code) during the calendar year for which an election is made
under Section 3a is reasonably expected to equal or exceed the
anticipated indexed amount ($66,000 in 1994) described in
Section 414(q)(1)(C) of the Internal Revenue Code for such
calendar year.
b. This Plan is applicable only to incentive earnings earned
under the management incentive plans.
3. Election by Participant.
a. The election by the participant must be made in December of
each year with respect to deferral of incentive earnings
earned the following year. All or any portion, or none, of the
incentive earnings may be deferred.
b. Once made, an election may not be changed either in amount or
method of payment to accelerate the receipt of incentive
earnings, except (i) with the
approval of the Compensation and Organization Committee of
Stanley's Board of Directors upon demonstration of a financial
hardship by the participant, or (ii) upon forfeiture of a
penalty equal to that percentage of the amount of the payment
equal to the Treasury Bill rate fixed by the Treasurer as
provided in the footnote on page 3.
c. The election must specify when or under what circumstances
payment is to be made in the future and whether by lump sum or
in a series of payments. The circumstances which may be
specified are limited to death, retirement, or termination of
employment. In the case of any election made after February
25, 1981, notwithstanding the specifics of the election, any
deferred funds and interest thereon not paid out prior to the
later of the participant's death or the tenth anniversary of
the participant's termination of employment by death,
retirement or otherwise will be paid out promptly after the
later of such death or such anniversary.
d. No effect shall be given to an election made by an employee
described in Section 2a(ii) if such employee is not a highly
compensated employee, as defined in Section 414(q) of the
Internal Revenue Code, for the calendar year for which the
election was made.
4. Interest Payment Schedule.
a(i). Interest will be credited annually on deferred amounts of
incentive earnings earned prior to 1992 based on the following
schedule:
If "Pretax Earnings" on Interest Credited
opening Stockholders' on Deferred Funds
equity are: will be:
Less than 10% -0-
10 to 12 5%
12 to 14 6-1/2
14 to 16 8-1/4
16 to 18 10-1/2
18 to 20 13-1/2
20% and over 17(a)
"Pretax earnings" will be Earnings Before Income Taxes
as shown in the Annual Report to Stockholders except
that such Earnings Before Income Taxes will be
increased by an amount equal to aggregate management
incentive compensation.
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(a) For 1981 and thereafter: the higher of 17%, or the U.S. Treasury
Bill rate, compounded quarterly, all as provided in footnote c.
a(ii). Interest will be credited annually on deferred amounts
of incentive earned based on performance in the years
1992-1994 based on the following schedule.
If "Net Earnings" Interest Credited
on "Stockholders' on Deferred Funds
Equity" are: will be:
Less than 9% 8%
9 to 18 12
Over 18 16(b)
"Net Earnings" will be consolidated full year's
net earnings and "Stockholders' Equity" is the average
of the opening and closing consolidated stockholders'
equity, in each case as shown in the Annual Report to
stockholders.
a(iii). Interest will be credited annually on deferred amounts
of incentive earned based on performance in 1995 or
thereafter with interest compounded quarterly at a
rate equal to 1 percentage point greater than the
yield of 10 year Treasury Notes as reported for the
last business day of the preceding calendar quarter.
b. Deferred incentive earnings earned in a given year will be
credited to the participant's deferred account in February of
the following year. Each February thereafter interest will be
credited on the total deferred balance in the account, as of
the beginning of the year, based on the Company's earnings
performance for the prior year, per the schedule above.
5. Removal of Funds from the Plan.
a. Deferred funds credited to a participant will be removed from
the Deferred Compensation Plan in the event of:
- death,
- retirement, or
- termination of employment,
provided that in the event of death or retirement interest
earned under the Plan will be credited to the participant's
deferred account on a pro rata basis from the beginning of the
year to the date of death or retirement.
b. Terminations and retirements will be as defined under the
Retirement Plan for
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(b) The higher of 16% or the U.S. Treasury Bill rate, compounded
quarterly, all as provided in footnote c.
Salaried Employees of The Stanley Works.
c. For periods after December 31, 1987, such deferred funds
removed from the Plan will be credited by the Company with
interest compounded quarterly at a rate equal to the yield of
5 year Treasury Notes(c) as reported for the last business day
of the preceding calendar quarter.
6. General.
Interest credited on deferred funds under the Plan will not
constitute earnings for pension plan purposes.
7. 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 3(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 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;
(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), (d) or
(e) of this definition) whose election by the Board or
nomination for election by the Company's stockholders 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 cease for any reason to
constitute at least a majority thereof;
(c) the stockholders 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
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(c) The "U.S. Treasury Bill rate" referred to elsewhere shall be that
interest rate equal to the yield for 3-month U.S. Treasury Bills as
reported for the last business day of the preceding calendar quarter.
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;
(d) the stockholders 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
(e) the Company consummates a merger, consolidation, stock
dividend, stock split or combination, extraordinary cash
dividend, exchange offer, issuer tender offer (for 20% or more
of the combined voting power of the Company's then outstanding
securities) 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:
(i) 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;
(ii) "Rating Agency" means either Standard & Poor's
Corporation or its successor ("S&P") or Moody's
Investors Service, Inc. or its successor ("Moody's");
(iii) "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;
(iv) "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; and
(v) 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 agency or two nationally-recognized securities
rating agencies to act as substitute rating agency or
substitute rating agencies, as the case may be.
8. Accelerated Payment Following a Change in Control.
Notwithstanding any of the preceding provisions of this Plan, as soon
as possible following any Change in Control of the Company, payment
shall be made, in cash, of the entire account of each participant
hereunder. For purposes of calculating the amount of such payment,
with respect to any period for which no interest on the deferred
balance has yet been credited to any such participant's account under
section 4 or section 5 hereof, pro-rated interest based on the rate
of interest credited for the immediately preceding year (in the case
of section 4 interest) or the immediately preceding quarter (in the
case of section 5 interest) shall be credited to such account.