CHANGE IN CONTROL SEVERANCE
AGREEMENT
CHANGE IN CONTROL SEVERANCE
AGREEMENT
THIS AGREEMENT
(the “Agreement”), dated ________, 200_ is made by and
between The Stanley Works, a Connecticut corporation (the
“Company”), and _____________ (the
“Executive”).
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 shall commence on the
date hereof and shall continue in effect through the second
anniversary hereof; provided, however, that commencing on
_____________ and each _____________ thereafter, the Term shall
automatically be extended for one additional year unless, not later
than ninety (90) calendar days prior to such _____________,
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,
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 full
salary to the Executive 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 the Executive’s full 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 pay to the Executive the Executive’s normal
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.
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
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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 Section 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, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to two and
one-half times the sum of (i) the Executive’s base
salary as in effect immediately prior to the Date of Termination
or, if higher, 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 any annual bonus or incentive plan maintained by the Company in
respect of the three 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 occurs the first
event or circumstance constituting Good Reason.
(B) For the thirty
(30) 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 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 (30) 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.
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(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 two
and one-half (2.5) years following 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 (30) 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 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. 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.
(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 the sum of (i) the amount that would
have been contributed thereto by the Company on the
Executive’s behalf during the thirty (30) 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 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
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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.
(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 (30) 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 year following the year of the
Executive’s Date of Termination.
(G) For the thirty
(30) 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 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 (including, without
limitation, automobile, financial planning, annual physical and
executive whole life insurance).
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 6.2(A) shall not be
conditioned upon Executive’s termination of
employment.
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(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, the 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 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 31 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
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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 31
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 payments
when due) at 120% of the rate provided in section 1274(b)(2)(B) of
the Code) as soon as the amount thereof can be determined but in no
event later than the thirtieth (30th) calendar day after the Date
of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been
due, such excess shall be payable by the Executive to the Company
on the fifth (5th) business day after demand by the Company
(together with interest at 120% of the rate provided in section
1274(b)(2)(B) of the Code). At the time that payments are made
under this Agreement, the Company shall provide the Executive with
a written statement setting forth the manner in which such payments
were calculated and the basis for such calculations including,
without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor or other advisors or
consultants (and any such opinions or advice which are in writing
shall be attached to the statement). Notwithstanding any other
provision of this Section 6, the Company may, in its sole
discretion, withhold and pay over to the Internal Revenue Service
or any other applicable taxing authority, for the benefit of
Executive, all or any portion of any Gross-Up Payment, and
Executive hereby consents to such withholding.
6.4
(A) Notwithstanding any provisions of this Agreement to the
contrary, if the Executive is a “specified employee”
(within the meaning of section 409A and determined pursuant to
procedures adopted by the Company) at the time of his separation
from service and if any portion of the payments or benefits to be
received by the Executive upon separation from service would be
considered deferred compensation under section 409A, amounts that
would otherwise be payable pursuant to this Agreement during the
six-month period immediately following the Executive’s
separation from service (the “Delayed Payments”) and
benefits that would otherwise be provided pursuant to this
Agreement (the “Delayed Benefits”) during the six-month
period immediately following the Executive’s separation from
service (such period, the “Delay Period”) shall instead
be paid or made available on the earlier of (i) the first
(1 st
) business day of the seventh month
following the date of the Executive’s separation from service
or (ii) Executive’s death (the applicable date, the
“Permissible Payment Date”). The Company shall also
reimburse the Executive for the after-tax cost incurred by the
Executive in independently obtaining any Delayed Benefits (the
“Additional Delayed Payments”).
(B) With
respect to any amount of expenses eligible for reimbursement under
Sections 6.1 (B), (E) and (G), such expenses shall be
reimbursed by the Company within thirty
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(30) calendar days following the date on
which the Company receives the applicable invoice from the
Executive but in no event later than December 31 of the year
following the year in which the Executive incurs the related
expenses; provided, that with respect to reimbur
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