Exhibit 10(vii)

THE STANLEY WORKS

Deferred Compensation Plan For

Non-Employee Directors (the “Plan”)

1. Eligibility. Each member of the Board of Directors of The Stanley Works (the
“Corporation”) who is not an employee of the Corporation or any of its
subsidiaries is eligible to participate in the Plan.

2. Participation. (a) Time of Election. Prior to the beginning of any calendar
year, commencing with calendar year 1981, each eligible Director may elect to
participate in the Plan by directing that all or any part of the compensation
(including fees payable for services as chairman or a member of a committee of
the Board) which otherwise would have been payable currently for services as a
Director during such calendar year and succeeding calendar years shall be
credited to a deferred compensation account (the “Director’s account”). Any
person who shall become a Director during any calendar year, and who was not a
Director of the Corporation prior to the beginning of such calendar year, may
elect, within 30 days of the date the Director becomes eligible to participate
in the Plan, to defer payment of all or any part of the Director’s compensation
for the remainder of such calendar year and for succeeding calendar years.

(b) Form and Duration of Election. An election to participate in the Plan shall
be made by written notice executed by the Director and filed with the Secretary
of the Corporation. Such election shall continue until the Director terminates
such election by written notice filed with the Secretary of the Corporation. Any
such termination shall become effective as of the end of the calendar year in
which such notice is given and only with respect to fees payable for services as
a Director thereafter. Amounts credited to the Director’s account prior to the
effective date of termination shall not be affected by such termination and
shall be distributed only in accordance with the terms of the Plan.
Notwithstanding the foregoing, a Director may cancel his or her election due to
a medically determinable physical or mental impairment that can be expected to
result in death or can be expected to last for a continuous period of not less
than 6 months, provided that the cancellation occurs by the later of the end of
the Director’s taxable year or the 15th day of the third month following the
date on which the Director incurs such impairment.

(c) Adjustment of Amount to be Deferred. Prior to the beginning of any calendar
year, a Director participating in the Plan may file another written notice with
the Secretary of the Corporation electing to change the amount of compensation
to be credited to the Director’s account for services as a Director commencing
with such calendar year. Amounts credited to the Director’s account prior to the
effective date of such change shall not be affected by such change and shall be
distributed only in accordance with the terms of the Plan.

 

 

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(d) Renewal. A Director who has terminated his election, or a newly elected
Director who failed to make an initial election to participate may thereafter
file an election to participate for the calendar year subsequent to the filing
of such election and succeeding calendar years.

3. The Director’s Account. All compensation which a Director has elected to
defer under the Plan shall be credited to the Director’s account, either in cash
or in shares of the Corporation’s Common Stock (valued at the mean between the
highest and lowest sales prices of the Common Stock reported as New York Stock
Exchange-Composite Transactions for the first business day of the calendar
quarter immediately following the quarter in which such compensation is earned),
as elected by the Director. The Director shall not have any interest in the cash
or Common Stock until distributed in accordance with the Plan.

Cash amounts credited to the Director’s account shall accrue interest commencing
on the date such fees would otherwise have been paid, at a rate for each
calendar quarter fixed by the Treasurer of the Corporation at the commencement
of each such calendar quarter based upon the yield for five-year U.S. Treasury
Notes as reported for the last business day of the preceding calendar quarter.
Interest so determined shall be compounded at the end of each calendar quarter
and credited to the Director’s account. Amounts credited to the Director’s
account shall continue to accrue interest until distributed in accordance with
the Plan.

Shares credited to the Director’s account shall accrue amounts equivalent to
cash or stock dividends. Such amounts shall accrue interest or amounts
equivalent to dividends in the same manner as other amounts which may be
credited to a Director’s account.

4. Distribution from Accounts. (a) Form of Election. An election made pursuant
to paragraph 2(b) to participate in the Plan shall also include a Director’s
election with respect to the distribution of the amount of cash and shares
credited to the Director’s account with respect to such election. A Director may
elect to receive such amount in one lump-sum payment or in a number of
approximately equal installments (not to exceed 10 installments) as set forth in
the applicable election form. Each payment shall be considered a “separate
payment” and not of a series of payments for purposes of Section 409A (as
defined in paragraph 9). The first payment shall be made on the date specified
in the applicable election form and any subsequent installments shall be paid on
the first business day of each succeeding calendar year during the installment
period until the entire amount credited to the Director’s account shall have
been paid. If shares have been credited to the Director’s account, cash payment
will be made with the final installment for any fraction of a share credited to
the Director’s account.

(b) Adjustment of Method of Distribution. Once made, an election may not be
changed either in amount or method of payment if the effect of such change is to
accelerate the distribution of cash and shares credited to the Director’s
account, provided that a Director may make a subsequent election to delay a
distribution or to change the method of distribution with respect to previously
deferred amounts by filing a written notice changing the election with the
Secretary of the Corporation as long as such election (i) will not take effect
until at least twelve months after the date on which the election is made; (ii)
defers the distribution with respect to which such election is made (other than
an election made on account of “disability,” “death” or an “unforeseeable
emergency,” each within the meaning of Section 409A) for a period of not less
than five years from the date such distribution would otherwise

 

 

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have been paid; and (iii) is made not less than twelve months before the date
the distribution is scheduled to be paid. Notwithstanding the foregoing, the
Corporation may, in its sole discretion, authorize the acceleration of a payment
in accordance with paragraphs (j)(4)(ii) through (xiv) of Treasury Regulation
§1.409A-3.

5. Distribution on Death. If a Director should die before all amounts credited
to the Director’s account shall have been paid in accordance with the election
referred to in paragraph 4, the balance in such account shall be paid as soon as
administratively practicable, but in no event later than 60 days, following the
date of the Director’s death (a) to the beneficiary designated in writing by the
Director or (b) to the Director’s estate in the event that the designated
beneficiary has predeceased the Director or no beneficiary designation has been
made by the Director.

6. Miscellaneous. (a) The right of a Director to receive any amount in the
Director’s account shall not be transferable or assignable by the Director,
except by will or by the laws of descent and distribution, and no part of such
amount shall be subject to attachment or other legal process.

(b) The Corporation shall not be required to reserve or otherwise set aside
funds or shares of Common Stock for the payment of its obligations hereunder.
The Corporation shall make available as and when required a sufficient number of
shares of Common Stock to meet the needs of the Plan. To the extent that
registration of such shares under the Securities Act of 1933 shall be required
prior to their resale, the Corporation undertakes to either file a registration
statement relating to such shares or include such shares in another registration
statement to be filed within a reasonable time.

(c) The Corporate Governance Committee of the Board of Directors shall interpret
the Plan and make all determinations deemed necessary or desirable for the
Plan’s implementation.

(d) The Board of Directors may at any time amend or terminate the Plan. No
amendment or termination (other than an amendment or termination as necessary to
comply with Section 409A) shall impair the rights of a Director with respect to
amounts then in the Director’s account.

(e) Each Director participating in the Plan will receive an annual statement
indicating the amount of cash and number of shares credited to the Director’s
account as of the end of the preceding calendar year.

(f) If adjustments are made to outstanding shares of Common Stock or to the
capital structure of the Corporation as a result of stock dividends, stock
splits or combinations, recapitalizations, mergers, consolidations, exchange
offers, issuer tender offers, extraordinary cash dividends, or similar events or
transactions, an appropriate adjustment will also be made in the number of
shares credited to the Director’s account.

7. Definition of Change in Control. For purposes of this Plan, a “Change in
Control of the Corporation” shall mean a “change in the ownership” or the
“effective control” of the Corporation or a “change in the ownership of a
substantial portion of the Corporation’s assets” (each within the meaning of
Section 409A).

 

 

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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 Corporation, but in no event later than 30 days following such
Change in Control, a lump-sum payment shall be made, in cash, of the entire
account hereunder of any current or former Director. For purposes of calculating
the amount of such payment, any shares of the Corporation’s common stock
credited to, or accrued in, any Director’s account shall be valued at the higher
of (i) the closing price of such shares as reported on the New York Stock
Exchange - Composite Transactions on the date preceding and nearest the date the
Change in Control occurred or (ii) the highest per share price for the common
stock of the Corporation actually paid in connection with such Change in
Control; provided, however, that such value shall not exceed the amount
necessary to provide a fully equitable payment of such account, taking into
consideration any adjustments made pursuant to paragraph 6(f) of the Plan with
respect to any events or transactions constituting a Change in Control of the
Corporation, or a part thereof.

9. Section 409. Reference to “Section 409” is to section 409 of the Internal
Revenue Code of 1986, as amended, and any proposed, temporary or final
regulations, or any other guidance, promulgated with respect to section 409 by
the U.S. Department of Treasury or the Internal Revenue Service. The Plan is
intended to provide for the deferral of compensation in full compliance with
Section 409A. The Plan shall be construed in a manner to give effect to such
intention.

10. Limited Transition Relief through December 31, 2008. Notwithstanding
anything herein to the contrary, pursuant to the transition relief provided
under Q&A 19(c) of IRS Notice 2005-1, as amplified by the proposed regulations
under Section 409A, and as further amended by IRS Notice 2006-79 and IRS Notice
2007-86, a Director (i) may designate the time and form of distribution to the
extent not previously so elected and/or (ii) may make a new election to change
the time and form of distribution in a previously filed election, in each case,
no later than December 31, 2008. A Director who chooses not to file a new
election as provided in clause (ii) shall continue to participate in the Plan
pursuant to his or her prior distribution elections, which shall be administered
in accordance with Section 409A. Any changes to elections made after December
31, 2008 will be subject to paragraph 4(b) of the Plan.

 

 

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