Document:

EX-10.XVIII

Exhibit 10(xviii)

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. Severance Payments.

     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 (5th)
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 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.

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     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 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 (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 reimbursement relating to the Additional Delayed
Payments, such reimbursement shall be made on the Permissible Payment Date. In no event shall the
reimbursements or in-kind benefits to be provided by the Company in one taxable year affect the
amount of reimbursements or in-kind benefits to be provided in any other taxable year, nor shall
the Executive’s right to reimbursement or in-kind benefits be subject to liquidation or exchange
for another benefit.

     (C) For purposes of Section 409A, the Executive’s right to receive any “installment” payments
pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct
payments.

     6.5 The Company shall deposit the estimated Delayed Payments and estimated Additional Delayed
Payments into an irrevocable grantor trust (for purposes of this Section 6, the “Grantor Trust”)
not later than the fifth business day following the occurrence of a Potential Change in Control.
The Company shall deposit additional amounts into the Grantor Trust on the monthly basis equal to
the interest accrued on the Delayed Payments (and any earlier interest payments) at the United
States 5-year Treasury Rate plus 2%, and the amount held in the Grantor Trust shall be paid to the
Executive (in accordance with the terms of the Grantor Trust) on the Permissible Payment Date.

     6.6 The Company also shall pay to the Executive all legal fees and expenses incurred by the
Executive in disputing in good faith any issue hereunder relating to the termination of the
Executive’s employment or in seeking in good faith to obtain or enforce any benefit or right
provided by this Agreement. Such payments shall be made within five (5) business days (but in any
event no later than December 31 of the year following the year in which the Executive incurs the
expenses) after delivery of the Executive’s written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require, provided that (i) the
amount of such legal fees and expenses that the Company is obligated to pay in any

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given calendar year shall not affect the legal fees and expenses that the Company is obligated
to pay in any other calendar year, (ii) the Executive’s right to have the Company pay such legal
fees and expenses may not be liquidated or exchanged for any other benefit, and (iii) the
Executive shall not be entitled to reimbursement unless he has submitted an invoice for such fees
and expenses at least ten (10) business days before the end of the calendar year next following the
calendar year in which such fees and expenses were incurred. The Company shall also pay all legal
fees and expenses incurred by the Executive in connection with any tax audit or proceeding to the
extent attributable to the application of section 4999 of the Code to any payment or benefit
hereunder. Payment pursuant to the preceding sentence will be made within fifteen (15) business
days after delivery of the Executive’s written request for payment but in no event later than the
end of the calendar year following the calendar year in which the taxes that are the subject of the
audit or proceeding are remitted to the taxing authority, or where as a result of the audit or
proceeding no taxes are remitted, the end of the calendar year in which the audit is completed or
there is a final and nonappealable settlement or other resolution of the matter.

     7. Termination Procedures and Compensation During Dispute.

     7.1 Notice of Termination. After a Change in Control and during the Term, any
purported termination of the Executive’s employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the other party hereto in
accordance with Section 11 hereof. For purposes of this Agreement, a “Notice of Termination” shall
mean a notice which shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision so indicated. Further, a Notice of
Termination for Cause (and the subsequent special Board meeting to determine whether Cause exists)
shall be in accordance with the provisions set forth in Section 4(b)(ii) of the Employment
Agreement.

     7.2 Date of Termination. “Date of Termination,” with respect to any purported
termination of the Executive’s employment after a Change in Control and during the Term, shall mean
(i) if the Executive incurs a separation from service due to Disability, thirty (30) calendar days
after Notice of Termination is given (provided that the Executive shall not have returned to the
full-time performance of the Executive’s duties during such thirty (30) calendar day period), and
(ii) if the Executive incurs a separation from service for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination by the Company, shall be the
30th calendar day after Notice of Termination is given (except in the case of a
termination for Cause, in which case the Date of Termination will be determined in accordance with
Sections 4(b)(ii) and 4(d) of the Employment Agreement) and, in the case of a termination by the
Executive, shall not be less than fifteen (15) calendar days nor more than sixty (60) calendar
days, respectively, from the date such Notice of Termination is given).

     8. No Mitigation. The Company agrees that, if the Executive’s employment with the
Company terminates during the Term, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the Company pursuant to
Section 6 hereof. Further, except as specifically provided in Sections 6.1(B) and 6.1(G) hereof,
no payment or benefit provided for in this Agreement shall be reduced by any compensation earned by
the Executive as the result of employment by another employer, by

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retirement benefits, by offset against any amount claimed to be owed by the Executive to the
Company, or otherwise.

     9. Restrictive Covenants.

     9.1 The Executive agrees that restrictions on his activities during and after his employment
are necessary to protect the goodwill, Confidential Information and other legitimate interests of
the Company and its Subsidiaries, and that the agreed restrictions set forth below will not deprive
the Executive of the ability to earn a livelihood:

     (A) In the event that, during the twenty-four (24) months following termination of
employment during the Term by the Executive for Good Reason or by the Company other than for
Cause, death, or Disability (the “Non-Competition Period”), the Executive shall, without the
written consent of the Board, directly or indirectly, as employee, agent, consultant,
stockholder, director, manager, co-partner or in any other individual or representative
capacity, own, operate, manage, control, engage in, invest in or participate in any manner
in, act as consultant or advisor to, render services for (alone or in association with any
person, firm, corporation or entity), or otherwise assist any person or entity (other than
the Company) that engages in or owns, invests in, operates, manages or controls any venture
or enterprise that directly or indirectly engages or proposes to engage in any Competitive
Business, then the Company’s obligations to make any further payments or provide any further
benefits under Section 6.1 shall immediately terminate.

     (B) The Executive agrees that (i) during the Non-Competition Period, the Executive will
remain bound by Section 8(b) of the Employment Agreement and (ii) during the Term and
thereafter, he will remain bound by Section 8(a) of the Employment Agreement.

     (C) Without limiting the foregoing, it is understood that the Company shall not be
obligated to make any of the payments or to provide for any of the benefits specified in
Sections 6.1 and 6.2 hereof, and shall be entitled to recoup the pro rata portion of any
such payments and of the value of any such benefits previously provided to the Executive in
the event of a material breach by the Executive of the provisions of this Section 9 (such
pro ration to be determined as a fraction, the numerator of which is the number of days from
such breach to the second anniversary of the date on which the Executive terminates
employment and the denominator of which is 730), which breach continues without having been
cured within fifteen (15) calendar days after written notice to the Executive specifying the
breach in reasonable detail.

     10. Successors; Binding Agreement.

     10.1 In addition to any obligations imposed by law upon any successor to the Company, the
Company will require any successor (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to all or substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to

10

 

the same extent that the Company would be required to perform it if no such succession had
taken place.

     10.2 This Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal or legal representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon the death of the
Executive) if the Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive’s estate.

     11. Notices. For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return receipt requested, postage prepaid,
addressed, if to the Executive, to the address on file with the Company and, if to the Company, to
the address set forth below, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address shall be effective
only upon actual receipt:

	 	 	 	 	 	 	 
	 

	 	To the Company:
	 	The Stanley Works

1000 Stanley Drive

New Britain, Connecticut 06053

Attention: General Counsel

	 	 

     12. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and signed by the
Executive and such officer as may be specifically designated by the Board. No waiver by either
party hereto at any time of any breach by the other party hereto of, or of any lack of compliance
with, any condition or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. This Agreement shall supersede any agreement setting forth the terms and
conditions of the Executive’s employment with the Company (including, without limitation, the
Employment Agreement) only in the event that the Executive’s employment with the Company is
terminated during the Term on or following a Change in Control (or deemed to have been so
terminated), by the Company other than for Cause, death or Disability or by the Executive for Good
Reason. Notwithstanding the foregoing, this Agreement shall not supersede Sections 3(c), 3(d),
3(e), 3(g), 3(h), or 3(i) of the Employment Agreement. To the extent that this Agreement does not
supersede the Employment Agreement but provides payments or benefits in excess of those to which
the Executive is entitled under the Employment Agreement, the Executive shall be entitled to (i)
such excess payments and benefits and (ii) payments and benefits due pursuant to the Employment
Agreement. Further, to the extent this Agreement does not supersede the Employment Agreement or
any other agreement setting forth the terms and conditions of the Executive’s employment with the
Company, it shall not result in any duplication of benefits to the Executive. The validity,
interpretation, construction and performance of this Agreement shall be governed by the laws of the
State of Connecticut, without regard to its conflicts of law principles. All references to
sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions
to such sections. Any

11

 

payments provided for hereunder shall be paid net of any applicable withholding required under
federal, state or local law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under this Agreement which by their nature may require
either partial or total performance after the expiration of the Term (including, without
limitation, those under Sections 6 and 7 hereof) shall survive such expiration. To the extent
applicable, it is intended that the compensation arrangements under this Agreement be in full
compliance with Section 409A. This Agreement shall be construed in a manner to give effect to such
intention.

     13. Validity. The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this Agreement, which
shall remain in full force and effect.

     14. Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will constitute one and the same
instrument.

     15. Settlement of Disputes. All claims by the Executive for benefits under this
Agreement shall be directed to and determined by the Board and shall be in writing. Any denial by
the Board of a claim for benefits under this Agreement shall be delivered to the Executive in
writing and shall set forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon. The Board shall afford a reasonable opportunity to the Executive for a
review of the decision denying a claim and shall further allow the Executive to appeal to the Board
a decision of the Board within sixty (60) calendar days after notification by the Board that the
Executive’s claim has been denied. Notwithstanding the above, in the event of any dispute, any
decision by the Board hereunder shall be subject to a de novo review by a court of competent
jurisdiction.

     Notwithstanding any provision of this Agreement to the contrary, the Executive shall be
entitled to seek specific performance of the Executive’s right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or in connection with
this Agreement.

     16. Definitions. For purposes of this Agreement, the following terms shall have the
meanings indicated below:

     (A) “Additional Delayed Payments” shall have the meaning set forth in Section 6.4 hereof.

     (B) “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of
the Exchange Act.

     (C) “Annual Base Salary” shall have the meaning set forth in Section 3(a) of the Employment
Agreement.

     (D) “Annual Target Bonus Percentage” shall have the meaning set forth in Section 3(b) of the
Employment Agreement.

12

 

     (E) “Auditor” shall have the meaning set forth in Section 6.2 hereof.

     (F) “Base Amount” shall have the meaning set forth in Section 280G(b)(3) of the Code.

     (G) “Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act.

     (H) “Board” shall mean the Board of Directors of the Company.

     (I) “Cause” for termination by the Company of the Executive’s employment shall mean (i) the
willful and continued failure by the Executive to substantially perform the Executive’s duties with
the Company (other than any such failure resulting from the Executive’s incapacity due to physical
or mental illness or any such actual or anticipated failure after the issuance of a Notice of
Termination for Good Reason by the Executive pursuant to Section 7.1 hereof) that has not been
cured within thirty (30) calendar days after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically identifies the manner in which
the Board believes that the Executive has not substantially performed the Executive’s duties, or
(ii) the willful engaging by the Executive in conduct which is demonstrably and materially
injurious to the Company or its subsidiaries. For purposes of clauses (i) and (ii) of this
definition, (x) no act, or failure to act, on the Executive’s part shall be deemed “willful” unless
done, or omitted to be done, by the Executive not in good faith and without reasonable belief that
the Executive’s act, or failure to act, was in the best interest of the Company and (y) in the
event of a dispute concerning the application of this provision, no claim by the Company that Cause
exists shall be given effect unless the Company establishes to the Board by clear and convincing
evidence that Cause exists.

     (J) A “Change in Control” shall be deemed to have occurred if the event set forth in any one
of the following paragraphs shall have occurred:

     (I) any Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities beneficially owned by such Person
any securities acquired directly from the Company or its Affiliates) representing 25% or
more of the combined voting power of the Company’s then outstanding securities, excluding
any Person who becomes such a Beneficial Owner in connection with a transaction described in
clause (i) of paragraph (III) below; or

     (II) the following individuals cease for any reason to constitute a majority of the
number of directors then serving: individuals who, on the date hereof, constitute the Board
and any new director (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company’s shareowners
was approved or recommended by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors on the date hereof or whose appointment, election
or nomination for election was previously so approved or recommended; or;

13

 

     (III) there is consummated a merger or consolidation of the Company or any direct or
indirect subsidiary of the Company with any other corporation or other entity, other than
(i) a merger or consolidation which results in the voting securities of the Company
outstanding immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the combined voting power of the
securities of the Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in which no Person
is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities Beneficially Owned by such Person any securities acquired
directly from the Company or its Affiliates) representing 25% or more of the combined voting
power of the Company’s then outstanding securities; or

     (IV) the shareowners of the Company approve a plan of complete liquidation or
dissolution of the Company or there is consummated an agreement for the sale or disposition
by the Company of all or substantially all of the Company’s assets, other than a sale or
disposition by the Company of all or substantially all of the Company’s assets to an entity,
at least 50% of the combined voting power of the voting securities of which are owned by
shareowners of the Company in substantially the same proportions as their ownership of the
Company immediately prior to such sale.

     (K) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

     (L) “Company” shall mean The Stanley Works and, except in determining under Section 15(G)
hereof whether or not any Change in Control of the Company has occurred, shall include any
successor to its business and/or assets which assumes and agrees to perform this Agreement by
operation of law, or otherwise.

     (M) “Competitive Business” shall have the meaning set forth in Section 5(c)(ii) of the
Employment Agreement.

     (N) “Confidential Information” shall have the meaning set forth in Section 8(a) of the
Employment Agreement.

     (O) “DB Pension Plan” shall mean any tax-qualified, supplemental or excess defined benefit
pension plan maintained by the Company and any other defined benefit plan, agreement, or pension
make-whole arrangement entered into between the Executive and the Company which is designed to
provide the Executive with supplemental retirement benefits. For purposes of Section 6.1(C)
hereof, if the Executive would have satisfied the condition for participation in a DB Plan (or any
successor thereto) within thirty-six (36) months following the Date of Termination (i.e.,
assuming the Executive accrued additional age and service credit over such period), the Executive
shall be deemed to have been a participant in such plan immediately prior to the Date of
Termination and shall be entitled to the benefits provided under Section 6.1(C) relating thereto.

14

 

     (P) “DC Pension Plan” shall mean any tax-qualified, supplemental or excess defined
contribution plan maintained by the Company and any other defined contribution plan or agreement
entered into between the Executive and the Company which is designed to provide the executive with
supplemental retirement benefits.

     (Q) “Date of Termination” shall have the meaning set forth in Section 7.2 hereof.

     (R) “Delayed Benefits” shall have the meaning set forth in Section 6.4 hereof.

     (S) “Delayed Payments” shall have the meaning set forth in Section 6.4 hereof.

     (T) “Delay Period” shall have the meaning set forth in Section 6.4 hereof.

     (U) “Disability” shall have the meaning set forth in Section 4(a) of the Employment Agreement.

     (V) “Employment Agreement” shall mean the Employment Agreement by and between the Company and
the Executive, dated February 3, 2004, and any subsequent amendments thereto.

     (W) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to
time.

     (X) “Excise Tax” shall mean any excise tax imposed under section 4999 of the Code.

     (Y) “Executive” shall mean the individual named in the first paragraph of this Agreement.

     (Z) “Good Reason” for termination by the Executive of the Executive’s employment shall mean
the occurrence (without the Executive’s express written consent which specifically references this
Agreement) after any Change in Control, or prior to a Change in Control under the circumstances
described in clauses (ii) and (iii) of the second sentence of Section 6.1 hereof (treating all
references in paragraphs (I) through (VII) below to a “Change in Control” as references to a
“Potential Change in Control”), of any one of the following acts by the Company, or failures by the
Company to act, unless, in the case of any act or failure to act described in paragraph (I), (V),
(VI) or (VII) below, such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:

     
(I) the assignment to the Executive of any duties inconsistent with the Executive’s
status as a senior executive officer of the Company or a substantial adverse alteration in
the nature or status of the Executive’s responsibilities from those in effect immediately
prior to the Change in Control including, without limitation, if the Executive was,
immediately prior to the Change in Control, an executive officer of a public company, the
Executive ceasing to be an executive officer of a public company;

     (II) a reduction by the Company in the Executive’s annual base salary as in effect on
the date hereof or as the same may be increased from time to time except for

15

 

across-the-board salary reductions similarly affecting all senior executives of the
Company and all senior executives of any Person in control of the Company;

     
(III) the relocation of the Executive’s principal place of employment to a location
more than thirty-five (35) miles from the Executive’s principal place of employment
immediately prior to the Change in Control or the Company’s requiring the Executive to be
based anywhere other than such principal place of employment (or permitted relocation
thereof) except for required travel on the Company’s business to an extent substantially
consistent with the Executive’s present business travel obligations;

     (IV) the failure by the Company to pay to the Executive any portion of the Executive’s
current compensation or to pay to the Executive any portion of an installment of deferred
compensation under any deferred compensation program of the Company, within seven (7)
calendar days of the date such compensation is due;

     (V) the failure by the Company to continue in effect any compensation plan in which the
Executive participates immediately prior to the Change in Control which is material to the
Executive’s total compensation, including but not limited to the Company’s 2001 Long-Term
Incentive Plan and Management Incentive Compensation Plan and Section 3(j) (“Pension
Make-Whole”) of the Employment Agreement, or any substitute plans adopted prior to the
Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by the Company to
continue the Executive’s participation therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in terms of the amount or timing of payment
of benefits provided and the level of the Executive’s participation relative to other
participants, as existed immediately prior to the Change in Control;

     (VI) the failure by the Company to continue to provide the Executive with benefits
substantially similar to those enjoyed by the Executive under any of the Company’s pension,
savings, life insurance, medical, health and accident, or disability plans in which the
Executive was participating immediately prior to the Change in Control (except for across
the board changes similarly affecting all senior executives of the Company and all senior
executives of any Person in control of the Company), the taking of any other action by the
Company which would directly or indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefit enjoyed by the Executive at the time of the
Change in Control, or the failure by the Company to provide the Executive with the number of
paid vacation days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company’s normal vacation policy in effect at the time of
the Change in Control;

     (VII) any purported termination of the Executive’s employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Section 7.1 hereof; for
purposes of this Agreement, no such purported termination shall be effective. The
Executive’s right to terminate the Executive’s employment for Good Reason shall not be
affected by the Executive’s incapacity due to physical or mental illness;

16

 

     
(VIII) Breach by the Company of the provisions of Section 10.1 hereof; or

     (IX) any event that would constitute “Good Reason” pursuant to the Employment
Agreement.

     The Executive’s continued employment shall not constitute consent to, or a waiver of rights
with respect to, any act or failure to act constituting Good Reason hereunder.

     For purposes of any determination regarding the existence of Good Reason in connection with a
termination of employment other than as described in the second sentence of Section 6.1 hereof, any
claim by the Executive that Good Reason exists shall be presumed to be correct unless the Company
establishes to the Board by clear and convincing evidence that Good Reason does not exist.

     (AA) “Gross-Up Payment” shall have the meaning set forth in Section 6.2 hereof.

     (BB) “Grantor Trust” shall have the meaning set forth in Section 6.5 hereof.

     (CC) “Notice of Termination” shall have the meaning set forth in Section 7.1 hereof.

     (DD) “Permissible Payment Date” shall have the meaning set forth in Section 6.4 hereof.

     (EE) “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified
and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the shareowners of the Company in substantially the same proportions as
their ownership of stock of the Company.

     (FF) “Potential Change in Control” shall be deemed to have occurred if the event set forth in
any one of the following paragraphs shall have occurred:

     (I) the Company enters into an agreement, the consummation of which would result in the
occurrence of a Change in Control;

     (II) the Company or any Person publicly announces an intention to take or to consider
taking actions which, if consummated, would constitute a Change in Control;

     (III) any Person becomes the Beneficial Owner, directly or indirectly, of securities of
the Company representing 15% or more of either the then outstanding shares of common stock
of the Company or the combined voting power of the Company’s then outstanding securities
(not including in the securities beneficially owned by such Person any securities acquired
directly from the Company or its affiliates); or

     (IV) the Board adopts a resolution to the effect that, for purposes of this Agreement,
a Potential Change in Control has occurred.

17

 

     (GG) “Prior Agreement” shall have the meaning set forth in the second paragraph of this
Agreement.

     (HH) “Retirement” shall be deemed the reason for the termination by the Executive of the
Executive’s employment if such employment is terminated in accordance with the Company’s retirement
policy, including early retirement, generally applicable to its salaried employees.

     (II) “Section 409A” shall mean section 409A of the Code and any proposed, temporary or final
regulation, or any other guidance, promulgated with respect to section 409A by the U.S. Department
of Treasury or the Internal Revenue Service.

     (JJ) “Severance Payments” shall have the meaning set forth in Section 6.1 hereof.

     (KK) “Subsidiary” means any corporation or other business organization of which the securities
having a majority of the normal voting power in electing the board of directors or similar
governing body of such entity are, at the time of determination, owned by the Company directly or
indirectly through one or more Subsidiaries.

     (LL) “Target Annual Bonus Percentage” shall have the meaning set forth in Section 3(b) of the
Employment Agreement.

     (MM) “Tax Counsel” shall have the meaning set forth in Section 6.2 hereof.

     (NN) “Term” shall mean the period of time described in Section 2 hereof (including any
extension, continuation or termination described therein).

     (OO) “Total Payments” shall mean those payments so described in Section 6.2 hereof.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 	THE STANLEY WORKS

 	 
	 	By:  	 	 
	 	 	Name:  	Bruce H. Beatt 	 
	 	 	Title:  	Vice President, General
Counsel and Secretary 	 
	 
	 	EXECUTIVE

 	 
	 	By:  	 	 
	 	 	Name:  	John F. Lundgren 	 
	 	 	 	 
	 

18EX-10.XX

Exhibit 10(xx)

The Stanley Works 2006 Management Incentive Compensation Plan

	1.	 	Purpose. The purpose of The Stanley Works 2006 Management Incentive Plan is to
reinforce corporate, organizational and business-development goals, to promote the achievement
of year-to-year financial and other business objectives and to reward the performance of
eligible employees in fulfilling their personal responsibilities.
	 
	2.	 	Definitions. The following terms, as used herein, shall have the following meanings:

	 	(a)	 	“Affiliate” shall mean, with respect to the Company or any of its subsidiaries,
any other Person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Company.
	 
	 	(b)	 	“Award” shall mean an incentive compensation award, granted pursuant to the
Plan that is contingent upon the attainment of Performance Goals with respect to a
Performance Period.
	 
	 	(c)	 	“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the
Exchange Act.
	 
	 	(d)	 	“Board” shall mean the Board of Directors of the Company.
	 
	 	(e)	 	A “Change in Control” shall be deemed to have occurred if the event set forth
in any one of the following paragraphs shall have occurred:

	 	(1)	 	any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not including in
the securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates) representing 25%
or more of the combined voting power of the Company’s then outstanding
securities, excluding any Person who becomes such a Beneficial Owner in
connection with a transaction described in clause (i) of paragraph (3)
below; or
	 
	 	(2)	 	the following individuals cease for any reason
to constitute a majority of the number of directors then serving:
individuals who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of office is
in connection with an actual or threatened election contest, including
but not limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board or
nomination for election by the Company’s shareowners was approved or
recommended by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on the date hereof or
whose appointment, election or nomination for election was previously
so approved or recommended; or

 

 

	 	(3)	 	there is consummated a merger or consolidation
of the Company or any direct or indirect subsidiary of the Company with
any other corporation or other entity, other than (i) a merger or
consolidation which results in the voting securities of the Company
outstanding immediately prior to such merger or consolidation
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any parent
thereof) at least 50% of the combined voting power of the securities of
the Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its Affiliates)
representing 25% or more of the combined voting power of the Company’s
then outstanding securities; or
	 
	 	(4)	 	the shareowners of the Company approve a plan
of complete liquidation or dissolution of the Company or there is
consummated an agreement for the sale or disposition by the Company of
all or substantially all of the Company’s assets, other than a sale or
disposition by the Company of all or substantially all of the Company’s
assets to an entity, at least 50% of the combined voting power of the
voting securities of which are owned by shareowners of the Company in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.

	 	(f)	 	“Code” shall mean the Internal Revenue Code of 1986, as amended.
	 
	 	(g)	 	“Committee” shall mean the Compensation and Organization Committee of the Board
of Directors, the composition of which shall at all times consist solely of two or more
“outside directors” within the meaning of section 162(m) of the Code.
	 
	 	(h)	 	“Company” shall mean The Stanley Works and its successors.
	 
	 	(i)	 	“Covered Employee” shall have the meaning set forth in Section 162(m)(3) of the
Code.
	 
	 	(j)	 	“Disability” shall have the meaning set forth in Section 22(e)(3) of the Code,
or any successor provision.
	 
	 	(k)	 	“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
	 
	 	(l)	 	“Participant” shall mean any employee of the Company or an Affiliate who is,
pursuant to Section 4 of the Plan, selected to participate in the Plan.

2

 

	 	(m)	 	“Performance Goals” shall mean performance goals based on one or more of the
following criteria, determined in accordance with generally accepted accounting
principles, where applicable: (i) pre-tax income or after-tax income; (ii) earnings
including operating income, earnings before or after taxes, earnings before or after
interest, depreciation, amortization, or extraordinary or special items; (iii) net
income excluding amortization of intangible assets, depreciation and impairment of
goodwill and intangible assets; (iv) operating income; (v) earnings or book value per
share (basic or diluted); (vi) return on assets (gross or net), return on investment,
return on capital, or return on equity; (vii) return on revenues; (viii) net tangible
assets (working capital plus property, plants and equipment) or return on net tangible
assets (operating income divided by average net tangible assets) or working capital;
(ix) operating cash flow (operating income plus or minus changes in working capital
less capital expenditures); (x) cash flow, free cash flow, cash flow return on
investment (discounted or otherwise), net cash provided by operations, or cash flow in
excess of cost of capital; (xi) sales or sales growth; (xii) operating margin or profit
margin; (xiii) share price or total shareholder return; (xiv) earnings from continuing
operations; (xv) cost targets, reductions or savings, productivity or efficiencies;
(xvi) economic value added; and (xvii) strategic business criteria, consisting of one
or more objectives based on meeting specified market penetration or market share,
geographic business expansion, customer satisfaction, employee satisfaction, human
resources management, financial management, project management, supervision of
litigation, information technology, or goals relating to divestitures, joint ventures
or similar transactions. Where applicable, the Performance Goals may be expressed in
terms of attaining a specified level of the particular criterion or the attainment of a
percentage increase or decrease in the particular criterion, and may be applied to one
or more of the Company or a parent or subsidiary of the Company, or a division or
strategic business unit of the Company, all as determined by the Committee. The
Performance Goals may include a threshold level of performance below which no payment
will be made (or no vesting will occur), levels of performance at which specified
payments will be paid (or specified vesting will occur) and a maximum level of
performance above which no additional payment will be made (or at which full vesting
will occur).
	 
	 	 	 	Each of the foregoing Performance Goals shall be evaluated in accordance with
generally accepted accounting principles, where applicable, and shall be subject to
certification by the Committee.
	 
	 	(n)	 	“Performance Period” shall mean, unless the Committee determines otherwise, a
period of no longer than 12 months.
	 
	 	(o)	 	“Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act,
as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall
not include (i) the Company or any of its subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or any of
its Affiliates, (iii) an underwriter temporarily holding securities pursuant to an
offering of such securities, or (iv) a corporation owned, directly or indirectly,

3

 

	 	 	 	by the shareowners of the Company in substantially the same proportions as their
ownership of shares of the Company.

	 	(p)	 	“Plan” shall mean The Stanley Works 2006 Management Incentive Plan, as amended
from time to time.
	 
	 	(q)	 	“Retirement” shall mean a Participant’s termination of employment with the
Company or an Affiliate thereof at or after attaining age 55 and completing ten years
of service.

	3.	 	Administration. The Plan shall be administered by the Committee. The Committee shall
have the authority in its sole discretion, subject to and not inconsistent with the express
provisions of the Plan, to administer the Plan and to exercise all the powers and authorities
either specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to grant Awards; to
determine the persons to whom and the time or times at which Awards shall be granted; to
determine the terms, conditions, restrictions and performance criteria, including Performance
Goals, relating to any Award; to determine whether, to what extent, and under what
circumstances an Award may be settled, cancelled, forfeited, or surrendered; to construe and
interpret the Plan and any Award; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of Awards; and to make all other
determinations deemed necessary or advisable for the administration of the Plan. The Committee
shall have the authority to make equitable adjustments to the Performance Goals in recognition
of unusual or non-recurring events affecting the Company or any parent or subsidiary of the
Company or the financial statements of the Company or any parent or subsidiary of the Company,
in response to changes in applicable laws or regulations or to account for items of gain, loss
or expense determined to be extraordinary or unusual in nature or infrequent in occurrence or
related to the disposal of a segment of a business or related to a change in accounting
principles.
	 
	 	 	All decisions, determinations and interpretations of the Committee shall be final and
binding on all persons, including the Company and the Participant (or any person claiming
any rights under the Plan from or through any Participant).
	 
	 	 	Subject to Section 162(m) of the Code or as otherwise required for compliance with other
applicable law, the Committee may delegate all or any part of its authority under the Plan
to any officer or officers of the Company.

	4.	 	Eligibility. Awards may be granted to Participants in the sole discretion of the
Committee. In determining the persons to whom Awards shall be granted and the Performance
Goals relating to each Award, the Committee shall take into account such factors as the
Committee shall deem relevant in connection with accomplishing the purposes of the Plan.

	5.	 	Terms of Awards. Awards granted pursuant to the Plan shall be communicated to
Participants in such form as the Committee shall from time to time approve and the terms and
conditions of such Awards shall be set forth therein.

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	 	(a)	 	In General. On or prior to the earlier of the 90th day after the
commencement of a Performance Period or the date on which 25% of a Performance Period
has elapsed, the Committee shall specify in writing, by resolution of the Committee or
other appropriate action, the Participants for such Performance Period and the
Performance Goals applicable to each Award for each Participant with respect to such
Performance Period. Unless otherwise provided by the Committee in connection with
specified terminations of employment, payment in respect of Awards shall be made only
if and to the extent the Performance Goals with respect to such Performance Period are
attained.
	 
	 	(b)	 	Special Provisions Regarding Awards. Notwithstanding anything to the
contrary contained in this Section 5, in no event shall payment in respect of an Award
granted for a Performance Period be made to a Participant who is or is reasonably
expected to be a Covered Employee exceed the lesser of 300% of the Participant’s annual
base salary on the date the Performance Period commences for any twelve month period or
$5,000,000. The Committee may, in its sole discretion, increase (subject to the
maximum amount set forth in this Section 5(b)) or decrease the amounts otherwise
payable to Participants upon the achievement of Performance Goals under an Award;
provided, however, that in no event may the Committee so increase the amount otherwise
payable to a Covered Employee pursuant to an Award.
	 
	 	(c)	 	Time and Form of Payment. Subject to Section 7(h), all payments in
respect of Awards granted under this Plan shall be made in cash on the 45th day
following the end of the Performance Period but in no event later than the 45th day
following the fiscal year in which the Award vests.

	6.	 	Term. Subject to the approval of the Plan by the holders of a majority of the Common
Stock represented and voting on the proposal at the annual meeting of Company’s shareholders
to be held in 2006 (or any adjournment thereof), the Plan shall be effective as of January 1,
2006 and shall continue in effect until the tenth anniversary of the date of such shareholder
approval, unless earlier terminated as provided below.

	7.	 	General Provisions.

	 	(a)	 	Compliance with Legal Requirements. The Plan and the granting and
payment of Awards, and the other obligations of the Company under the Plan shall be
subject to all applicable federal and state laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may be required.
	 
	 	(b)	 	Nontransferability. Awards shall not be transferable by a Participant
except upon the Participant’s death following the end of the Performance Period but
prior to the date payment is made, in which case the Award shall be transferable in
accordance with any beneficiary designation made by the Participant in accordance with
Section 7(l) below or, in the absence thereof, by will or the laws of descent and
distribution.

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	 	(c)	 	No Right To Continued Employment. Nothing in the Plan or in any Award
granted pursuant hereto shall confer upon any Participant the right to continue in the
employ of the Company or to be entitled to any remuneration or benefits not set forth
in the Plan or to interfere with or limit in any way whatever rights otherwise exist of
the Company to terminate such Participant’s employment or change such Participant’s
remuneration.
	 
	 	(d)	 	Withholding Taxes. Where a Participant or other person is entitled to
receive a payment pursuant to an Award hereunder, the Company shall have the right
either to deduct from the payment, or to require the Participant or such other person
to pay to the Company prior to delivery of such payment, an amount sufficient to
satisfy any federal, state, local or other withholding tax requirements related
thereto.
	 
	 	(e)	 	Amendment, Termination and Duration of the Plan. The Board or the
Committee may at any time and from time to time alter, amend, suspend, or terminate the
Plan in whole or in part; provided that, no amendment that requires shareholder
approval in order for the Plan to continue to comply with Section 162(m) of the Code
shall be effective unless the same shall be approved by the requisite vote of the
shareholders of the Company. Notwithstanding the foregoing, no amendment (other than
an amendment necessary to comply with Section 409A of the Code) shall affect adversely
any of the rights of any Participant under any Award following the end of the
Performance Period to which such Award relates, provided that the exercise of the
Committee’s discretion pursuant to Section 5(b) to reduce the amount of an Award shall
not be deemed an amendment of the Plan.
	 
	 	(f)	 	Participant Rights. No Participant shall have any claim to be granted
any Award under the Plan, and there is no obligation for uniformity of treatment for
Participants.
	 
	 	(g)	 	Termination of Employment.

	 	(i)	 	Unless otherwise provided by the Committee, and except as set
forth in subparagraph (ii) of this Section 7(g), a Participant must be actively
employed by the Company or one of its Affiliates at the end of the Performance
Period in order to be eligible to receive payment in respect of such Award.
	 
	 	(ii)	 	Unless otherwise provided by the Committee, if a Participant’s
employment is terminated as result of death, Disability or Retirement prior to
the end of the Performance Period, the Participant’s Award shall be cancelled
and in respect of his or her cancelled Award the Participant shall receive a
pro rata portion of the Award as determined by the Committee and such Award
shall be payable at the same time as Awards are paid to active Participants.

6

 

	 	(h)	 	Change in Control. Notwithstanding any provision in the Plan to the
contrary, upon a Change in Control, unless otherwise determined by the Committee with
respect to an Award at the time of its grant, each outstanding Award shall be cancelled
and in respect of his or her cancelled Award a Participant shall receive a pro rata
portion of the Award, calculated by assuming the achievement of the applicable
Performance Goal or Performance Goals at target levels and then multiplying this amount
by a fraction, the numerator of which is the number of days completed in the
Performance Period prior to the Change in Control and the denominator of which is the
total number of days in the Performance Period. The pro rata portion of the Award shall
be paid in cash as soon as practicable following the Change in Control. In addition, if
any Award which a Participant earned under the Plan during any Performance Period which
ended prior to the Change in Control has neither been paid to the Participant nor
credited to such Participant under a deferred compensation plan maintained or sponsored
by the Company or an Affiliate prior to the Change in Control, such Award shall be paid
to the Participant as soon as practicable and in no event later than the later of (i)
March 1st following the year in respect of which the Award was earned or
(ii) the fifteenth day following the Change in Control. After a Change in Control, the
Committee may not exercise the discretion referred to in Section 5(b) to decrease the
amount payable in respect of any Award which is outstanding immediately prior to the
occurrence of the Change in Control.
	 
	 	(i)	 	Unfunded Status of Awards. The Plan is intended to constitute an
“unfunded” plan for incentive and deferred compensation. With respect to any payments
not yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award shall give any such Participant any rights that are greater than those of a
general creditor of the Company.
	 
	 	(j)	 	Governing Law. The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Connecticut without
giving effect to the conflict of laws principles thereof.
	 
	 	(k)	 	Effective Date. The Plan shall take effect upon its adoption by the
Board; provided, however, that the Plan shall be subject to the requisite approval of
the shareholders of the Company in order to comply with Section 162(m) of the Code. In
the absence of such approval, the Plan (and any Awards made pursuant to the Plan prior
to the date of such approval) shall be null and void.
	 
	 	(l)	 	Beneficiary. A Participant may file with the Committee a written
designation of a beneficiary on such form as may be prescribed by the Committee and
may, from time to time, amend or revoke such designation. If no designated beneficiary
survives the Participant and an Award is payable to the Participant’s beneficiary
pursuant to Section 7(b), the Participant’s estate shall be deemed to be the grantee’s
beneficiary.

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	 	(m)	 	Interpretation. The Plan is designed and intended to comply, to the
extent applicable, with Section 162(m) of the Code, and all provisions hereof shall be
construed in a manner to so comply.

8

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