AMENDED AND RESTATED
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS AMENDED AND
RESTATED AGREEMENT (the “Agreement”), dated
December 10, 2008, is made by and between The Stanley Works, a
Connecticut corporation (the “Company”), and John F.
Lundgren (the “Executive”).
WHEREAS, the
Company is currently a party to a Change in Control Severance
Agreement with the Executive dated March 1, 2004 (the
“Prior Agreement”);
WHEREAS, the
parties wish to amend and restated the Prior Agreement for purposes
of compliance with the requirements of
Section 409A;
WHEREAS, the Board
recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company
and its shareowners; and
WHEREAS, the Board
has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of
the Company’s management, including the Executive, to their
assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change
in Control;
NOW, THEREFORE, in
consideration of the premises and the mutual covenants herein
contained, the Company and the Executive hereby agree as
follows:
1.
Defined Terms . The definitions of capitalized terms used in
this Agreement are provided in the last Section hereof.
2. Term
of Agreement . The Term of this Agreement commenced on
March 1, 2004 and pursuant to an automatic extension continues
until December 31, 2010; provided , however ,
that commencing on January 1, 2009 and each January 1,
thereafter, the Term shall continue to automatically be extended
for one additional year unless, not later than September 30 of
the preceding year, the Company or the Executive shall have given
notice not to extend the Term; and further provided ,
however , that if a Change in Control shall have occurred
during the Term, the Term shall expire no earlier than twenty-four
(24) months beyond the month in which such Change in Control
occurred.
3.
Company’s Covenants Summarized . In order to induce
the Executive to remain in the employ of the Company and in
consideration of the Executive’s covenants set forth in
Section 4 hereof, the Company agrees, under the conditions
described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein. Except as
provided in Section 10.1 hereof, no Severance Payments shall
be payable under this Agreement unless there shall have been (or,
under the terms of the second sentence of Section 6.1 hereof,
there shall be deemed to have been) a termination of the
Executive’s employment with the Company following a Change in
Control and during the Term. This Agreement shall not be construed
as creating an express or implied contract of employment
and,
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except as
otherwise agreed in writing between the Executive and the Company,
the Executive shall not have any right to be retained in the employ
of the Company.
4. The
Executive’s Covenants . The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event
of a Potential Change in Control during the Term, the Executive
will remain in the employ of the Company until the earliest of
(i) a date which is six (6) months from the date of such
Potential Change in Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the
Executive’s employment for Good Reason or by reason of death,
Disability or Retirement, or (iv) the termination by the
Company of the Executive’s employment for any
reason.
5.
Compensation Other Than Severance Payments .
5.1 Following a
Change in Control and during the Term, during any period that the
Executive fails to perform the Executive’s full-time duties
with the Company as a result of incapacity due to physical or
mental illness, the Company shall pay the Executive’s Annual
Base Salary at the rate in effect at the commencement of any such
period, together with all compensation and benefits payable to the
Executive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during such period
(other than any disability plan), until the Executive’s
employment is terminated by the Company for Disability.
5.2 If the
Executive’s employment shall be terminated for any reason
following a Change in Control and during the Term, the Company
shall pay, in addition to the payments and benefits due under
Section 5(a) of the Employment Agreement and subject to the
nonduplication of benefits provisions set forth in Section 12
of this Agreement, the Executive’s Annual Base Salary to the
Executive through the Date of Termination at the rate in effect
immediately prior to the Date of Termination or, if higher, the
rate in effect immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, together with all
compensation and benefits payable to the Executive through the Date
of Termination under the terms of the Company’s compensation
and benefit plans, programs or arrangements as in effect
immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first
occurrence of an event or circumstance constituting Good
Reason.
5.3 If the
Executive’s employment shall be terminated for any reason
following a Change in Control and during the Term, the Company
shall, in addition to the payments and benefits due under Section
5(a) of the Employment Agreement and subject to the nonduplication
of benefits provisions set forth in Section 12 of this
Agreement, pay to the Executive the Executive’s
post-termination compensation and benefits as such payments become
due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the Company’s
retirement, insurance and other compensation or benefit plans,
programs and arrangements as in effect immediately prior to the
Date of Termination or, if more favorable to the Executive, as in
effect immediately prior to the occurrence of the first event or
circumstance constituting Good Reason.
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6.1 If the
Executive incurs a “separation from service” (within
the meaning of Section 409A) following a Change in Control and
during the Term, other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by the
Executive without Good Reason, then the Company shall pay the
Executive the amounts, and provide the Executive the benefits,
described in this Section 6.1 (“Severance Payments”)
and Section 6.2, in addition to any payments and benefits to
which the Executive is entitled under Section 5 hereof. For
purposes of this Agreement, the Executive shall be deemed to have
incurred a separation from service following a Change in Control by
the Company without Cause or by the Executive with Good Reason if
(i) the Executive’s employment is terminated by the
Company without Cause prior to a Change in Control (whether or not
a Change in Control occurs) and such termination was at the request
or direction of a Person who has entered into an agreement with the
Company the consummation of which would constitute a Change in
Control, (ii) the Executive terminates his employment for Good
Reason prior to a Change in Control (whether or not a Change in
Control occurs) and the circumstance or event which constitutes
Good Reason occurs at the request or direction of such Person, or
(iii) the Executive’s employment is terminated by the
Company without Cause or by the Executive for Good Reason and such
termination or the circumstance or event which constitutes Good
Reason is otherwise in connection with or in anticipation of a
Change in Control (whether or not a Change in Control occurs). For
purposes of Sections 5 and 6 of this Agreement (other than the
last sentence of Section 6.2(A)), no payment that would
otherwise be made and no benefit that would otherwise be provided
upon a termination of employment will be made or provided unless
and until such termination of employment is also a
“separation from service,” as determined in accordance
with Section 409A.
(A) In lieu of any
further salary payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance benefit
otherwise payable to the Executive pursuant to the Employment
Agreement or otherwise, the Company shall pay to the Executive a
lump sum severance payment, in cash, equal to three (3) times
the sum of the (i) Executive’s Annual Base Salary or, if
higher, the Annual Base Salary in effect immediately prior to the
first occurrence of an event or circumstance constituting Good
Reason, and (ii) the average annual bonus earned by the Executive
pursuant to Section 3(b) of the Employment Agreement and any other
annual bonus or incentive plan maintained by the Company in respect
of the three (3) fiscal years ending immediately prior to the
fiscal year in which occurs the Date of Termination or, if higher,
immediately prior to the fiscal year in which the first event or
circumstance constituting Good Reason occurs.
(B) For the
thirty-six (36) month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive and
his dependents life, disability, accident and health insurance
benefits substantially similar to those provided to the Executive
and his dependents immediately prior to the Date of Termination or,
if more favorable to the Executive, those provided to the Executive
and his dependents immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, at no greater after
tax cost to the Executive than the after tax cost to the Executive
immediately prior to such date or occurrence; provided ,
however , that, unless the Executive consents to a different
method, such health insurance benefits shall be
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provided
through a third-party insurer. Benefits otherwise receivable by the
Executive pursuant to this Section 6.1(B) shall be reduced to
the extent benefits of the same type are received by or made
available to the Executive during the thirty-six (36) month
period following the Executive’s termination of employment
(and any such benefits received by or made available to the
Executive shall be reported to the Company by the Executive);
provided , however , that the Company shall promptly
reimburse the Executive for the excess, if any, of the after tax
cost of such benefits to the Executive over such cost immediately
prior to the Date of Termination or, if more favorable to the
Executive, the first occurrence of an event or circumstance
constituting Good Reason.
(C) In addition to
the retirement benefits, if any, to which the Executive is entitled
under each DB Pension Plan or any successor plan thereto, the
Company shall pay the Executive a lump sum amount, in cash, equal
to the excess of (i) the actuarial equivalent of the aggregate
retirement pension (taking into account any early retirement
subsidies associated therewith and determined as a straight life
annuity commencing at the date (but in no event earlier than the
third anniversary of the Date of Termination) as of which the
actuarial equivalent of such annuity is greatest) which the
Executive would have accrued under the terms of all DB Pension
Plans (without regard to any amendment to any DB Pension Plan made
subsequent to a Change in Control and on or prior to the Date of
Termination, which amendment adversely affects in any manner the
computation of retirement benefits thereunder), determined as if
the Executive were fully vested thereunder and had accumulated
(after the Date of Termination) thirty-six (36) additional
months of age and service credit thereunder and had been credited
under each DB Pension Plan during such period with compensation
equal to the Executive’s compensation (as defined in such DB
Pension Plan) during the twelve (12) months immediately
preceding Date of Termination or, if higher, during the twelve
(12) months immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, over (ii) the
actuarial equivalent of the aggregate retirement pension (taking
into account any early retirement subsidies associated therewith
and determined as a straight life annuity commencing at the date
(but in no event earlier than the Date of Termination) as of which
the actuarial equivalent of such annuity is greatest) which the
Executive had accrued pursuant to the provisions of the DB Pension
Plans as of the Date of Termination. For purposes of this
Section 6.1(C), “actuarial equivalent” shall be
determined using the same assumptions utilized under The Stanley
Works Retirement Plan immediately prior to the Date of Termination
or, if more favorable to the Executive, immediately prior to the
first occurrence of an event or circumstance constituting Good
Reason. Notwithstanding the foregoing, the calculation of the lump
sum amount payable with respect to the DB Pension Plan that arises
pursuant to Section 3(g) (“Pension Make-Whole”) of the
Employment Agreement shall be determined based on the projected
increase in the Executive’s Historical Average Compensation
(as defined in Exhibit D to the Employment Agreement). The
payments provided in this Section 6.1(C) are in addition to
any payment the Executive would otherwise receive under the
applicable DB Plan and are not intended to offset or reduce any
payment under such DB Plan or the Pension Make Whole.
(D) In addition to
the benefits to which the Executive is entitled under the DC
Pension Plan, the Company shall pay the Executive a lump sum
amount, in cash, equal to
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the sum of
(i) the amount that would have been contributed thereto by the
Company on the Executive’s behalf during the thirty-six
(36) months immediately following the Date of Termination,
determined (x) as if the Executive made the maximum
permissible contributions thereto during such period, (y) as
if the Executive earned compensation during such period at a rate
equal to the Executive’s compensation (as defined in the DC
Pension Plan) during the twelve (12) months immediately
preceding the Date of Termination or, if higher, during the twelve
(12) months immediately prior to the first occurrence of an
event or circumstance constituting Good Reason, and
(z) without regard to any amendment to the DC Pension Plan
made subsequent to a Change in Control and on or prior to the Date
of Termination, which amendment adversely affects in any manner the
computation of benefits thereunder, and (ii) the excess, if any, of
(x) the Executive’s account balance under the DC Pension
Plan as of the Date of Termination over (y) the portion of
such account balance that is nonforfeitable under the terms of the
DC Pension Plan. The payments provided in this Section 6.1(D)
are in addition to any payment the Executive would otherwise
receive under the applicable DC Plan and are not intended to offset
or reduce any payment under such DC Plan or the Pension Make
Whole.
(E) If the
Executive would have become entitled to benefits under the
Company’s post-retirement health care or life insurance
plans, as in effect immediately prior to the Date of Termination
or, if more favorable to the Executive, as in effect immediately
prior to the first occurrence of an event or circumstance
constituting Good Reason, had the Executive’s employment
terminated at any time during the period of thirty-six
(36) months after the Date of Termination, the Company shall
provide such post-retirement health care and/or life insurance
benefits to the Executive and the Executive’s dependents
commencing on the later of (i) the date on which such coverage
would have first become available and (ii) the date on which
benefits described in subsection (B) of this Section 6.1
terminate.
(F) The Company
shall provide the Executive with third-party outplacement services
suitable to the Executive’s position for the period following
the Executive’s Date of Termination and ending on
December 31 of the second calendar year following such Date of
Termination or, if earlier, until the first acceptance by the
Executive of an offer of employment, provided ,
however , that in no case shall the Company be required to
pay in excess of $50,000 over such period in providing outplacement
services and that all reimbursements hereunder shall be paid to the
Executive within thirty (30) calendar days following the date
on which the Executive submits the invoice but no later than
December 31 of the third calendar year following the year of
the Executive’s Date of Termination.
(G) For the
thirty-six (36) month period immediately following the Date of
Termination or until the Executive becomes eligible for
substantially similar benefits from a new employer, whichever
occurs earlier, the Company shall continue to provide the Executive
with all perquisites provided by the Company (i) to the
Executive pursuant to the Employment Agreement (including, without
limitation, automobile, financial planning, annual physical and
executive whole life insurance) and (ii) immediately
prior
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to the Date of
Termination or, if more favorable to the Executive, immediately
prior to the first occurrence of an event or circumstance
constituting Good Reason.
6.2
(A) Whether or not the Executive becomes entitled to the
Severance Payments, if any of the payments or benefits received or
to be received by the Executive (including any payment or benefits
received in connection with a Change in Control or the
Executive’s termination of employment, whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement) (all such payments and benefits, excluding the Gross-Up
Payment, being hereinafter referred to as the “Total
Payments”) will be subject to the Excise Tax, the Company
shall pay to the Executive an additional amount (the
“Gross-Up Payment”) such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Total
Payments and any federal, state and local income and employment
taxes and Excise Tax upon the Gross-Up Payment, and after taking
into account the phase out, if any, of itemized deductions and
personal exemptions attributable to the Gross-Up Payment, shall be
equal to the Total Payments. The Company’s obligation to make
the Gross-Up Payment under this Section 6 shall not be
conditioned upon Executive’s termination of
employment.
(B) For purposes
of determining whether any of the Total Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (i) all of
the Total Payments shall be treated as “parachute
payments” (within the meaning of Section 280G(b)(2) of
the Code) unless, in the opinion of tax counsel (“Tax
Counsel”) reasonably acceptable to the Executive and selected
by the accounting firm which was, immediately prior to the Change
in Control, the Company’s independent auditor (the
“Auditor”), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of
Section 280G(b)(4)(A) of the Code, (ii) all “excess
parachute payments” within the meaning of
Section 280G(b)(l) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the meaning of
Section 280G(b)(4)(B) of the Code) in excess of the Base
Amount allocable to such reasonable compensation, or are otherwise
not subject to the Excise Tax, and (iii) the value of any
noncash benefits or any deferred payment or benefit shall be
determined by the Auditor in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Executive’s
estimated actual blended marginal rate of federal, state and local
income taxation in the calendar year in which the Date of
Termination occurs shall be utilized (or if there is no Date of
Termination, then the date on which the Gross-Up Payment is
calculated for purposes of this Section 6.2). Such marginal
rate shall be determined by taking into account (i) the
estimated actual net effect on the marginal rate attributable to
the deduction of state and local income taxes, (ii) the phase
out, if any, of itemized deductions, (iii) the estimated
actual net tax rate attributable to any employment taxes, and
(iv) any other tax provision that in the judgment of the
Auditor will actually affect Executive’s estimated actual
blended marginal tax rate.
(C) In the event
that the Excise Tax is finally determined to be less than the
amount taken into account hereunder in calculating the Gross-Up
Payment, the Executive shall repay to the Company, within five
(5) business days following the time that the amount of such
reduction in the Excise Tax is finally determined, the portion of
the
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Gross-Up
Payment attributable to such reduction (plus that portion of the
Gross-Up Payment attributable to the Excise Tax and federal, state
and local income and employment taxes imposed on the Gross-Up
Payment being repaid by the Executive), to the extent that such
repayment results in a reduction in the Excise Tax and a
dollar-for-dollar reduction in the Executive’s taxable income
and wages for purposes of federal, state and local income and
employment taxes, plus interest on the amount of such repayment at
120% of the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder in calculating the Gross-Up
Payment (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment),
the Company shall make an additional Gross-Up Payment in respect of
such excess (plus any interest, penalties or additions payable by
the Executive with respect to such excess) within five
(5) business days following the time that the amount of such
excess is finally determined, but in no event later than
December 31st of the year following the year in which the
applicable taxes are remitted. The Executive and the Company shall
each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or
amount of liability for Excise Tax with respect to the Total
Payments.
6.3 Subject to
Section 6.4, the payments provided in subsections (A),
(C) and (D) of Section 6.1 hereof and in Section 6.2
hereof shall be made not later than the fifth (5
th ) business day following the Date of Termination
(or, with respect to the payment to be made pursuant to
Section 6.2, if there is no Date of Termination, then the date
on which the Gross-Up Payment is calculated for purposes of
Section 6.2 hereof but in no event later than
December 31st of the year following the year in which the
applicable taxes are remitted); provided , however ,
that if the amounts of such payments cannot be finally determined
on or before such day, the Company shall pay to the Executive on
such day an estimate, as determined in good faith by the Company
or, in the case of payments under Section 6.2 hereof, in
accordance with Section 6.2 hereof, of the minimum amount of
such payments to which the Executive is clearly entitled and shall
pay the remainder of such payments (together with interest on the
unpaid remainder (or on all such payments to the extent the Company
fails to make such pay
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