STANLEY WORKS (Form: 10-K, Received: 02/26/2009 06:01:59)

The Stanley Works

10-K FILING
FISCAL 2008

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 3, 2009

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

COMMISSION FILE 1-5224

THE STANLEY WORKS

(Exact Name Of Registrant As Specified In Its Charter)


Connecticut		06-0548860

(State Or Other Jurisdiction Of Incorporation Or Organization)		(I.R.S. Employer Identification Number)

1000 Stanley Drive
New Britain, Connecticut		06053

(Address Of Principal Executive Offices)		(Zip Code)

860-225-5111

(Registrant’s Telephone Number)

Securities Registered Pursuant To Section 12(b) Of The Act:


		Name Of Each Exchange
Title Of Each Class		On Which Registered

Common Stock-$2.50 Par Value per Share		New York Stock Exchange

Securities Registered Pursuant To Section 12(g) Of The Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.

Yes X No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes No X

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer X	Accelerated filer	Non-accelerated filer	Smaller reporting company

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).

Yes No X

As of June 27, 2008, the aggregate market values of voting common equity held by non-affiliates of the registrant was $3,524,499,508 based on the New York Stock Exchange closing price for such shares on that date. On February 18, 2009, the registrant had 78,883,885 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the registrant’s fiscal year are incorporated by reference in Part III of the Annual Report on Form 10-K.

TABLE OF CONTENTS


PART I
	ITEM 1. BUSINESS
	ITEM 1A. RISK FACTORS
	ITEM 1B. UNRESOLVED STAFF COMMENTS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
EX-10.V.A: AMENDMENT NO. 1 TO THE AMENDED AND RESTATED CREDIT AGREEMENT
EX-10.VIII: SUPPLEMENTAL RETIREMENT AND ACCOUNT VALUE PLAN
EX-10.IX: SUPPLEMENTAL EXECUTIVE RETIREMENT PROGRAM
EX-10.X: 1997 LONG-TERM INCENTIVE PLAN
EX-10.XI: 2001 LONG-TERM INCENTIVE PLAN
EX-10.XI.C: TERMS AND CONDITIONS
EX-10.XI.D: FORM OF AWARD LETTER
EX-10.XII: AGREEMENT AND GENERAL RELEASE
EX-10.XIV: FORM A OF AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT
EX-10.XV: FORM B OF AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT
EX-10.XVI: FORM B OF CHANGE IN CONTROL SEVERANCE AGREEMENT
EX-10.XVII: AMENDED AND RESTATED EMPLOYMENT AGREEMENT
EX-10.XVIII: AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT
EX-10.XX: 2006 MANAGEMENT INCENTIVE COMPENSATION PLAN
EX-10.XXI: SPECIAL SEVERANCE POLICY
EX-10.XXII: SPECIAL SEVERANCE PLAN
EX-12: STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
EX-21: SUBSIDIARIES OF THE REGISTRANT
EX-23: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND REPORT ON SCHEDULE
EX-24: POWER OF ATTORNEY
EX-31.I.A: CERTIFICATION
EX-31.I.B: CERTIFICATION
EX-32.I: CERTIFICATION
EX-32.II: CERTIFICATION

FORM 10-K

PART I


ITEM 1.	BUSINESS

1(a) GENERAL DEVELOPMENT OF BUSINESS

(i) General. The Stanley Works (“Stanley” or the “Company”) was founded in 1843 by Frederick T. Stanley and incorporated in 1852. Stanley is a diversified worldwide supplier of tools and engineered solutions for professional, industrial and construction and do-it-yourself use, as well as engineered security solutions for industrial and commercial applications. Stanley ^® is a brand recognized around the world for quality and value.

Net sales from continuing operations have increased from $2.2 billion in 2002 to $4.4 billion in 2008 reflecting execution of the Company’s profitable growth and diversification strategy. The growth in net sales from continuing operations predominantly relates to acquisitions, particularly in the Industrial and Security segments. The Company sold the CST/berger business in 2008, and the entry door and home décor businesses in 2004, along with several other small divestitures over the past few years. Results have been recast for these discontinued operations. Refer to Note F, Acquisitions, and Note U, Discontinued Operations, of the Notes to the Consolidated Financial Statements in Item 8 for a discussion of acquisitions and divestitures over the past three years. At January 3, 2009, Stanley employed approximately 18,225 people worldwide. The Company’s principal executive office is located at 1000 Stanley Drive, New Britain, Connecticut 06053 and its telephone number is (860) 225-5111.

(ii) Restructuring Activities. Information regarding the Company’s restructuring activities is incorporated herein by reference to the material captioned “Restructuring Activities” in Item 7 and Note P, Restructuring and Asset Impairments, of the Notes to the Consolidated Financial Statements in Item 8.

1(b) FINANCIAL INFORMATION ABOUT SEGMENTS

Financial information regarding the Company’s business segments is incorporated herein by reference to the material captioned “Business Segment Results” in Item 7 and Note Q, Business Segments and Geographic Areas, of the Notes to the Consolidated Financial Statements in Item 8.

1(c) NARRATIVE DESCRIPTION OF BUSINESS

The Company’s operations are classified into three business segments: Security, Industrial, and Construction & Do-It-Yourself. All segments have significant international operations in developed countries, but do not have large investments that would be subject to expropriation risk in developing countries. Fluctuations in foreign currency exchange rates affect the U.S. dollar translation of international operations in each segment.

Security

Industrial

The Industrial segment manufactures and markets: professional industrial and automotive mechanics tools and storage systems; engineered healthcare storage systems; hydraulic tools and accessories; plumbing, heating and air conditioning tools; assembly tools and systems; and specialty tools. These products are sold to industrial customers and distributed primarily through third party distributors as well as through direct sales forces.

Professional mechanics tools and storage systems include wrenches, sockets, electronic diagnostic tools, tool boxes and high-density industrial storage and retrieval systems. Engineered healthcare storage systems are

customized cabinetry and storage solutions used to store and track clinical supplies. Hydraulic tools and accessories include hand-held hydraulic tools and accessories used by contractors, utilities, railroads and public works as well as mounted demolition hammers and compactors designed to work on skid steer loaders, mini-excavators, backhoes and large excavators. Plumbing, heating and air conditioning tools include pipe wrenches, pliers, press fitting tools, and tubing cutters. Assembly tools and systems include electric and pneumatic assembly tools; these are high performance precision tools, controllers and systems for tightening threaded fasteners used chiefly by vehicle manufacturers. Specialty tools are used for assembling, repairing and testing electronic equipment.

Construction & DIY

The Construction & Do-It-Yourself (“CDIY”) segment manufactures and markets hand tools, consumer mechanics tools, storage systems, pneumatic tools and fasteners. These products are sold to professional end users as well as consumers, and are distributed through retailers (including home centers, mass merchants, hardware stores, and retail lumber yards). Hand tools include measuring and leveling tools, planes, hammers, demolition tools, knives and blades, screwdrivers, saws, chisels and consumer tackers. Consumer mechanics tools include wrenches and sockets. Storage systems include plastic tool boxes and storage units. Pneumatic tools and fasteners include nail guns, staplers, nails and staples that are used for construction, remodeling, furniture making, pallet manufacturing and other applications involving the attachment of wooden materials.

Competition

The Company competes on the basis of its reputation for product quality, its well-known brands, its commitment to customer service, strong customer relationships, the breadth of its product lines and its emphasis on product innovation.

The Company encounters active competition in all of its businesses from both larger and smaller companies that offer the same or similar products and services or that produce different products appropriate for the same uses. The Company has a large number of competitors; however, aside from a small number of competitors in the consumer hand tool and consumer hardware businesses who produce a range of products somewhat comparable to the Company’s, the majority of its competitors compete only with respect to one or more individual products or product lines in that segment. Certain large customers offer private label brands (“house brands”) that compete across a wider spectrum of the Company’s CDIY segment product offerings. The Company is one of the largest manufacturers of hand tools in the world. The Company is a significant manufacturer of pneumatic fastening tools and related fasteners for the construction, furniture and pallet industries as well as a leading manufacturer of hydraulic tools used for heavy construction, railroad, utilities and public works. The Company also believes that it is among the largest direct providers of access security integration and alarm monitoring services in North America.

Customers

A substantial portion of the Company’s products are sold to home centers and mass merchants in the U.S. and Europe. A consolidation of retailers both in North America and abroad has occurred over time. While this consolidation and the domestic and international expansion of these large retailers provide the Company with opportunities for growth, the increasing size and importance of individual customers creates a certain degree of exposure to potential volume loss. The loss of certain of the larger home centers or mass merchants as customers could have a material adverse effect on the Company until either such customers were replaced or the Company made the necessary adjustments to compensate for the loss of business. Despite the trend toward customer consolidation, the Company has been able to maintain a diversified customer base and has decreased customer concentration risk over the past years, as sales from continuing operations in markets outside of the home center and mass merchant distribution channels have grown at a greater rate through a combination of acquisitions and other efforts to broaden the customer base, primarily in the Security and Industrial segments. In this regard, sales to the Company’s largest customer as a percentage of total sales have decreased from 22% in 2002 to 6% in 2008.

Within the Security segment, a large portion of sales are generated in the retail sector. The Security segment also has significant sales to commercial, governmental and educational customers.

Raw Materials

The Company’s products are manufactured using both ferrous and non-ferrous metals including, but not limited to steel, aluminum, zinc, brass, copper and nickel, as well as resin. Additionally, the Company uses other commodity based materials for components and packaging including, but not limited to, plastics, wood, and other corrugated products. The raw materials required are procured globally and available from multiple sources at competitive prices. The Company does not anticipate difficulties in obtaining supplies for any raw materials or energy used in its production processes.

Backlog

Due to short order cycles and rapid inventory turnover in most of the Company’s CDIY and Industrial segment businesses, backlog is generally not considered a significant indicator of future performance. At February 2, 2009, the Company had approximately $348 million in unfilled orders. All of these orders are reasonably expected to be filled within the current fiscal year. As of February 2, 2008, unfilled orders amounted to $368 million.

Patents and Trademarks

No business segment is dependent, to any significant degree, on patents, licenses, franchises or concessions and the loss of these patents, licenses, franchises or concessions would not have a material adverse effect on any of the business segments. The Company owns numerous patents, none of which individually is material to the Company’s operations as a whole. These patents expire at various times over the next 20 years. The Company holds licenses, franchises and concessions, none of which individually or in the aggregate are material to the Company’s operations as a whole. These licenses, franchises and concessions vary in duration, but generally run from one to 40 years.

The Company has numerous trademarks that are used in its businesses worldwide. The STANLEY ^® and STANLEY in a notched rectangle design trademarks are material to all three business segments. These well-known trademarks enjoy a reputation for quality and value and are among the world’s most trusted brand names. The Company’s tagline, “Make Something Great ^tm ” is the centerpiece of the brand strategy for all segments. The BEST ^® , HSM ^® , National ^® , Sonitrol ^® , GdP ^tm , and Xmark ^® trademarks are material to the Security segment. LaBounty ^® , MAC ^® , Mac Tools ^® , Proto ^® , Vidmar ^® , Facom ^® , Virax ^® and USAG ^® trademarks are material to the Industrial segment. In the CDIY segment, the Bostitch ^® , Powerlock ^® , Tape Rule Case Design (Powerlock), and FatMax ^® family of trademarks are material. The terms of these trademarks vary, typically, from 10 to 20 years, with most trademarks being renewable indefinitely for like terms.

Environmental Regulations

The Company is subject to various environmental laws and regulations in the U.S. and foreign countries where it has operations. Future laws and regulations are expected to be increasingly stringent and will likely increase the Company’s expenditures related to environmental matters.

The Company is a party to a number of proceedings before federal and state regulatory agencies relating to environmental remediation. Additionally, the Company, along with many other companies, has been named as a potentially responsible party (“PRP”) in a number of administrative proceedings for the remediation of various waste sites, including fifteen active Superfund sites. Current laws potentially impose joint and several liabilities upon each PRP. In assessing its potential liability at these sites, the Company has considered the following: whether responsibility is being disputed, the terms of existing agreements, experience at similar sites, and the Company’s volumetric contribution at these sites.

information that becomes available. As of January 3, 2009, the Company had reserves of $29 million for remediation activities associated with Company-owned properties, as well as for Superfund sites, for losses that are probable and estimable.

The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating environmental exposures. Subject to the imprecision in estimating future environmental costs, the Company does not expect that any sum it may have to pay in connection with environmental matters in excess of the amounts recorded will have a materially adverse effect on its consolidated financial position, results of operations or liquidity.

Employees

At January 3, 2009, the Company had approximately 18,225 employees, nearly 8,900 of whom were employed in the U.S. Approximately 750 U.S. employees are covered by collective bargaining agreements negotiated with 18 different local labor unions who are, in turn, affiliated with approximately 6 different international labor unions. The majority of the Company’s hourly-paid and weekly-paid employees outside the U.S. are not covered by collective bargaining agreements. The Company’s labor agreements in the U.S. expire in 2009, 2010 and 2011. There have been no significant interruptions or curtailments of the Company’s operations in recent years due to labor disputes. The Company believes that its relationship with its employees is good.

1(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

Financial information regarding the Company’s geographic areas is incorporated herein by reference to Note Q, Business Segments and Geographic Areas, of the Notes to the Consolidated Financial Statements in Item 8.

1(e) AVAILABLE INFORMATION

The Company’s website is located at http://www.Stanleyworks.com. This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website is not, and is not intended to be, part of this Form 10-K and is not incorporated into this report by reference. Stanley makes its Forms 10-K, 10-Q, 8-K and amendments to each available free of charge on its website as soon as reasonably practicable after filing them with, or furnishing them to the U.S. Securities and Exchange Commission.


ITEM 1A.	RISK FACTORS

The Company’s business, operations and financial condition are subject to various risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including those risks set forth under the heading entitled “Cautionary Statements Under the Private Securities Litigation Reform Act of 1995”, and in other documents that the Company files with the U.S. Securities and Exchange Commission, before making any investment decision with respect to its securities. If any of the risks or uncertainties actually occur or develop, the Company’s business, financial condition, results of operations and future growth prospects could change. Under these circumstances, the trading prices of the Company’s securities could decline, and you could lose all or part of your investment in the Company’s securities.

If the current weakness continues in the housing and construction markets in the Americas, Europe or Asia, or general recessionary conditions worsen, it could have a material adverse effect on the Company’s business.

Approximately 37% of 2008 sales were in the Construction and Do-It-Yourself segment, and 29% in the Industrial segment. The Company experienced 10% sales unit volume declines in existing businesses, i.e. excluding acquisitions, in the fourth quarter of 2008, and 7% in the third quarter, primarily in these segments, as the recession spread worldwide. The Company’s business has been adversely affected by the decline in the U.S. and international economies, particularly with respect to housing and general construction markets. It is

possible this softness will be prolonged and to the extent it persists there is likely to be an unfavorable impact on sales, earnings and cash flows. It is possible the Security segment, which thus far has not experienced significant recession-related volume declines, may become more affected if the recessionary impacts permeate other market sectors, particularly construction within the retail sector. Further deterioration of these housing and construction markets, and general economic conditions, could reduce demand for Company products and therefore have a material adverse effect on sales, earnings and cash flows. In addition, due to current economic conditions, it is possible certain customers’ credit-worthiness may erode resulting in increased write-offs of customer receivables.

The Company’s growth and repositioning strategies include acquisitions. The Company’s recent acquisitions may not further its strategies and the Company may not be able to identify suitable future acquisition candidates.

In 2002, the Company embarked on a growth strategy to shift its business portfolio toward favored growth markets through acquisitions and divestitures, and thereby reduce the risk associated with large customer concentrations. The strategy has been advanced over the last several years with the sales of the Company’s CST/berger laser measuring, residential entry door and home décor businesses, and the acquisition of a number of companies, including General de Protection (“GdP”), Xmark Corporation (“Xmark”), Sonitrol Corporation (“Sonitrol”), HSM Electronic Protection Services, Inc. (“HSM”), Facom S.A. (“Facom”), National Manufacturing Co. (“National”), Besco Pneumatic Corporation (“Besco”), Blick plc (“Blick”), Frisco Bay Industries Ltd (“Frisco Bay”), ISR Solutions, Inc. (“ISR”), Security Group, Inc. (“Security Group”) and Best Lock Corporation and its affiliates (“Best Access”).

Although the Company has extensive experience with acquisitions, there can be no assurance that recently acquired companies will be successfully integrated or that anticipated synergies will be realized. If the Company successfully integrates the acquired companies and effectively implements its repositioning strategy, there can be no assurance that its resulting business segments will enjoy continued market acceptance or profitability.

In addition, there can be no assurance that the Company will be able to successfully identify suitable future acquisition candidates, negotiate appropriate terms, obtain the necessary financing, complete the transactions or successfully integrate the new companies as necessary to continue its growth and repositioning strategies.

The Company’s acquisitions may result in certain risks for its business and operations.

The Company has made a number of acquisitions in the past three years, including, but not limited to: GdP in October 2008, Sonitrol and Xmark in July 2008, InnerSpace in July 2007, HSM in January 2007, Besco in July 2006, and Facom in January 2006. The Company may make additional acquisitions in the future. Acquisitions involve a number of risks, including:


	•	the diversion of Company management’s attention and other resources,

	•	the incurrence of unexpected liabilities, and

	•	the loss of key personnel and clients or customers of acquired companies.

Any intangible assets that the Company acquires may have a negative effect on its earnings and return on capital employed. In addition, the success of the Company’s future acquisitions will depend in part on its ability to:


	•	combine operations,

	•	integrate departments, systems and procedures, and

	•	obtain cost savings and other efficiencies from the acquisitions.

Failure to effectively consummate or manage future acquisitions may adversely affect the Company’s existing businesses and harm its operational results. The Company is still in the process of integrating the businesses and operations of GdP, Xmark, Sonitrol, InnerSpace and other acquisitions with its existing businesses and

operations. The Company cannot ensure that such integrations will be successfully completed, or that all of the planned synergies will be realized.

The Company may incur significant additional indebtedness, or issue additional equity securities, in connection with future acquisitions which may restrict the manner in which it conducts business. The potential issuance of such securities may limit the Company’s ability to implement elements of its growth strategy and may have a dilutive effect on earnings.

As more fully described in Item 7 and Note I, Long-Term Debt and Financing Arrangements, of the Notes to the Consolidated Financial Statements in Item 8, the Company issued $450 million of Enhanced Trust Preferred Securities through its Trust subsidiary in 2005, the net proceeds of which were used to finance a portion of the acquisitions of Facom and National. In March 2007, the Company completed concurrent offerings of Floating Rate Equity Units and 5% Senior Notes due 2010, the net proceeds of which were used to finance a portion of the acquisition of HSM. In addition, the Company has a revolving credit agreement, expiring in February 2013, enabling borrowings up to $800 million. This agreement includes provisions that allow designated subsidiaries to borrow up to $250 million in Euros and Pounds Sterling, which may be available to, among other things, fund acquisitions.

The instruments and agreements governing certain of the Company’s current indebtedness contain requirements or restrictive covenants that include, among other things:


	•	a limitation on creating liens on certain property of the Company and its subsidiaries;

	•	maintenance of specified financial ratios. Failure to maintain such ratios could adversely affect further access to liquidity and require the Company to pay all interest coupons on certain debt securities through the issuance of common stock before making further dividend payments on its common shares outstanding;

	•	a restriction on entering into certain sale-leaseback transactions; and

	•	customary events of default. If an event of default occurs and is continuing, the Company might be required to repay all amounts outstanding under the respective instrument or agreement.

Future instruments and agreements governing indebtedness may impose other restrictive conditions or covenants. Such covenants could restrict the Company in the manner in which it conducts business and operations as well as in the pursuit of its growth and repositioning strategies.

The Company’s results of operations could be negatively impacted by inflationary or deflationary economic conditions that affect the cost of raw materials, freight, energy, labor and sourced finished goods.

The Company’s products are manufactured of both ferrous and non-ferrous metals, including but not limited to steel, aluminum, zinc, brass, nickel and copper, as well as resin. Additionally, the Company uses other commodity based materials for components and packaging including, but not limited to: plastics, wood, and other corrugated products. The Company’s cost base also reflects significant elements for freight, energy and labor. The Company also sources certain finished goods directly from vendors. As described in more detail in Item 7 hereto, the Company has been negatively impacted by inflation in recent years. If the Company is unable to mitigate any inflationary increases through various customer pricing actions and cost reduction initiatives, its profitability may be adversely affected. Conversely, in the event there is deflation, the Company may experience pressure from its customers to reduce prices; there can be no assurance that the Company would be able to reduce its cost base (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact results of operations and cash flows.

Tightening of capital and credit markets could adversely affect the Company by limiting the Company’s or its customers’ ability to borrow or otherwise obtain cash.

The Company’s growth plans are dependent on, among other things, the availability of funding to support corporate initiatives and complete appropriate acquisitions and the ability to increase sales of existing product

lines. While the Company has not encountered financing difficulties to date, the capital and credit markets have been experiencing extreme volatility and disruption in late 2008 and early 2009 which could make it more difficult for the Company to borrow or otherwise obtain the cash required for significant new corporate initiatives and acquisitions. In addition, there could be a number of follow-on effects from the credit crisis on the Company’s business, including insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of the Company’s products and/or customer insolvencies; and failure of derivative counterparties and other financial institutions negatively impacting the Company’s treasury operations.

The Company is exposed to market risk from changes in foreign currency exchange rates which could negatively impact profitability.

Exposure to foreign currency risk results because the Company, through its global operations, enters into transactions and makes investments denominated in multiple currencies. The Company’s predominant exposures are in European, Canadian, British, and Asian currencies, including the Chinese Renminbi (“RMB”). In preparing its financial statements, for foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates, and income and expenses are translated using weighted-average exchange rates. With respect to the effects on translated earnings, if the U.S. dollar strengthens relative to local currencies, the Company’s earnings could be negatively impacted. This occurred in the latter half of 2008 and is expected to persist in 2009. Although the Company utilizes risk management tools, including hedging, as it deems appropriate, to mitigate a portion of potential market fluctuations in foreign currencies, there can be no assurance that such measures will result in all market fluctuation exposure being eliminated. The Company does not make a practice of hedging its non-U.S. dollar earnings.

The Company sources many products from China and other Asian low-cost countries for resale in other regions. To the extent the RMB or other currencies appreciate with respect to the U.S. dollar, the Company may experience cost increases on such purchases. While the 7% appreciation of the RMB which occurred in both 2007 and 2008 has not generated material cost increases for products sourced from China, further significant appreciation of the RMB or other currencies in countries where the Company sources product could adversely impact profitability. The Company may not be successful at implementing customer pricing or other actions in an effort to mitigate the related cost increases and thus its profitability may be adversely impacted.

The Company’s business is subject to risks associated with sourcing and manufacturing overseas.

The Company imports large quantities of finished goods, components and raw materials. Substantially all of its import operations are subject to customs requirements and to tariffs and quotas set by governments through mutual agreements, bilateral actions or, in some cases unilateral action. In addition, the countries in which the Company’s products and materials are manufactured or imported may from time to time impose additional quotas, duties, tariffs or other restrictions on its imports (including restrictions on manufacturing operations) or adversely modify existing restrictions. Imports are also subject to unpredictable foreign currency variation which may increase the Company’s cost of goods sold. Adverse changes in these import costs and restrictions, or the Company’s suppliers’ failure to comply with customs regulations or similar laws, could harm the Company’s business.

The Company’s operations are also subject to the effects of international trade agreements and regulations such as the North American Free Trade Agreement, and the activities and regulations of the World Trade Organization. Although these trade agreements generally have positive effects on trade liberalization, sourcing flexibility and cost of goods by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country, trade agreements can also impose requirements that adversely affect the Company’s business, such as setting quotas on products that may be imported from a particular country into key markets such as the U.S. or the European Union, or make it easier for other companies to compete, by eliminating restrictions on products from countries, where the Company’s competitors source products.

The Company’s ability to import products in a timely and cost-effective manner may also be affected by conditions at ports or issues that otherwise affect transportation and warehousing providers, such as port and

shipping capacity, labor disputes, severe weather or increased homeland security requirements in the U.S. and other countries. These issues could delay importation of products or require the Company to locate alternative ports or warehousing providers to avoid disruption to customers. These alternatives may not be available on short notice or could result in higher transit costs, which could have an adverse impact on the Company’s business and financial condition.

Large customer concentrations and related customer inventory adjustments may negatively impact sales, results of operations and cash flows.

The Company has certain significant customers, particularly home centers and major retailers, although no one customer represents more than 10% of consolidated net sales. The loss or material reduction of business from, or the lack of success of sales initiatives for the Company’s products related to, any such significant customer could have a material adverse impact on the Company’s results of operations and cash flows.

In addition, unanticipated inventory adjustments by these customers can have a negative impact on sales. For example, severe inventory adjustments (pertaining to reducing the number of weeks supply on hand) taken by certain large North American home center customers in December 2005 negatively impacted sales by approximately $30 million versus normal levels. Significant impacts from customer inventory adjustments may re-occur in the future.

Customer consolidation could have a material adverse effect on the Company’s business.

A substantial portion of the Company’s products in the CDIY and Industrial segments are sold through home centers and mass merchant distribution channels. A consolidation of retailers in both North America and abroad has occurred over time and the increasing size and importance of individual customers creates risk of exposure to potential volume loss. The loss of certain larger home centers as customers would have a material adverse effect on the Company’s business until either such customers were replaced or the Company made the necessary adjustments to compensate for the loss of business.

If the Company were required to write down all or part of its goodwill, indefinite-lived trade names, or other definite-lived intangible assets, its net income and net worth could be materially adversely affected.

As a result of acquisitions, the Company has $1.747 billion of goodwill, $300 million of indefinite-lived trade names, and $557 million of definite-lived intangible assets recorded on its Consolidated Balance Sheet at January 3, 2009. The Company is required to periodically, at least annually, determine if its goodwill or indefinite-lived trade names have become impaired, in which case it would write down the impaired portion of the intangible asset. The definite-lived intangible assets, including customer relationships, are amortized over their estimated useful lives; such assets are also evaluated for impairment when appropriate. Impairment of intangible assets may be triggered by developments outside of the Company’s control, such as worsening economic conditions, technological change, intensified competition or other matters causing a decline in expected future cash flows.

Income tax payments may ultimately differ from amounts currently recorded by the Company. Future tax law changes may materially increase the Company’s prospective income tax expense.

The Company is subject to income taxation in the U.S. as well as numerous foreign jurisdictions. Judgment is required in determining the Company’s worldwide income tax provision and accordingly there are many transactions and computations for which the final income tax determination is uncertain. The Company is routinely audited by income tax authorities in many tax jurisdictions. Although management believes the recorded tax estimates are reasonable, the ultimate outcome from any audit (or related litigation) could be materially different from amounts reflected in the Company’s income tax provisions and accruals. Future settlements of income tax audits may have a material effect on earnings between the period of initial recognition of tax estimates in the financial statements and the point of ultimate tax audit settlement. Additionally, it is possible that future income tax legislation may be enacted that could have a material impact on the Company’s worldwide income tax provision beginning with the period that such legislation becomes

effective. Also, while a reduction in statutory rates would result in a favorable impact on future net earnings, it would require an initial write down of any deferred tax assets in the related jurisdiction.

The Company’s failure to continue to successfully avoid, manage, defend, litigate and accrue for claims and litigation could negatively impact its results of operations or cash flows.

As described in further detail in Items 1 and 3 and Note T, Contingencies, of the Notes to the Consolidated Financial Statements in Item 8, the Company is exposed to and becomes involved in various litigation matters arising out of the ordinary routine conduct of its business, including, from time to time, actual or threatened litigation relating to such items as commercial transactions, product liability, workers compensation, the Company’s distributors and franchisees, intellectual property claims, regulatory actions and environmental matters. There can be no assurance that the Company will be able to continue to successfully avoid, manage and defend such matters. In addition, given the inherent uncertainties in evaluating certain exposures, actual costs to be incurred in future periods may vary from the Company’s estimates for such contingent liabilities.

The Company’s brands are important assets of its businesses and violation of its trademark rights by imitators, or the failure of its licensees or vendors to comply with the Company’s product quality, manufacturing requirements, marketing standards, and other requirements could negatively impact revenues and brand reputation.

The Company’s trademarks enjoy a reputation for quality and value and are important to its success and competitive position. Unauthorized use of the Company’s trademark rights may not only erode sales of the Company’s products, but may also cause significant damage to its brand name and reputation, interfere with its ability to effectively represent the Company to its customers, contractors, suppliers, and/or licensees, and increase litigation costs. Similarly, failure by licensees or vendors to adhere to the Company’s standards of quality and other contractual requirements could result in loss of revenue, increased litigation, and/or damage to the Company’s reputation and business. There can be no assurance that the Company’s on-going effort to protect its brand and trademark rights and ensure compliance with its licensing and vendor agreements will prevent all violations.

Successful sales and marketing efforts depend on the Company’s ability to recruit and retain qualified employees.

The success of the Company’s efforts to grow its business depends on the contributions and abilities of key executives, its sales force and other personnel, including the ability of its sales force to adapt to any changes made in the sales organization and achieve adequate customer coverage. The Company must therefore continue to recruit, retain and motivate management, sales and other personnel sufficiently to maintain its current business and support its projected growth. A shortage of these key employees might jeopardize the Company’s ability to implement its growth strategy.

The Company faces active competition and if it does not compete effectively, its business may suffer.

The Company faces active competition and resulting pricing pressures. The Company’s products compete on the basis of, among other things, its reputation for product quality, its well-known brands, price, innovation and customer service capabilities. The Company competes with both larger and smaller companies that offer the same or similar products and services or that produce different products appropriate for the same uses. These companies are often located in countries such as China, Taiwan and India where labor and other production costs are substantially lower than in the U.S., Canada and Western Europe. Also, certain large customers offer house brands that compete with some of the Company’s product offerings as a lower-cost alternative. To remain profitable and defend market share, the Company must maintain a competitive cost structure, develop new products and services, respond to competitor innovations and enhance its existing products in a timely manner. The Company may not be able to compete effectively on all of these fronts and with all of its competitors, and the failure to do so could have a material adverse effect on its sales and profit margins.

The Stanley Fulfillment System (“SFS”) is a continuous operational improvement process applied to many aspects of the Company’s business such as procurement, quality in manufacturing, maximizing customer fill rates, integrating acquisitions and other key business processes. In the event the Company is not successful in effectively applying the SFS disciplines to its key business processes its ability to compete and future earnings could be adversely affected.

In addition, the Company may have to reduce prices on its products and services, or make other concessions, to stay competitive and retain market share. The Company engages in restructuring actions, sometimes entailing shifts of production to low-cost countries, as part of its efforts to maintain a competitive cost structure. If the Company does not execute restructuring actions well, its ability to meet customer demand may decline, or earnings may otherwise be adversely impacted; similarly if such efforts to reform the cost structure are delayed relative to competitors or other market factors the Company may lose market share and profits.

The performance of the Company may suffer from business disruptions associated with information technology, system implementations, or catastrophic losses affecting distribution centers and other facilities.

The Company relies heavily on computer systems to manage and operate its businesses, and record and process transactions. Computer systems are important to production planning, customer service and order fulfillment among other business-critical processes. Consistent and efficient operation of the computer hardware and software systems is imperative to the successful sales and earnings performance of the various businesses in many countries.

Despite efforts to prevent such situations, the Company’s systems may be affected by damage or interruption from, among other causes, power outages, computer viruses, or security breaches. Computer hardware and storage equipment that is integral to efficient operations, such as e-mail, telephone and other functionality, is concentrated in certain physical locations in the various continents in which the Company operates. Management believes it has effective disaster recovery plans and that it is unlikely there would be more than a short-lived disruption to its computer and communication systems due to these physical concentrations of equipment, or from potential occurrences of damage and interruption. However, it is reasonably possible that results could be adversely impacted if equipment outages were prolonged due to an unusually serious event. In addition, the Company is planning system conversions to SAP to provide a common platform across most of its businesses. The implementations from legacy systems to SAP will occur in carefully managed stages over a period of several years in the Americas, and ultimately thereafter in Europe and Asia. Management believes the planned system conversions are cost-beneficial and will further enhance productivity in its operations. There can be no assurances that expected expense synergies will be achieved or that there will not be delays to the expected timing. It is possible the costs to complete the system conversions may exceed current expectations, and that significant costs may be incurred that will require immediate expense recognition as opposed to capitalization. The risk of disruption to key operations is increased when complex system changes such as the SAP conversions are undertaken. If systems fail to function effectively, or become damaged, operational delays may ensue and the Company may be forced to make significant expenditures to remedy such issues. Any significant disruption in the Company’s computer operations could have a material adverse impact on its business and results of operations.

The Company’s operations are significantly dependent on infrastructure, notably certain distribution centers and security alarm monitoring facilities which are concentrated in various geographic locations. If any of these were to experience a catastrophic loss, such as a fire or flood, it could disrupt operations, delay production, shipments and revenue and result in large expenses to repair or replace the facility. The Company maintains business interruption insurance, but it may not fully protect the company against all adverse effects that could result from significant disruptions.

If the investments in employee benefit plans do not perform as expected, the Company may have to contribute additional amounts to these plans, which would otherwise be available to cover operating and other expenses. Certain U.S. employee benefit plan expense is affected by the market value of the Company’s common stock.

As described in further detail in Note M, Employee Benefit Plans, of the Notes to the Consolidated Financial Statements in Item 8, the Company sponsors pension and other post-retirement defined benefit plans, as well as an Employee Stock Ownership Plan (“ESOP”) under which the primary U.S. defined contribution and 401(k) plans are funded. The Company’s defined benefit plan assets are currently invested in equity securities, bonds and other fixed income securities, and money market instruments. The Company’s funding policy is to contribute amounts determined annually on an actuarial basis to provide for current and future benefits in accordance with applicable law which require, among other things, that the Company make cash contributions to under-funded pension plans. The Company expects to contribute approximately $20 million to its pension and other post-retirement defined benefit plans in 2009.

There can be no assurance that the value of the defined benefit plan assets, or the investment returns on those plan assets, will be sufficient in the future. It is therefore possible that the Company may be required to make higher cash contributions to the plans in future years which would reduce the cash available for other business purposes, and that the Company will have to recognize a significant pension liability adjustment which would decrease the net assets of the Company and result in higher expense in future years. During 2008 there was a $71 million loss on pension plan assets. The fair value of these assets at January 3, 2009 was $265 million.

Overall ESOP expense is affected by the market value of Stanley stock on the monthly dates when shares are released, among other factors. Net ESOP expense amounted to $11 million in 2008 and $2 million in both 2007 and 2006. The increase in expense was mostly attributable to the average market value of shares released which decreased from $49.28 in 2006 to $43.65 in 2008. However, the Company has discontinued the 401(k) and other defined contribution benefits in the ESOP for 2009 as part of its cost reduction initiatives and thus there will be a reduction in fiscal 2009 expense. In the event these defined contribution benefits are offered again, ESOP expense could increase in the future if the market value of the Company’s common stock declines.

The Company is exposed to credit risk on its accounts receivable.

The Company’s outstanding trade receivables are not generally covered by collateral or credit insurance. While the Company has procedures to monitor and limit exposure to credit risk on its trade and non-trade receivables, there can be no assurance such procedures will effectively limit its credit risk and avoid losses, which could have an adverse affect on the Company’s financial condition and operating results.


ITEM 1B.	UNRESOLVED STAFF COMMENTS

None.


ITEM 2.	PROPERTIES

As of January 3, 2009, the Company and its subsidiaries owned or leased material facilities (facilities over 50,000 square feet) for manufacturing, distribution and sales offices in 17 states and 15 foreign countries. The Company believes that its material facilities are suitable and adequate for its business.

Certain properties are utilized by more than one segment and in such cases the property is reported in the segment with highest usage.

Material facilities owned by the Company and its subsidiaries follow:

Security

Farmington, Connecticut; Sterling and Rock Falls, Illinois; Indianapolis, Indiana; Nicholasville, Kentucky; Richmond, Virginia; Cobourg, Canada; Nueva Leon, Mexico; and Xiaolan, Peoples Republic of China.

Industrial

Phoenix, Arizona; Dallas, Texas; Two Harbors, Minnesota; Columbus, Georgetown, and Sabina, Ohio; Allentown, Pennsylvania; Pecky, Czech Republic; Epernay, Ezy Sur Eure, Feuquieres en Vimeu, Morangis and Villeneuve Le Roi, France; and Fano, Gemonio and Monvalle, Italy.

CDIY

Clinton and New Britain, Connecticut; Shelbyville, Indiana; East Greenwich, Rhode Island; Cheraw, South Carolina; Pittsfield, Vermont; Smiths Falls, Canada; Hellaby and Northampton, England; Arbois, Besancon Cedex, and Lassiey, France; Puebla, Mexico; Jiashan City, Langfang, and Xiaolan, Peoples Republic of China; Wroclaw, Poland; Taichung Hsien, Taiwan and Amphur Bangpakong, Thailand.

Material facilities leased by the Company and its subsidiaries follow:

Corporate Offices

New Britain, Connecticut.

Security

Noblesville, Indiana.

Industrial

Kentwood, Michigan; Highland Heights and Westerville, Ohio; Milwaukie, Oregon; Morangis, France.

CDIY

Miramar, Florida; Fishers, Indiana; Kannapolis, North Carolina; Epping, Australia; Mechelen, Belgium; Oakville, Canada; Karmiel and Migdal, Israel; Biassono and Figino Serenza, Italy and Pietermaritzburg, South Africa.

The aforementioned material facilities not being used by the Company are:

Security

Richmond, Virginia (owned).

Industrial

Ezy Sur Eure and Villeneuve Le Roi, France (owned).

CDIY

Smiths Falls, Canada (owned) and one of the two properties located in Amphur Bangpakong, Thailand (owned).


ITEM 3.	LEGAL PROCEEDINGS

In the normal course of business, the Company is involved in various lawsuits and claims, including product liability, environmental and distributor claims, and administrative proceedings. The Company does not expect that the resolution of these matters will have a materially adverse effect on the Company’s consolidated financial position, results of operations or liquidity.


ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of 2008 to a vote of security holders.

PART II


ITEM 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is listed and traded on the New York Stock Exchange, Inc. (“NYSE”) under the abbreviated ticker symbol “SWK”, and is a component of the Standard & Poor’s (“S&P”) 500 Composite Stock Price Index. The Company’s high and low quarterly stock prices on the NYSE for the years ended January 3, 2009 and December 29, 2007 follow:

2008

2007

Dividend

Per

Common

High

Low

Share

High

Low

Share

QUARTER:

First

$52.18

$43.69

$0.31

$58.99

$49.95

$0.30

Second

$51.08

$44.50

$0.31

$63.68

$54.63

$0.30

Third

$49.58

$40.56

$0.32

$64.25

$52.41

$0.31

Fourth

$43.93

$24.19

$0.32

$58.99

$47.01

$0.31

Total

$1.26

$1.22

As of February 17, 2009 there were 12,622 holders of record of the Company’s common stock.

Information required by Item 201(d) of Regulation S-K concerning securities authorized for issuance under equity compensation plans can be found under Item 12 of this Annual Report on Form 10-K.

The following table provides information about the Company’s purchases of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act for the three months ended January 3, 2009:

Total

Number

Of Shares

Maximum

Purchased As

Number

(a)

Part Of A

Of Shares That

Total

Average

Publicly

May

Number

Price

Announced

Yet Be Purchased

Of Shares

Paid

Plan

Under The

2008

Purchased

Per Share

or Program

Program

September 28 – November 1

506

$32.80

—

November 2 – November 29

—

November 30 – January 3

28,117

$32.71

—

28,623

$32.71

—

During the first quarter of 2008, the Company repurchased $100.1 million (2.2 million shares) of its common stock associated with the prior authorization of the repurchase of 10.0 million shares on December 12, 2007. As of January 3, 2009, 7.8 million shares of common stock remain authorized for repurchase. The Company may continue to repurchase shares in the open market or through privately negotiated transactions from time to time pursuant to this prior authorization to the extent management deems warranted based on a number of factors, including the level of acquisition activity, the market price of the Company’s common stock and the current financial condition of the Company.


(a)		The shares of common stock in this column were deemed surrendered to the Company by participants in various of the Company’s benefit plans to satisfy the participants’ taxes related to the vesting or delivery of time vesting restricted share units under those plans.


ITEM 6.	SELECTED FINANCIAL DATA

The Company made significant acquisitions during the five-year period presented below that affect comparability of results. Refer to Note F, Acquisitions, of the Notes to Consolidated Financial Statements in Item 8 for further information. Additionally, as detailed in Note U, Discontinued Operations, and prior year 10-K filings, results in all years have been recast to remove the effects of certain discontinued operations for comparability (in millions, except per share amounts):


	2008		2007		2006		2005		2004

Continuing Operations:
Net sales		$4,426		$4,360		$3,897		$3,183		$2,930
Net earnings		$225		$325		$279		$262		$229
Basic earnings per share:
Continuing operations		$2.86		$3.95		$3.40		$3.15		$2.79
Discontinued operations		$1.11		$0.14		$0.13		$0.09		$1.68

Total basic earnings per share		$3.97		$4.09		$3.54		$3.23		$4.47
Diluted earnings per share:
Continuing operations		$2.82		$3.87		$3.33		$3.07		$2.72
Discontinued operations		$1.10		$0.13		$0.13		$0.08		$1.64

Total diluted earnings per share		$3.92		$4.00		$3.46		$3.16		$4.36
Percent of net sales:
Cost of sales		62.2%		62.1%		63.7%		64.1%		63.3%
Selling, general and administrative*		25.0%		23.8%		23.9%		22.5%		23.2%
Interest, net		1.6%		1.8%		1.7%		1.1%		1.2%
Other, net		2.4%		2.0%		1.4%		1.4%		1.5%
Earnings before income taxes		6.8%		10.0%		8.9%		10.8%		10.6%
Net earnings		5.1%		7.5%		7.2%		8.2%		7.8%
Balance sheet data:
Total assets**		$4,879		$4,763		$3,935		$3,545		$2,851
Long-term debt		$1,419		$1,212		$679		$895		$482
Shareowners’ equity***		$1,688		$1,729		$1,552		$1,445		$1,237
Ratios:
Current ratio		1.3		1.4		1.4		2.2		1.7
Total debt to total capital		49.4%		46.5%		39.2%		42.4%		32.1%
Income tax rate — continuing operations		25.2%		25.1%		19.8%		23.4%		26.5%
Return on average equity — continuing operations		13.2%		19.8%		18.6%		19.6%		21.6%
Common stock data:
Dividends per share		$1.26		$1.22		$1.18		$1.14		$1.08
Equity per share at year-end		$21.40		$21.50		$18.96		$17.24		$15.01
Market price per share — high		$52.18		$64.25		$54.59		$51.75		$49.33
Market price per share — low		$24.19		$47.01		$41.60		$41.51		$36.42
Average shares outstanding (in 000’s):
Basic		78,897		82,313		81,866		83,347		82,058
Diluted		79,874		84,046		83,704		85,406		84,244
Other information:
Average number of employees		17,862		17,344		16,699		13,605		12,817
Shareowners of record at end of year		12,593		12,482		12,755		13,137		13,238


*		SG&A is inclusive of the Provision for Doubtful Accounts

**		Item includes discontinued operations in all years.

***		Shareowners’ equity was reduced by $14 million in fiscal 2007 for the adoption of FIN 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of SFAS No. 109”. Shareowners’ equity as of December 30, 2006 decreased $61 million from the adoption of SFAS 158, “Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans-an amendment of FASB Statements NO. 87, 88, 106 an 132(R)”.


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of its consolidated financial position, results of operations and cash flows. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes.

The following discussion and certain other sections of this Annual Report on Form 10-K contain statements reflecting the Company’s views about its future performance that constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which the Company operates and management’s beliefs and assumptions. Any statements contained herein (including without limitation statements to the effect that The Stanley Works or its management “believes”, “expects”, “anticipates”, “plans” and similar expressions) that are not statements of historical fact should be considered forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth, or incorporated by reference, below under the heading “Cautionary Statements”. The Company does not intend to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

BUSINESS OVERVIEW

The Company is a diversified worldwide supplier of tools and engineered solutions for professional, industrial, construction, and do-it-yourself (“DIY”) use, as well as engineered and security solutions for industrial and commercial applications. Its operations are classified into three business segments: Security, Industrial and Construction & DIY (“CDIY”). The Security segment is a provider of access and security solutions primarily for retailers, educational, financial and healthcare institutions, as well as commercial, governmental and industrial customers. The Company provides an extensive suite of mechanical and electronic security products and systems, and a variety of security services. These include security integration systems, software, related installation, maintenance, monitoring services, automatic doors, door closers, exit devices, hardware and locking mechanisms. Security products are sold primarily on a direct sales basis and in certain instances, through third party distributors. The Industrial segment manufactures and markets: professional industrial and automotive mechanics tools and storage systems; engineered healthcare storage systems; assembly tools and systems; plumbing, heating and air conditioning tools; hydraulic tools and accessories; and specialty tools. These products are sold to industrial customers and distributed primarily through third party distributors as well as direct sales forces. The CDIY segment manufactures and markets hand tools, consumer mechanics tools storage systems, pneumatic tools and fastener products which are principally utilized in construction and do-it-yourself projects. These products are sold primarily to professional end users as well as consumers, and are distributed through retailers (including home centers, mass merchants, hardware stores, and retail lumber yards).

For several years, the Company has pursued a diversification strategy to enable profitable growth. The strategy involves industry, geographic and customer diversification, as exemplified by the expansion of security solution product offerings, the growing proportion of sales outside the U.S., and the deliberate reduction of the Company’s dependence on sales to U.S. home centers and mass merchants. Sales outside the U.S. represented 43% of the total in 2008, up from 29% in 2002. Sales to U.S. home centers and mass merchants have declined from a high point of approximately 40% in 2002 to approximately 13% in 2008. Execution of this strategy has entailed approximately $2.8 billion of acquisitions since the beginning of 2002, several divestitures, and increased brand investments. Additionally, the strategy reflects management’s vision to build a growth platform in security while expanding the valuable branded tools and storage platform. Over the past several years, the Company has generated strong free cash flow and received substantial proceeds from divestitures that enabled a transformation of the business portfolio.

Free cash flow, as defined in the following table, was $422 million in 2008, $457 million in 2007, and $359 million in 2006, considerably exceeding net earnings. Management considers free cash flow an important indicator of its liquidity, as well as its ability to fund future growth and provide a dividend to shareowners. In 2008, free cash flow also excludes the income taxes paid on the CST/berger divestiture due to the fact the taxes are non-recurring and the directly related gross cash proceeds are classified in investing cash flows. Free cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company’s common stock and business acquisitions, among other items.


(Millions of Dollars)	2008			2007			2006

Net cash provided by operating activities		$517			$544			$439
Less: capital expenditures		(95	)		(66	)		(60	)
Less: capitalized software		(46	)		(21	)		(20	)
Add: taxes paid on CST/berger divestiture included in operating cash flow		46			-			-

Free cash flow		$422			$457			$359

The Company strives to reinvest its free cash flow in high return businesses in order to generate strong return on assets and improve working capital efficiency.

Significant areas of tactical emphasis related to execution of the Company’s diversification strategy, as well as events impacting the Company’s financial performance in 2008 and 2007, are discussed below.

CONTINUED GROWTH OF SECURITY BUSINESS

During 2008, the Company further advanced its strategy of becoming a global market leader in the commercial security industry. Annual revenues of the Security segment have grown to $1.497 billion, or 34% of 2008 sales, up from $216 million, or 10% of 2001 sales. Key events pertaining to the growth of this segment in the past year include the following:


•	On July 18, 2008, the Company completed the acquisitions of Sonitrol Corporation (“Sonitrol”), for $282 million in cash, and Xmark Corporation (“Xmark”), for $47 million in cash. Sonitrol, with annual revenue totaling approximately $110 million, provides security monitoring services, access control and fire detection systems to commercial customers in North America. Sonitrol will complement the product offering of the pre-existing security integration and monitoring businesses, including HSM acquired in early 2007. Xmark, headquartered in Canada, markets and sells radio frequency identification (“RFID”)-based systems used to identify, locate and protect people and assets. Xmark, with annual revenues exceeding $30 million, will enhance the Company’s personal security business.

•	On October 1, 2008, the Company completed the acquisition of Générale de Protection (“GdP”) for $169 million in cash. GdP, headquartered in Vitrolles, France, is a leading provider of audio and video security monitoring services, primarily for small and mid-sized businesses located in France and Belgium. GdP, with 2007 revenues totaling approximately $87 million represents Stanley’s first significant expansion of its electronic security platform in continental Europe.

Several other smaller acquisitions were completed for a total purchase price of $49 million including access technologies distributors, a mechanical lock business, and security monitoring businesses. The acquisitions complement the existing Security segment product offerings, increase its scale and strengthen the value proposition offered to customers as industry dynamics favor multi-solution providers that offer “one-stop shopping”. The Company continues to focus on integrating the acquired businesses as it expands the suite of security product and service offerings. The Sonitrol integration into HSM is well underway with the business sharing the same information technology platform while duplicative field offices are being eliminated. The reverse integration of the Company’s pre-existing systems integration business into HSM progressed further in 2008 contributing to a 80 basis point expansion in the segment profit rate to 17.9%.

Drive Further Profitable Growth in Branded Tools and Storage

While diversifying the business portfolio through expansion into Security is important, management recognizes that the branded construction & do-it-yourself products and industrial businesses are the foundations on which the Company was established and provide strong growth and cash flow generation prospects. Management is committed to growing these businesses through innovative product development, brand support, an increased weighting in emerging markets, and relentless focus on global cost competitiveness to foster vitality over the long term. Acquisition-related growth will also be pursued where appropriate. Two events in branded tools and storage are noteworthy:


	•	In October 2008, the Company acquired Scan Modul, headquartered in Hillerod, Denmark, for $20 million cash. Scan Modul provides engineered healthcare storage equipment and services throughout Europe. The acquisition expands the Company’s healthcare storage technology offering provided by its existing Innerspace business acquired in July 2007.

	•	In July 2008, the Company completed the sale of the CST/berger laser leveling and measuring business for $197 million in cash, net of transaction costs. The transaction generated a net book gain of $84 million, and $150 million in net after-tax cash proceeds. CST/berger had 2007 revenues of $80 million. As a result, CST/berger, along with three unrelated small businesses, is reported in discontinued operations and prior periods have been recast for comparability.

Continue to Invest in the Stanley Brand

Stanley has an excellent portfolio of brands including Stanley ^® , Facom ^® , Mac ^® , Proto ^® , Vidmar ^® , Bostitch ^® and Fatmax ^® . The Stanley ^® brand is recognized as one of the world’s great brands and is one of the Company’s most valuable assets. Brand support was increased over the past several years, including television advertising campaigns associated with new product roll-outs, continued NASCAR racing sponsorships as well as print and outdoor advertising that generate approximately one billion brand impressions annually. These advertising and marketing campaigns yielded strong results as evidenced by a 40% increase in Stanley hand tool brand awareness since 2003.

Institutionalize the Stanley Fulfillment System

The Company continued to practice the operating disciplines encompassed by the Stanley Fulfillment System (“SFS”), which is a transformation of processes, systems, and structure that enables improvements in operations and creates customer value. The Company employs lean, value stream mapping, and other continuous improvement techniques to streamline operations and drive improvements throughout the supply chain. The foundation of SFS centers on lean, common platforms, sales and operations planning (“S&OP”), and complexity reduction. Benefits of SFS include reductions in lead times, costs and working capital, service level improvement, and focus on employee safety. The Company applies SFS to many aspects of its business including maximizing customer fill rates through S&OP, and acquisition integration. SFS entails lean manufacturing disciplines and maximizing common platforms to drive operational excellence and asset efficiency. The SFS program helped to mitigate the substantial impact of material and energy price inflation that was experienced in recent years. It was instrumental in the reduction of working capital during 2008 and the 11% improvement in working capital turns to 5.9 in 2008. In 2009 and beyond, the Company plans to further leverage SFS to achieve higher working capital turns, decreased cycle times, reduced complexity in operations and increased customer service levels. The Company is also migrating toward common systems platforms to reduce costs and provide scalability to support its long-term acquisition growth strategy.

Aside from the strategic commentary above, other matters having a significant impact on the Company’s results were inflation, currency exchange rate fluctuations and share repurchases. Additionally, the U.S. recessionary environment and slowing global demand in the second half of 2008 necessitated significant cost reduction actions which will reduce the Company’s cost structure in 2009.

The Company has been negatively impacted by inflation, primarily commodity and freight, which has increased costs by an estimated $252 million over the past three years. During this period, more than two-thirds of the cost increase was recovered through customer pricing actions, and the remainder was mostly offset through various cost reduction initiatives. Inflationary trends have largely abated and are expected to be considerably less of a headwind in 2009. Inflation is estimated at $30 million for the first half of 2009. Due to the lagging nature of customer price increases, the Company expects a favorable carryover effect from previous customer pricing actions of approximately $30 - 50 million in 2009.

In recent years, the strengthening of foreign currencies had a favorable impact on the translation of foreign currency-denominated operating results into U.S. dollars. The favorable impact of foreign currency translation, including acquired companies, contributed an estimated $.09, $.18 and $.04 of diluted earnings per share from continuing operations in 2008, 2007 and 2006, respectively. Fluctuations in foreign currency exchange rates relative to the U.S. dollar may have a significant impact, either positive or negative, on future earnings. Although the overall translation impact in 2008 was positive, the U.S. dollar strengthened in the second half of 2008 causing unfavorable effects that are expected to persist in 2009. Refer to the Market Risk section of this MD&A for further discussion.

During 2008 and 2007, the Company executed share repurchases of 2.2 million and 3.6 million outstanding shares of its common stock, respectively, for $100 million in 2008 and $200 million in 2007. The share repurchase benefit was partially offset by the issuance of 3.1 million shares of common stock under various employee plans over the two year period, and also by higher interest expense associated with short-term borrowings made to finance the share repurchases.

In response to the continued decline in the U.S. housing market combined with deteriorating global demand in the second half of 2008, the Company took actions to reduce its cost structure and recognized $86 million in pre-tax restructuring and asset impairment charges, or $0.80 per diluted share. The pre-tax earnings benefit from the cost actions implemented both at mid-year 2008 and in conjunction with the restructuring announced on December 11, 2008 is expected to total approximately $195 million, or $1.75 per diluted share in 2009, with an additional $.24 per share benefit in 2010. The Company likely will incur 2009 restructuring and related charges of approximately $40 - $50 million pre-tax for certain productivity initiatives and the continued rationalization of its manufacturing footprint, inclusive of approximately $10 million in carryover charges pertaining to the actions announced in December 2008.

RESULTS OF OPERATIONS

Below is a summary of the Company’s operating results at the consolidated level, followed by an overview of business segment performance. The terms “organic” and “core” are utilized to describe results aside from the impact of acquisitions during their initial 12 months of ownership. This ensures appropriate comparability to operating results of prior periods.

Net Sales: Net sales from continuing operations were $4.426 billion in 2008, as compared to $4.360 billion in 2007, a 2% increase. As a result of significant commodity inflation, the Company increased pricing on its products and services which provided a 3% sales benefit in 2008. Sales growth related to acquisitions, principally from Sonitrol, GdP and other small Security segment acquisitions, contributed nearly 4% in higher sales. Organic unit volume decreased 6%, while favorable foreign currency translation in all regions increased sales 1% versus the prior year. The organic unit volume decline reflects deteriorating economic conditions which spread from the U.S. to other regions in the second half of 2008. Sequentially, organic unit volume was down 4% for the first half of 2008, associated with the contraction in the U.S. residential construction market, and declined 7% and 10% in the third and fourth quarters, respectively. The CDIY segment unit volume was most affected by the economic downturn. In the Industrial segment, the U.S. based automotive-related businesses suffered sharp declines which were partially offset by strength in industrial storage. Aside from the hardware business, which had lower sales pertaining to the loss of a major customer in 2007, the Security segment had positive organic sales volume for the year reflecting solid demand in its diversified end markets.

Net sales from continuing operations were $4.360 billion in 2007, as compared to $3.897 billion in 2006, a 12% increase. Acquisitions contributed 7%, or $263 million, of the sales increase. Organic volume and pricing

both increased 1%, while favorable foreign currency translation in all regions increased sales 3% versus the prior year. Strong performance in the Industrial segment, particularly by the hydraulic and mechanics tools businesses, was supplemented by more modest gains in the CDIY and Security segments. CDIY achieved robust growth internationally that was partially offset by weakness in the U.S. associated with housing market declines. In the Security segment, solid gains by the automatic door and mechanical lock businesses, as well as overall pricing actions, more than compensated for lower sales in the legacy electronic security integration business as it shed unprofitable equipment installations.

Gross Profit: The Company reported gross profit from continuing operations of $1.671 billion, or 38% of net sales, in 2008, compared to $1.653 billion, or 38% of net sales, in 2007. The acquired businesses increased gross profit by $77 million and were modestly accretive to the gross margin rate. Core gross profit for 2008 was $1.594 billion, or 37% of net sales, down $59 million, or 60 basis points, from the prior year. The security segment achieved gross profit expansion associated with the higher monitoring services sales mix emanating from the reverse integration of the legacy security integration business into HSM. However this was more than offset by gross profit declines in the CDIY and Industrial segments reflecting sales volume pressures. Aggregate pricing and productivity actions in 2008 largely offset $140 million of material, energy and wage cost inflation. As previously mentioned, the Company expects such inflation will increase first half 2009 costs by $30 million, which management plans to mitigate through the carryover effect from previous customer pricing actions, while it appears likely that inflationary effects may subside in the second half of 2009.

The Company reported gross profit from continuing operations of $1.653 billion, or 38% of net sales, in 2007, compared to $1.413 billion, or 36% of net sales, in 2006. The acquired businesses increased gross profit by $136 million. Core gross profit for 2007 was $1.517 billion, or 37% of net sales, up $104 million from the prior year. The core gross margin rate expanded on strong performances from certain Industrial segment businesses, primarily Facom and mechanics tools, as well as the absence of $22 million of inventory step-up amortization from the initial turnover of acquired inventory in 2006. This was partially offset by a decline in the CDIY segment gross margin rate mainly from un-recovered cost inflation. In addition, the legacy security integration business had lower margins on certain equipment installations. Price and productivity actions in 2007 more than offset $67 million of material, energy and wage cost inflation.

SG&A Expense: Selling, general and administrative expenses, inclusive of the provision for doubtful accounts, were $1.108 billion, or 25% of net sales, in 2008 as compared with $1.038 billion, or 24% of net sales in 2007. Acquired companies contributed $46 million of the increase. The remaining $24 million increase is largely attributable to foreign exchange impact, higher bad debt expense, and strategic investments including those to foster growth in emerging markets, partially offset by benefits from the cost reduction initiatives previously mentioned.

Selling, general and administrative expenses were $1.038 billion, or 24% of net sales, in 2007 consistent with the 24% of sales represented by $932 million of expense in 2006. Acquired companies contributed $70 million of the increase, and the remaining $36 million increase is largely attributable to foreign currency translation.

Interest and Other-net: Net interest expense from continuing operations in 2008 was $73 million, compared to $80 million in 2007. The decrease is primarily due to lower applicable interest rates on commercial paper borrowings in 2008. The remainder of the decrease predominantly relates to repayment of $150 million of debt that matured in November 2007, partially offset by interest expense on $250 million of term debt issued in September 2008.

Net interest expense from continuing operations in 2007 was $80 million, compared to $65 million in 2006. The higher interest expense stems from borrowings necessary to fund the January 2007 acquisition of HSM. Refer to the Financial Condition section for additional discussion of the HSM acquisition financing.

Other-net from continuing operations totaled $104 million of expense in 2008 compared to $87 million of expense in 2007. The increase mainly relates to higher intangible asset amortization expense due to recent acquisitions, as well as currency losses, partially offset by a $9 million gain on extinguishment of debt.

Other-net from continuing operations totaled $87 million of expense in 2007 compared to $54 million of expense in 2006. The increase pertained primarily to higher intangible asset amortization expense due to recent acquisitions.

Income Taxes: The Company’s effective income tax rate from continuing operations was 25% in both 2008 and 2007, compared to 20% for 2006. The lower effective tax rate in 2006 primarily relates to benefits realized upon resolution of tax audits that did not re-occur. The effective income tax rate may vary in future periods based on the distribution of foreign earnings or changes in tax law in the jurisdictions where the Company operates, among other factors.

Discontinued Operations: The $88 million of net earnings from discontinued operations in 2008 is attributable to the $84 million net gain from the sale of the CST/berger business along with three other small businesses divested in 2008, and also reflects the operating results of these businesses through the dates of disposition. The $11 million of net earnings from discontinued operations reported in both 2007 and 2006 reflects the operating results of CST/berger and the aforementioned other minor businesses.

Business Segment Results

The Company’s reportable segments are aggregations of businesses that have similar products, services and end markets, among other factors. The Company utilizes segment profit (which is defined as net sales minus cost of sales, and SG&A aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment. Segment profit excludes the corporate overhead expense element of SG&A, interest income, interest expense, other-net (inclusive of intangible asset amortization expense), restructuring and asset impairments, and income tax expense. Corporate overhead is comprised of world headquarters facility expense, cost for the executive management team and the expense pertaining to certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as legal and corporate finance functions. Refer to Note P, Restructuring and Asset Impairments, and Note G, Goodwill and Other Intangible Assets, of the Notes to the Consolidated Financial Statements for the amount of restructuring charges and asset impairments, and intangibles amortization expense, respectively, attributable to each segment. As discussed previously, the Company’s operations are classified into three business segments: Security, Industrial, and Construction and Do-It-Yourself (“CDIY”).

Security:


(Millions of Dollars)	2008	2007	2006

Net sales from continuing operations	$1,497	$1,400	$1,127
Segment profit from continuing operations	$269	$240	$169
% of Net sales	17.9%	17.1%	15.0%

Security segment sales increased 7% in 2008 primarily driven by acquisitions, notably Sonitrol and GdP, which contributed 9%. Customer price increases amounted to 3%, while foreign currency and organic volume declined 1% and 4%, respectively. The hardware business posted significant volume declines associated with the loss of a major customer in late 2007. Aside from hardware, the security segment had an increase in organic volume reflecting solid demand from its well-diversified customer base and associated recurring monthly revenues from service contracts for security monitoring and system maintenance. The access technologies and mechanical lock businesses delivered organic sales growth pertaining to modest volume increases and disciplined recovery of inflation through customer pricing actions. The reverse integration of the U.S.-based legacy security integration business as well as the integration of the July 2008 Sonitrol acquisition into HSM provided cost synergies and fostered a 80 basis point expansion of the segment profit rate. The segment profit improvement was also attributable to strong execution of productivity projects, partially offset by the impact of the previously discussed hardware business sales volume decline.

Security segment sales increased 24% in 2007. HSM and other acquisitions contributed 21%, while price grew 3%, currency 2% and organic volume declined 2%. Organic sales gains in automatic doors and mechanical locks were achieved on the strength of national and strategic account growth, while the hardware business demonstrated resilience in recovering from the loss of a key customer. Effective pricing actions to recover

inflation in raw material costs also contributed to sales growth in the segment. Shrinkage in the legacy U.S. security integration (“USSI”) business’ sales and segment profit was a necessary by-product of a business model change entailing a shift away from low profitability equipment installation to an emphasis on higher margin, recurring service revenues. The reverse integration of USSI into HSM, with its superior bidding and project management disciplines, progressed well. The broader security segment product line enabled the Company to compete more effectively in the architectural bidding process to attain gains in commercial construction markets. The 2007 segment profit rate showed a strong expansion of 210 basis points over 2006. This improvement was attributable to HSM, the non-recurring inventory step-up amortization for the National hardware acquisition recorded in 2006, the benefits of a partial shift in hardware production to Asia, and overall pricing and productivity in excess of inflation. These positive factors were partially offset by the previously discussed decline in the legacy security integration businesses.

Industrial:


(Millions of Dollars)	2008	2007	2006

Net sales from continuing operations	$1,274	$1,246	$1,129
Segment profit from continuing operations	$164	$183	$123
% of Net sales	12.9%	14.7%	10.9%

Industrial segment net sales increased 2% in 2008 versus 2007, attributable to the Innerspace and Scan Modul healthcare storage acquisitions. Foreign currency translation provided a 3% benefit, and favorable pricing 2%, which were offset by a 5% unit volume decline. The North American automotive repair business was adversely affected by distributor attrition and the deteriorating U.S. economy. European sales volumes, which had been positive in the first half of the year, declined in the second half as Facom and other businesses reflected the contraction of the European economy. These volume declines were partially offset by strong sales growth in U.S.-based engineered storage and to a lesser extent the hydraulic tools business. The sales growth in engineered storage was driven by government spending, particularly by army and navy bases, and also strength with commercial customers. The sales volume declines created substantial headwinds from unfavorable manufacturing plant absorption causing a decrease in the segment profit. Strong focus on customer pricing and productivity initiatives more than offset the effects of inflation. Additionally, the benefits of cost reduction actions partially mitigated the unfavorable impact of sales volume declines on segment profit.

Industrial segment net sales increased 10% in 2007 from 2006, comprised of a 4% volume increase, a 4% favorable foreign currency impact, 1% favorable pricing, and 1% from the Innerspace acquisition. Hydraulic tools and mechanics tools achieved robust sales increases, along with strong performance from the Facom and engineered storage businesses. The hydraulic tools sales increase was attributable to sustained high demand for recent shear product offerings, strong international sales, and favorable steel scrap markets. Industrial mechanics tools benefited from strong demand in the U.S. oil and gas industry. The higher Facom sales pertained to new product introductions and improved European economic conditions. Intensified marketing efforts, including an expanded sales force, contributed to the U.S.-based engineered storage business growth. Segment profit as a percentage of net sales improved 380 basis points. Excluding the effect of the one-time inventory step-up charge from the initial turn of Facom acquired inventory in 2006, segment profit increased 270 basis points. Customer price increases effectively offset the impact of cost inflation, while productivity initiatives further contributed to the segment profit rate expansion. Additionally, Facom’s contribution to the higher segment profit rate reflected favorable currency translation and the benefits of acquisition integration actions.

CDIY:


(Millions of Dollars)	2008	2007	2006

Net sales from continuing operations	$1,656	$1,715	$1,641
Segment profit from continuing operations	$191	$254	$252
% of Net sales	11.5%	14.8%	15.4%

CDIY net sales from continuing operations decreased 3% in 2008 from 2007. Customer pricing increases, in response to rising commodity costs in the first three quarters of 2008, contributed 3% to sales. Foreign currency translation increased sales by 2%, while organic volume declined 8%. Volume was negatively impacted by the contraction in residential construction in both the Americas and Europe, reductions in consumer spending, as well as a decline in industrial markets served by fastening systems, reflecting increasingly weak macro-economic conditions. Fastening systems continued its planned shift toward more profitable business which resulted in additional volume pressure. The sales volume decline also partially pertained to the shut-down of the unprofitable consumer metal storage business. Europe had essentially flat unit volume in the first half of 2008 but declined significantly in the second half. Despite declines in unit volume, CDIY retained focus on inventory levels and contributed a substantial part of the Company’s total working capital improvement. Progress was made on executing customer pricing actions but these benefits were significantly outpaced by cost inflation contributing to the profit rate erosion. The profit rate was also dramatically affected by lower sales volumes, and to a lesser extent strategic investments that will help generate future emerging markets growth. Productivity projects and cost reduction actions partially mitigated these unfavorable impacts.

CDIY net sales from continuing operations increased 5% in 2007 from 2006. Foreign currency translation contributed 3% to the higher sales, pricing 1%, acquisitions 1%, and organic volume remained flat. The U.S. was adversely impacted by the housing market contraction as repair and remodel activity declined along with new construction. Sales were very strong in Canada, Europe, Australia, and Asia, in particular for the consumer tools and storage business. This positive international performance was bolstered by new product introductions including the FatMax ^® XL™ line, as well as favorable economic conditions outside the U.S. Fastening systems also experienced an overall decline in sales due to the U.S. housing down-turn, although its industrial channel and office product sales remained stable. During 2007, the Company took actions to improve the fastening systems cost structure including a Mexican plant closure, and the first wave of a pneumatic tool production shift to Asia, enabled by the 2006 Besco acquisition. As a result, fastening systems improved its margin rate slightly, despite the lower sales volume. The Company completed the migration of a second wave of fastening systems tool production to Asia during 2008, which further aided in reducing the cost structure. The segment profit rate decline of 60 basis points in 2007 was mainly attributable to un-recovered cost inflation, a product mix shift to lower margin tools along with a channel mix shift in the U.S., and unfavorable absorption on inventory reductions. These factors were partially offset by the favorable impact of foreign currency translation and the previously mentioned improvement in the fastening systems business.

RESTRUCTURING ACTIVITIES

At January 3, 2009, the restructuring reserve balance was $67.9 million. A summary of the restructuring reserve activity and related charges from December 29, 2007 to January 3, 2009 is as follows:


			Acquisition		Net
(Millions of Dollars)	12/29/07		Accrual		Additions		Usage			Currency			1/3/09

Acquisitions
Severance and related costs		$18.8		$5.3		$—		$(12.8	)		$(0.5	)		$10.8
Facility closure		1.6		1.1		—		(0.9	)		—			1.8
Other		1.0		—		—		(1.0	)		—			—

Subtotal acquisitions		21.4		6.4		—		(14.7	)		(0.5	)		12.6

2008 Actions
Severance and related costs		—		—		70.0		(15.5	)		(0.4	)		54.1
Asset impairments		—		—		13.6		(13.6	)		—			—
Facility closure		—		—		0.7		(0.7	)		—			—
Other		—		—		1.2		—			—			1.2

Subtotal 2008 actions		—		—		85.5		(29.8	)		(0.4	)		55.3

Pre-2008 Actions		2.3		—		—		(2.3	)		—			—

Total		$23.7		$6.4		$85.5		$(46.8	)		$(0.9	)		$67.9

2008 Actions: During 2008, the Company initiated cost reduction initiatives in order to maintain its cost competitiveness. A large portion of these actions were initiated in the fourth quarter as the Company responded to deteriorating business conditions resulting from the recessionary U.S. economic weakness and slowing global demand, primarily in its CDIY and Industrial segments. Severance charges of $70.0 million have been recorded relating to the reduction of approximately 2,700 employees. In addition to severance, $13.6 million in charges were recognized pertaining to asset impairments for production assets and real estate, and $0.7 million for facility closure costs. The $1.2 million in other charges stemmed from the termination of service contracts. Of the amount recorded in 2008, $29.8 million has been utilized to date, for a remaining reserve as of January 3, 2009 of $55.3 million. The Company will utilize a majority of these reserves in 2009, and estimates approximately 30% will be expended in 2010 primarily pertaining to the timing of approvals from European governmental agencies.

Pre-2008 Actions: During 2007, the Company initiated $11.8 million of cost reduction actions in various businesses. These actions were comprised of severance for 525 employees and the exit of a leased facility. The remaining reserves were fully utilized in 2008.

Acquisition Related: During 2008, $6.4 million of reserves were established related to the Company’s current year acquisitions. Of this amount $5.3 million was for severance and related costs for approximately 200 employees and $1.1 million related to the closure of nine branch facilities. As of January 3, 2009, $2.2 million has been utilized, leaving $4.2 million remaining. The Company also utilized $12.5 million of restructuring reserves during 2008 established for various prior year acquisitions, principally Facom and HSM. As of January 3, 2009, $8.4 million in accruals remain for the prior year acquisitions. Of this balance approximately $7 million pertains to Facom for which the timing of payments depends upon the actions of certain European governmental agencies.

Restructuring and asset impairment charges by segment were as follows:


(Millions of Dollars)	2008		2007		2006

Security	$	13.8	$	5.3	$	5.9
Industrial		29.7		1.5		1.6
CDIY		35.6		5.6		5.3
Non-operating		6.4		0.4		1.0

Consolidated	$	85.5	$	12.8	$	13.8

Of the $35.6 million of restructuring and asset impairment charges noted above for the CDIY segment, $13.6 million is for asset impairments related to the current and planned closure of several facilities. There were no asset impairments for the Security and Industrial segments in 2008. Fair value for impaired production assets was based on the present value of discounted cash flows. This included an estimate for future cash flows as production activities are phased out as well as auction values (prices for similar assets) for assets where use has been discontinued or future cash flows are minimal. Real estate values were based on estimates of anticipated sales values (less costs to sell) which contemplated sales of comparable properties and estimates from third party brokers.

FINANCIAL CONDITION

Liquidity, Sources and Uses of Capital: The Company’s primary sources of liquidity are cash flows generated from operations and available lines of credit under various credit facilities.

Operating and Investing Activities: The Company has consistently generated strong operating cash flows over many years. In 2008, cash flow from operations totaled $517 million, down $27 million compared to 2007. Operating cash flow reflects a $46 million reduction for the taxes paid on the gain from the CST/berger divestiture, even though the directly related gross proceeds are reported as an investing cash flow. Working capital (receivables, inventories and accounts payable) generated $123 million of cash inflows, driven by accounts receivables reflecting the disciplines of SFS and a concerted effort to reduce past due accounts, and to a lesser extent inventory reductions. Cash outflows for restructuring activities totaled $33 million in 2008, a decrease of $25 million over 2007, primarily pertaining to cost reduction actions in the fourth quarter and the continuing payments under Facom Europe initiatives.

In 2007, cash flow from operations totaled $544 million, up $105 million compared to 2006. The favorable increase principally stems from an expansion of cash earnings and improved working capital performance. In this regard, the higher non-cash intangibles amortization expense from acquisitions reduced earnings but not cash flows. Working capital generated $23 million of higher cash inflows in 2007 compared with 2006. This working capital improvement reflects leaner inventory positions achieved through process improvement efforts, while maintaining customer service levels, and was accomplished despite lower receivable sale proceeds in 2007 versus 2006. These favorable impacts were partially offset by cash outflows for restructuring activities which amounted to $58 million in 2007, an increase of $29 million over 2006, primarily pertaining to payments for the Facom Europe initiatives.

Capital expenditures were $141 million in 2008, $87 million in 2007, and $80 million in 2006. The higher capital expenditures in 2008 as compared with 2007 were primarily attributable to investment in the North American SAP information system implementation, and the purchase of a previously leased distribution facility. The increase in 2007 capital expenditures versus 2006 pertained to investments for plant productivity improvements as well as ongoing information system spending for a major SAP implementation in the Americas.

cash flow does not include deductions for mandatory debt service, other borrowing activity, discretionary dividends on the Company’s common stock and business acquisitions, among other items.


(Millions of Dollars)	2008		2007		2006

Net cash provided by operating activities		$517		$544		$439
Less: capital expenditures		(95)		(66)		(60)
Less: capitalized software		(46)		(21)		(20)
Add: taxes paid on CST/berger divestiture included in operating cash flow		46		-		-

Free cash flow		$422		$457		$359

Based on its demonstrated ability to generate cash flow from operations as well as its strong balance sheet and credit position at January 3, 2009, the Company believes over the long term it has the financial flexibility to deploy capital to its shareholders’ advantage through a combination of acquisitions, dividends, debt repayment, and potential future share repurchases. If lower sales volumes and earnings pressures pertaining to the weakened global economy persist, free cash flow may decrease in 2009, although continued efforts to improve working capital efficiency are expected to partially offset these headwinds. As a result of the recessionary environment, the Company anticipates that in 2009 it may have lower acquisition and share repurchase activity, and that free cash flow will likely be deployed for debt reduction to a greater extent than in the past few years.

In 2008, acquisition spending totaled $575 million, mainly for the GdP, Scan Modul, Sonitrol and Xmark businesses. 2007 acquisition spending amounted to $643 million, primarily pertaining to the HSM, InnerSpace and Bedcheck businesses. Pursuant to its profitable growth strategy, the Company will continue to assess its current business portfolio for disposition opportunities and evaluate acquisition opportunities in favored markets while minimizing the risk associated with large customer concentrations.

Investing cash flows include $205 million in gross proceeds from sales of businesses, after transaction costs, primarily pertaining to the divestiture of the CST/berger laser measuring tool business in July 2008. As previously mentioned, the $46 million of income taxes paid on the gain are reported as an operating cash outflow and thus the total cash inflow from the 2008 divestitures amounts to $159 million.

During 2006, the Company entered into a sale-leaseback transaction of its corporate headquarters building. Under the terms of the transaction, the Company received $23 million in cash proceeds, reported in investing cash flows, and recorded a deferred gain of $11 million which will be amortized over the 15 year operating lease term. The cash proceeds were utilized to pay down short-term borrowings.

Financing Activities: Payments on long-term debt amounted to $45 million in 2008, $228 million in 2007, and $4 million in 2006. Net repayments of short-term borrowings totaled $74 million in 2008. The Company utilized the proceeds from the $250 million of long-term debt issued in September 2008 as well as the $159 million in net proceeds from divestitures to repay short-term borrowings, which was partially offset by the cash outflows for business acquisitions and other matters. Net proceeds from short-term borrowings totaled $192 million in 2007, and the cash inflows were used to fund acquisitions and repurchases of common stock. Repayments of short-term borrowings amounted to a cash outflow of $66 million in 2006 as commercial paper was paid down utilizing a portion of the strong operating cash flows.

On February 27, 2008, the Company amended its credit facility to provide for an increase and extension of its committed credit facility to $800 million from $550 million. In May 2008, the Company’s commercial paper program was also increased to $800 million. The credit facility is diversified amongst thirteen financial institutions. The credit facility is designated as a liquidity back-stop for the Company’s commercial paper program. The amended and restated facility expires in February 2013. As of January 3, 2009, there were no outstanding loans under this facility and the Company had $206 million of commercial paper outstanding. In addition, the Company has uncommitted short-term lines of credit with numerous foreign banks aggregating $246 million, of which $234 million was available at January 3, 2009. Short-term arrangements are reviewed annually for renewal. Aggregate credit lines amount to $1.046 billion.

The Company’s debt is currently rated by Standard & Poor’s (“S&P”), Moody’s Investor Service (“Moody’s”) and Fitch Ratings (“Fitch”). As of January 3, 2009 the ratings for senior unsecured debt were A, A2, and A by S&P, Moody’s, and Fitch, respectively, each with a stable outlook on the Company. The short-term debt, or commercial paper, ratings are A-1, P-1, and F1 by S&P, Moody’s, and Fitch, respectively. On January 22, 2009, Moody’s placed the Company’s debt under review for possible downgrade. Failure to maintain the current ratings level could adversely affect the Company’s cost of funds, liquidity and access to capital markets, but would not have an adverse effect on the Company’s ability to access the previously discussed $800 million committed credit facility.

On September 29, 2008 the Company issued $250.0 million of unsecured Term Notes maturing October 1, 2013 (the “2013 Term Notes”) with fixed interest payable semi-annually, in arrears at a rate of 6.15% per annum. The 2013 Term Notes rank equally with all of the Company’s existing and future unsecured and unsubordinated debt. The Company received net proceeds of $248.0 million which includes a discount of $0.5 million to achieve a 6.15% interest rate and $1.5 million of fees associated with the transaction. The proceeds were utilized to repay short-term borrowings.

The Company increased its cash dividend per common share to $1.26 in 2008. Dividends per common share increased 3.3% in 2008, 3.4% in 2007, and 3.5% in 2006.

The Company repurchased 2.2 million shares of its common stock in 2008 for $103 million (an average cost of $46.21). In 2007 the Company repurchased 3.8 million shares of its common stock for $207 million (an average of $54.64 per share), and in 2006 it repurchased 4.0 million shares for $202 million (an average of $50.07 per share).

The Company initially funded the $546 million HSM acquisition with a combination of short-term borrowings and cash. A $500 million 364-day revolving credit bridge facility was entered into on January 8, 2007, of which $130.0 million was utilized to acquire HSM; the remainder of the HSM purchase price was funded through commercial paper borrowings and cash.

On March 20, 2007, the Company completed two security offerings: “Equity Units”, which consisted of $330 million of five-year convertible notes and $330 million of three-year forward stock purchase contracts; and $200 million of unsecured three-year fixed-rate term notes. With respect to the $860 million in offerings, the Company will not receive the cash pertaining to the forward stock purchase contracts until May, 2010. The $488 million net cash proceeds of these offerings and the related equity instruments described below were used to pay down the short-term bridge facility and commercial paper borrowings.

In November 2008, the Company repurchased $10 million of the Equity Units for $5.3 million in cash. To properly account for the transaction, the Equity Unit elements were bifurcated as essentially the Company paid $10 million to extinguish the convertible notes and received $4.7 million from the seller to settle its obligation under the forward stock purchase contracts to purchase shares of the Company’s common stock at a minimum purchase price of approximately $54.45 per share on May 17, 2010. At the repurchase date, the Company’s common stock had a closing market value of $25.38. The remaining liability for fees payable associated with the $10 million of settled forward stock purchase contracts was reversed, resulting in an increase to equity of $0.7 million. The related $10 million in convertible note hedges and stock warrants, which are described further below, were unwound with a nominal impact to equity. As a result of the various elements associated with the $10 million Equity Unit repurchase transaction there was an insignificant gain recorded in earnings and a net increase in equity of $5.4 million.

The convertible notes are pledged and held as collateral to guarantee the Equity Unit investors’ obligation to purchase shares in May 2010 under the stock purchase contracts. The convertible notes reflect a conversion price of approximately $64.80, or a 19% premium as of the date of issuance. At maturity, the Company must repay the convertible note principal in cash. Additionally, to the extent that the conversion option is “in the money” the Company, at its election, will deliver either cash or shares of common stock based on a conversion rate and the applicable market value of the Company’s common stock at that time. A maximum of approximately 5.9 million shares may be issued in May 2010 under the stock purchase contracts, essentially at the higher of approximately $54.45 or market value at that time.

The Company simultaneously entered into related convertible note hedge and stock warrant transactions with financial institutions. Share dilution pertaining to the conversion option of the convertible notes will occur in interim periods if the share price exceeds approximately $64.80. At maturity in 2012, the convertible note hedge will offset the potentially dilutive impact of the conversion option aspect of the convertible notes. Because the convertible note hedge is anti-dilutive, it will not be included in any diluted shares outstanding computation prior to its maturity. However at maturity, the aggregate effect of the convertible notes and the convertible note hedge is that there will be no net increase in the Company’s common shares. The Company also issued 4.9 million of unregistered stock warrants that are exercisable during the period August 17, 2012 through September 28, 2012, with a strike price of $87.12 (subject to standard anti-dilution protection for increases in the dividend rate, stock splits etc.). In the event the stock warrants become “in the money” during their 5 year term, due to the market value of the Company’s common stock exceeding the strike price, there will be a related increase in diluted shares outstanding utilized in the determination of diluted earnings per share.

The combined terms of the convertible note hedge, stock warrants, and convertible notes in substance re-establish the conversion option aspect of the convertible notes at 60% above the $54.45 market value of the Company’s common stock at inception, such that in effect the Company will retain the benefits of share price appreciation, if any, up to a market value equal to the stock warrant strike price. Additionally the Company will retain benefits of share price appreciation, if any, through the maturity of the stock purchase contract element of the Equity Units that will entail issuance of $320 million of common shares at the higher of approximately $54.45 or market price in May 2010. Refer to Note I, Long-Term Debt and Financing Arrangements, for further detail.

Contractual Obligations : The following summarizes the Company’s significant contractual obligations and commitments that impact its liquidity:

Payments Due by Period


(Millions of Dollars)	Total		2009		2010 – 2011		2012 – 2013		Thereafter

Long-term debt	$	1,433	$	14	$	213	$	791	$	415
Interest payments on long-term debt ^(a)		256		65		102		65		24
Operating leases		130		34		46		22		28
Derivatives ^(b)		52		2		50		—		—
Equity purchase contract fees		25		17		8		—		—
Material purchase commitments		15		13		2		—		—
Deferred compensation		21		3		3		3		12
Outsourcing and other obligations ^(c)		27		13		14		—		—
Pension funding obligations ^(d)		20		20		—		—		—

Total contractual cash obligations	$	1,979	$	181	$	438	$	881	$	479


(a)		Future interest payments on long-term debt reflect the applicable fixed interest rate or the variable rate in effect at January 3, 2009 for floating rate debt.

(b)		Future cash flows on derivative financial instruments reflect the fair value as of January 3, 2009. The ultimate cash flows on these instruments will differ, perhaps significantly, based on applicable market interest and foreign currency rates at their maturity.

(c)		To the extent the Company can reliably determine when payments will occur pertaining to unrecognized tax benefit liabilities, the related amount will be included in the table above. However, due to the high degree of uncertainty regarding the timing of potential future cash flows associated with the $43 million of such liabilities at January 3, 2009, the Company is unable to make a reliable estimate of when (if at all) amounts may be paid to the respective taxing authorities.

(d)		The Company anticipates that funding of its pension and post-retirement benefit plans in 2009 will approximate $20 million. That amount principally represents contributions either required by regulations or laws or, with respect to unfunded plans, necessary to fund current benefits. The Company has not presented estimated pension and post-retirement funding in the table above beyond 2009 as funding can vary significantly from year to year based upon changes in the fair value of the plan assets, actuarial assumptions, and curtailment/settlement actions.

Aside from debt payments, for which there is no tax benefit associated with repayment of principal, and the equity purchase contract fees, payment of the above contractual obligations will typically generate a cash tax benefit such that the net cash outflow will be lower than the gross amounts indicated.

Other Commercial Commitments

Amounts of Commitments Expiration Per Period


(Millions of Dollars)	Total		2009		2010 – 2011		2012 – 2013		Thereafter

U.S. lines of credit	$	800	$	—	$	—	$	800	$	—

Short-term borrowings, long-term debt and lines of credit are explained in detail within Note I, Long-Term Debt and Financing Arrangements, of the Notes to the Consolidated Financial Statements. Operating leases and other commercial commitments are further detailed in Note S, Commitments and Guarantees, of the Notes to the Consolidated Financial Statements.

MARKET RISK

Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments, currencies, commodities and other items traded in global markets. The Company is exposed to market risk from changes in foreign currency exchange rates, interest rates, stock prices, and commodity prices. Exposure to foreign currency risk results because the Company, through its global businesses, enters into transactions and makes investments denominated in multiple currencies. The Company’s predominant exposures are in European, Canadian, British, Australian, and Asian currencies, including the Chinese Renminbi (“RMB”) and the Taiwan Dollar. Certain cross-currency trade flows arising from sales and procurement activities as well as affiliate cross-border activity are consolidated and netted prior to obtaining risk protection through the use of various derivative financial instruments including: purchased basket options; purchased options; and currency forwards. The Company is thus able to capitalize on its global positioning by taking advantage of naturally offsetting exposures and portfolio efficiencies to reduce the cost of purchasing derivative protection. At times, the Company also enters into forward exchange contracts and purchased options to reduce the earnings and cash flow impact of non-functional currency denominated receivables and payables, predominately for affiliate transactions. Gains and losses from these hedging instruments offset the gains or losses on the underlying net exposures, assets and liabilities being hedged. Management determines the nature and extent of currency hedging activities, and in certain cases, may elect to allow certain currency exposures to remain unhedged. The Company has also entered into cross-currency swaps, to provide a partial hedge of the net investments in certain subsidiaries and better match the cash flows of operations to debt service requirements. Management estimates the foreign currency impact from these financial instruments at the end of 2008 would have been approximately a $9 million pre-tax loss based on a hypothetical 10% adverse movement in all derivative currency positions; this effect would occur from an appreciation of the foreign currencies relative to the U.S. dollar. The Company follows risk management policies in executing derivative financial instrument transactions, and does not use such instruments for speculative purposes. The Company does not hedge the translation of its non-U.S. dollar earnings in foreign subsidiaries.

As mentioned above, the Company routinely has cross-border trade and affiliate flows that cause a “transactional” impact on earnings from foreign exchange rate movements. The Company is also exposed to currency fluctuation volatility from the translation of foreign earnings into U.S. dollars, as previously discussed. It is more difficult to quantify the transactional effects from currency fluctuations than the translational effects. Aside from the use of derivative instruments which may be used to mitigate some of the exposure, transactional effects can potentially be influenced by actions the Company may take; for example, if an exposure occurs from a European entity sourcing product from a U.S. supplier it may be possible to change to a European supplier. As articulated in the Company’s fourth quarter earnings release filed on Form 8-K on January 28, 2009, if the U.S. dollar were to remain at levels prevailing in mid-January throughout fiscal 2009 (including euro 1.34; Canadian $0.84; Pound Sterling 1.50; and Australian $0.69), then the combined unfavorable currency effect from both the translational and transactional aspects would be approximately $0.50

in lower diluted earnings per share as compared with 2008. In that event, the unfavorable impact would occur largely in the first half of 2009. Management estimates the combined translational and transactional impact of a 10% overall movement in exchange rates is approximately $0.30 per diluted share. With respect to transactional foreign currency market risk, the Company sources significant products from China and other Asian low cost countries for resale in other regions. To the extent the RMB or these other currencies appreciate with respect to the U.S. dollar, the Company may experience cost increases on such purchases. While the 7% appreciation of the RMB during 2008 has not as yet generated material cost increases for products sourced from China, further significant appreciation of the RMB or other currencies in countries where the Company sources product could adversely impact profitability. In the event significant RMB or other currency appreciation occurs, the Company would initiate customer pricing or other actions in an effort to mitigate the related cost increases, but it is possible such actions would not fully offset the potential unfavorable impact.

The Company’s exposure to interest rate risk results from its outstanding debt obligations, short-term investments, and derivative financial instruments employed in the management of its debt portfolio. The debt portfolio is managed to achieve capital structure targets and reduce the overall cost of borrowing by using a combination of fixed and floating rate debt as well as interest rate swaps, and cross-currency swaps. The Company’s primary exposure to interest rate risk comes from its floating rate debt in the U.S. and Europe and is fairly represented by changes in LIBOR and EURIBOR rates. At January 3, 2009, the impact of a hypothetical 10% increase in the interest rates associated with the Company’s floating rate derivative and debt instruments would have an immaterial effect on the Company’s financial position and results of operations.

The Company has exposure to commodity prices in many businesses, particularly brass, nickel, resin, aluminum, copper, zinc, steel, and energy used in the production of finished goods. Generally, commodity price exposures are not hedged with derivative financial instruments, but instead are actively managed through customer product and service pricing actions, procurement-driven cost reduction initiatives and other productivity improvement projects. In 2008, the Company experienced approximately $140 million of commodity, energy and wage inflation, most of which was recovered through favorable pricing actions. Such inflation increased costs by approximately $67 million in 2007 and $45 million in 2006, which management mitigated through various customer pricing actions and cost reduction initiatives. If commodity prices further increase, the Company’s exposure could increase from the expected levels for 2009 as previously discussed.

Fluctuations in the fair value of the Company’s common stock affect domestic retirement plan expense as discussed in the ESOP section of Management’s Discussion and Analysis. Additionally, the Company has $14 million in unfunded defined contribution plans for certain U.S. employees for which there is mark-to-market exposure.

The assets held by the Company’s defined benefit plans are exposed to fluctuations in the market value of securities, primarily global stocks and fixed-income securities. The funding obligations for these plans would increase in the event of adverse changes in the plan asset values, although such funding would occur over a period of many years. This is exemplified by the fact that while there was a $71 million loss on pension plan assets in 2008 associated with volatile financial markets, the Company expects funding obligations on its defined benefit plans will modestly increase to approximately $20 million in 2009 as compared with $18 million in 2008. The Company employs diversified asset allocations to help mitigate this risk. Management has worked to minimize this exposure by freezing and terminating defined benefit plans where appropriate.

The Company has access to financial resources and borrowing capabilities around the world. There are no instruments within the debt structure that would accelerate payment requirements due to a change in credit rating. The Company has the flexibility to elect deferral of interest payments on its ETPS obligation for up to 5 years. While there can be no guarantee of the future, the Company has an investment-grade credit rating and has enjoyed uninterrupted access to the commercial paper and bank markets throughout the credit crunch that has recently arisen. Further, the Company has not encountered liquidity difficulties historically when similar credit tightening has occurred due to macro-economic issues. Moreover, the Company’s existing credit facilities and sources of liquidity, including operating cash flows, are considered adequate to conduct business

as normal. Accordingly, based on present conditions and past history, management believes it is unlikely that operations will be materially affected by any potential further deterioration of the general credit markets that may occur. The Company believes that its strong financial position, operating cash flows, committed long-term credit facilities and borrowing capacity, and ready access to equity markets provide the financial flexibility necessary to continue its record of annual dividend payments, to invest in the routine needs of its businesses, to make strategic acquisitions and to fund other initiatives encompassed by its growth strategy.

OTHER MATTERS

EMPLOYEE STOCK OWNERSHIP PLAN As detailed in Note M, Employee Benefit Plans, of the Notes to the Consolidated Financial Statements, the Company has an Employee Stock Ownership Plan (“ESOP”) under which the ongoing U.S. Cornerstone and 401(K) defined contribution plans are funded. Overall ESOP expense is affected by the market value of Stanley stock on the monthly dates when shares are released, among other factors. Net ESOP expense amounted to $11 million in 2008 and was $2 million in both 2007 and 2006. The increase in expense was mostly attributable to the average market value of shares released which decreased from $49.28 in 2006 to $43.65 in 2008, as well as increased benefits pertaining to the headcount expansion from acquisitions. ESOP expense could increase in the future if the market value of the Company’s common stock declines. However, the Company has discontinued these benefits for 2009 as part of the cost actions taken and thus there will be a reduction in expense in fiscal 2009.

CUSTOMER-RELATED RISKS The Company has significant customers, particularly home centers and major retailers, though individually there are none that exceed 6% of consolidated sales. The loss or material reduction of business from any such significant customer could have a material adverse impact on the Company’s results of operations and cash flows, until either such customers were replaced or the Company made the necessary adjustments to compensate for the loss of business.

There are no individually material credit exposures from particular customers. While the Company has strong credit policies and disciplined management of receivables, due to weak economic conditions or other factors it is reasonably possible that certain customers’ creditworthiness may decline and losses from receivable write-offs may increase.

NEW ACCOUNTING STANDARDS Refer to Note A, Significant Accounting Policies, of the Notes to the Consolidated Financial Statements for a discussion of new accounting pronouncements and the potential impact to the Company’s consolidated results of operations and financial position.

CRITICAL ACCOUNTING ESTIMATES Preparation of the Company’s Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Significant accounting policies used in the preparation of the Consolidated Financial Statements are described in Note A, Significant Accounting Policies. Management believes the most complex and sensitive judgments, because of their significance to the Consolidated Financial Statements, result primarily from the need to make estimates about the effects of matters with inherent uncertainty. The most significant areas involving management estimates are described below. Actual results in these areas could differ from management’s estimates.

ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company’s estimate for its allowance for doubtful accounts related to trade receivables is based on two methods. The amounts calculated from each of these methods are combined to determine the total amount reserved. First, a specific reserve is established for individual accounts where information indicates the customers may have an inability to meet financial obligations. In these cases, management uses its judgment, based on the surrounding facts and circumstances, to record a specific reserve for those customers against amounts due to reduce the receivable to the amount expected to be collected. These specific reserves are reevaluated and adjusted as additional information is received. Second, a reserve is determined for all customers based on a range of percentages applied to receivables aging categories. These percentages are based on historical collection and write-off experience.

If circumstances change, for example, the occurrence of higher than expected defaults or a significant adverse change in a major customer’s ability to meet its financial obligation to the Company, estimates of the recoverability of receivable amounts due could be reduced.

INVENTORIES — LOWER OF COST OR MARKET, SLOW MOVING AND OBSOLETE Inventories in the U.S. are predominantly valued at the lower of LIFO cost or market, while non-U.S. inventories are valued at the lower of FIFO cost or market. The calculation of LIFO reserves, and therefore the net inventory valuation, is affected by inflation and deflation in inventory components. The Company ensures all inventory is valued at the lower of cost or market, and continually reviews the carrying value of discontinued product lines and stock-keeping-units (“SKUs”) to determine that these items are properly valued. The Company also continually evaluates the composition of its inventory and identifies obsolete and/or slow-moving inventories. Inventory items identified as obsolete and/or slow-moving are evaluated to determine if reserves are required. The Company assesses the ability to dispose of these inventories at a price greater than cost. If it is determined that cost is less than market value, cost is used for inventory valuation. If market value is less than cost, the Company writes down the related inventory to that value. If a write down to the current market value is necessary, the market value cannot be greater than the net realizable value, or ceiling (defined as selling price less costs to sell and dispose), and cannot be lower than the net realizable value less a normal profit margin, also called the floor. If the Company is not able to achieve its expectations regarding net realizable value of inventory at its current value, reserves would have to be adjusted accordingly.

PROPERTY, PLANT AND EQUIPMENT The Company generally values Property, Plant and Equipment (“PP&E”) at historical cost less accumulated depreciation. Impairment losses are recorded when indicators of impairment, such as plant closures, are present and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount. The impairment loss is quantified by comparing the carrying amount of the assets to the weighted average discounted cash flows, which consider various possible outcomes for the disposition of the assets (i.e. sale, leasing, etc.). Primarily as a result of plant rationalization, certain facilities and equipment are not currently used in operations. The Company recorded $14 million in asset impairment losses in 2008 primarily as a result of key restructuring programs, and such losses may occur in the future.

GOODWILL AND INTANGIBLE ASSETS The Company completed acquisitions in 2008 and 2007 valued at $572 million and $646 respectively. The assets and liabilities of acquired businesses are recorded at fair value at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. The Company reported $1.747 billion of goodwill and $300 million of indefinite-lived trade names at January 3, 2009.

In accordance with SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing. The identification and measurement of goodwill and unamortized intangible asset impairment involves the estimation of fair value. Impairment testing of goodwill also requires the identification and valuation of reporting units. The estimates of fair value of goodwill, indefinite-lived intangible assets and related reporting units are based on the information available at the date of assessment, including management assumptions about future cash flows, discount rates and royalty rates which are utilized to estimate the present value of future cash flows to be generated by the indefinite-lived assets. Future cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with acquired entities. While the Company has not recorded goodwill or other intangible asset impairment losses in many years, it is possible impairments may occur in the future in the event expected profitability, cash flows or trade name usage change from current estimates. This is particularly the case with respect to the convergent security solutions reporting unit which encompasses many recent acquisitions, and the fastening systems reporting unit which continues to rationalize its cost structure. Deteriorating global economic conditions increase the risk that impairment losses may occur in the future.

ENVIRONMENTAL The Company incurs costs related to environmental issues as a result of various laws and regulations governing current operations as well as the remediation of previously contaminated sites.

Future laws and regulations are expected to be increasingly stringent and will likely increase the Company’s expenditures related to routine environmental matters.

The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. As of January 3, 2009, the Company had reserves of $29 million for remediation activities associated with Company-owned properties as well as for Superfund sites, for losses that are probable and estimable. The range of environmental remediation costs that is reasonably possible is $19 million to $51 million which is subject to change in the near term. The Company may be liable for environmental remediation of sites it no longer owns. Liabilities have been recorded on those sites in accordance with this policy. While the Company believes the $29 million liability recorded for environmental matters is adequate, it is possible that future developments may require charges for environmental exposures in excess of this reserve.

INCOME TAXES The future tax benefit arising from net deductible temporary differences and tax loss carry-forwards is $102 million at January 3, 2009. The Company believes earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. For those jurisdictions where the expiration date of tax loss carry-forwards or the projected operating results indicate that realization is not likely, a valuation allowance is provided. The valuation allowance as of January 3, 2009 amounted to $25 million.

In assessing the need for a valuation allowance, the Company estimates future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carry-forwards. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, the unrealizable amount would be charged to earnings in the period in which that determination is made. By contrast, if the Company were to determine that it would be able to realize deferred tax assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through a favorable adjustment to earnings in the period in which that determination is made. The Company periodically assesses its liabilities and contingencies for all tax years still under audit based on the most current available information. When it is deemed probable that an adjustment will be asserted, the Company accrues its best estimate of the tax liability, inclusive of related interest charges. See Note R, Income Taxes, of the Notes to the Consolidated Financial Statements for further discussion.

RISK INSURANCE To some extent, the Company self insures for various business exposures. For domestic workers’ compensation, automobile and product liability, the Company generally purchases outside insurance coverage only for severe losses (“stop loss” insurance). The two risk areas involving the most significant accounting estimates are workers’ compensation and product liability (liability for alleged injuries associated with the Company’s products). Actuarial valuations performed by an outside risk insurance consultant form the basis for workers’ compensation and product liability loss reserves recorded. The actuary contemplates the Company’s specific loss history, actual claims reported, and industry trends among statistical and other factors to estimate the range of reserves required. Risk insurance reserves are comprised of specific reserves for individual claims and additional amounts expected for development of these claims, as well as for incurred but not yet reported claims. The specific reserves for individual known claims are quantified by third party administrator specialists (insurance companies) for workers’ compensation and by in-house legal counsel in consultation with outside attorneys for automobile and product liability. The cash outflows related to risk insurance claims are expected to occur over approximately 8 to 10 years, and the present value of expected future claim payments is reserved. The Company believes the liability recorded for such risk insurance reserves as of January 3, 2009 is adequate, but due to judgments inherent in the reserve estimation process it is possible the ultimate costs will differ from this estimate.

WARRANTY The Company provides product and service warranties which vary across its businesses. The types of warranties offered generally range from one year to limited lifetime, while certain products carry no warranty. Further, the Company sometimes incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information becomes available. The Company believes the $66 million reserve for expected warranty claims as of January 3, 2009 is adequate, but due to judgments inherent in the reserve estimation process, including forecasting future product reliability levels and costs of repair as well as the estimated age of certain products submitted for claims, the ultimate claim costs may differ from the recorded warranty liability.

OFF-BALANCE SHEET ARRANGEMENT

SYNTHETIC LEASES The Company is a party to synthetic leasing programs for one of its major distribution centers and certain U.S. personal property, predominately vehicles and equipment. The programs qualify as operating leases for accounting purposes, such that only the monthly rent expense is recorded in the Statement of Operations and the liability and value of the underlying assets are off-balance sheet. These lease programs are utilized primarily to reduce overall cost and to retain flexibility. The cash outflows for lease payments approximate the $16 million of rent expense recognized in fiscal 2008. As of January 3, 2009, the estimated fair value of assets and remaining obligations for these properties were $68 million and $58 million, respectively.

CAUTIONARY STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995

Certain statements contained in this Annual Report on Form 10-K, including, but not limited to, the statements regarding the Company’s ability to: (i) achieve higher working capital turns, decrease cycle times, reduce complexity in operations and increase customer services levels; (ii) realize a favorable carryover effect from previous customer pricing actions of approximately $30-50 million in 2009; (iii) generate a pre-tax benefit from cost actions implemented at mid-year 2008 and in conjunction with the restructuring announced on December 11, 2008 of approximately $195 million, or $1.75 per diluted share, in 2009 with an additional $0.24 per share benefit in 2010; (iv) limit 2009 restructuring and related charges for certain productivity initiatives and the continued rationalization of the Company’s manufacturing footprint to approximately $40-50 million pre-tax; (v) limit inflation-related cost increases in the first half of 2009 to $30 million; (vi) continue to make acquisitions and dispositions; and (vii) limit funding obligations on the Company’s defined benefit plans to approximately $20 million in 2009 are forward-looking statements and are based on current expectations. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. There are a number of risks, uncertainties and important factors that could cause actual results to differ materially from those indicated by such forward-looking statements. In addition to any such risks, uncertainties and other factors discussed elsewhere herein, the risks, uncertainties and other factors that could cause or contribute to actual results differing materially from those expressed or implied in the forward looking statements include, without limitation, those set forth under Item 1A Risk Factors hereto, those contained in the Company’s other filings with the Securities and Exchange Commission and those set forth below.

The Company’s ability to deliver the results described above (the “Results”) is dependent upon: (i) the Company’s ability to implement the cost savings measures discussed in its December 11, 2008 press release within anticipated time frames and to limit associated costs; (ii) the Company’s ability to identify appropriate acquisition and disposition opportunities and to complete such acquisitions and dispositions; (iii) the Company’s ability to successfully integrate recent acquisitions (including GdP, Sonitrol, Xmark and Scan Modul), as well as future acquisitions, while limiting associated costs; (iv) the success of the Company’s efforts to manage freight costs, steel and other commodity costs; (v) the success of the Company’s efforts to sustain or increase prices in order to, among other things, offset or mitigate the impact of steel, freight, energy, non-ferrous commodity and other commodity costs and any inflation increases; (vi) the Company’s ability to identify and effectively execute productivity improvements and cost reductions while minimizing any

associated restructuring charges; (vii) the continued ability of the Company to access credit markets under satisfactory terms; and (viii) the Company’s ability to negotiate satisfactory payment terms under which the Company buys and sells goods, materials and products.

The Company’s ability to deliver the Results is also dependent upon: (i) the continued success of the Company’s marketing and sales efforts; (ii) the ability of the Company to maintain or improve production rates in the Company’s manufacturing facilities, respond to significant changes in product demand and fulfill demand for new and existing products; and (iii) the Company’s ability to continue improvements in working capital.

The Company’s ability to achieve the Results will also be affected by external factors. These external factors include: pricing pressure and other changes within competitive markets; the continued consolidation of customers particularly in consumer channels; inventory management pressures on the Company’s customers; the impact the tightened credit market may have on the Company or its customers or suppliers; the extent to which the Company has to write off accounts receivable or assets in connection with bankruptcy filings by customers or suppliers; increasing competition; changes in laws, regulations and policies that affect the Company, including, but not limited to, trade, monetary, tax and fiscal policies and laws; the timing and extent of any inflation or deflation in 2009; currency exchange fluctuations; the impact of dollar/foreign currency exchange and interest rates on the competitiveness of products and the Company’s debt program; the strength of the U.S. and European economies; the extent to which world-wide markets associated with homebuilding and remodeling continue to deteriorate; the impact of events that cause or may cause disruption in the Company’s manufacturing, distribution and sales networks such as war, terrorist activities, or political unrest, and recessionary or expansive trends in the economies of the world in which the Company operates, including, but not limited to, the extent and duration of the current recession in the US economy.

Unless required by applicable federal securities laws, the Company undertakes no obligation to publicly update or revise any forward looking statements to reflect events or circumstances that may arise after the date hereof. Investors are advised, however, to consult any further disclosures made on related subjects in the Company’s reports filed with the Securities and Exchange Commission.

In addition to the foregoing, some of the agreements included as exhibits to this Annual Report on Form 10-k (whether incorporated by reference to earlier filings or otherwise) may contain representations and warranties, recitals or other statements that appear to be statements of fact. These agreements are included solely to provide investors with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. Representations and warranties, recitals, and other common disclosure provisions have been included in the agreements solely for the benefit of the other parties to the applicable agreements and often are used as a means of allocating risk among the parties. Accordingly, such statements (i) should not be treated as categorical statements of fact; (ii) may be qualified by disclosures that were made to the other parties in connection with the negotiation of the applicable agreements, which disclosures are not necessarily reflected in the agreement or included as exhibits hereto; (iii) may apply standards of materiality in a way that is different from what may be viewed as material by or to investors in or lenders to the Company; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, representations and warranties, recitals or other disclosures contained in agreements may not describe the actual state of affairs as of the date they were made or at any other time and should not be relied on by any person other than the parties thereto in accordance with their terms. Additional information about the Company may be found in this Annual Report on Form 10-K and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company incorporates by reference the material captioned “Market Risk” in Item 7 and the material in Note J, Financial Instruments, of the Notes to Consolidated Financial Statements in Item 8.


ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 15 for an index to Financial Statements and Financial Statement Schedules. Such Financial Statements and Financial Statement Schedules are incorporated herein by reference.


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9A.	CONTROLS AND PROCEDURES

The management of Stanley is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of Stanley’s internal control over financial reporting as of January 3, 2009. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control — Integrated Framework. Management concluded that based on its assessment, Stanley’s internal control over financial reporting was effective as of January 3, 2009. Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Sonitrol Corporation (“Sonitrol”) which was acquired on July 18, 2008 and Generale de Protection (“GdP”) which was acquired on October 1, 2008. Both Sonitrol and GdP are included in the 2008 consolidated financial statements of The Stanley Works and constituted total assets of approximately $564 million at January 3, 2009 and approximately $78 million of revenues for the year then ended. Ernst & Young LLP, the auditor of the financial statements included in this annual report, has issued an attestation report on the registrant’s internal control over financial reporting, a copy of which appears on page 44.

There has been no change in Stanley’s internal control over financial reporting during the fiscal quarter ended January 3, 2009 that has materially affected, or is reasonably likely to materially affect, Stanley’s internal control over financial reporting.

Under the supervision and with the participation of management, including the Company’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures pursuant to Rule 13a-15(e) of the Securities Exchange Act of 1934. Based upon that evaluation, as of the end of the period covered by this Annual Report, the Company’s Chairman and Chief Executive Officer and its Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in its periodic Securities and Exchange Commission filings. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.


ITEM 9B.	OTHER INFORMATION

On February 23, 2009, the Company entered into a Change in Control Severance Agreement (the “Agreement”) with Donald Allan Jr., and Mr. Allan ceased to be a participant in the Company’s Special Severance Plan. The Agreement is in the same form as agreements previously executed by other senior executives and provides for the following upon a qualifying termination: (i) a lump sum cash payment equal to 2.5 times annual base salary; (ii) a cash payment equal to 2.5 times average annual bonus over the three years prior to termination; (iii) continuation of certain benefits and perquisites for 2.5 years (or, if shorter, until similar benefits are provided by Mr. Allan’s new employer); (iv) a payment reflecting the actuarial value of an additional 2.5 years of service credit for retirement pension accrual purposes under any defined benefit or defined contribution plans maintained by Stanley; and (v) outplacement services (with the cost to the Company capped at $50,000). Mr. Allan also will be entitled to receive additional payments to the extent necessary to

compensate him for any excise taxes payable by him under the federal laws applicable to excess parachute payments.

The foregoing description does not purport to be a complete statement of the parties’ rights and obligations under the Agreement, and is qualified in its entirety by reference to the Agreement, which is being filed as an exhibit to this Annual Report on Form 10-K.

PART III


ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item, except for certain information with respect to the Company’s Code of Ethics, the executive officers of the Company and any material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors, as set forth below, is incorporated herein by reference to the information set forth in the section of the Company’s definitive proxy statement (which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the close of the Company’s fiscal year) under the headings “Information Concerning Nominees for Election as Directors,” “Information Concerning Directors Continuing in Office,” “Board of Directors,” and “Section 16(a) — Beneficial Ownership Reporting Compliance.”

In addition to Business Conduct Guidelines that apply to all directors and employees of the Company, the Company has adopted a Code of Ethics that applies to the Company’s chief executive officer and all senior financial officers, including the chief financial officer and principal accounting officer. A copy of the Company’s Code of Ethics is available on the Company’s website at www.stanleyworks.com.

The following is a list of the executive officers of the Company as of February 25, 2009:


		Date Elected to
Name, Age, Date of Birth	Office	Office
John F. Lundgren (57) (09/03/51)	Chairman and Chief Executive Officer. President, European Consumer Products, Georgia-Pacific Corporation (2000).	03/01/04
Donald Allan, Jr. (44) (3/21/64)	Vice President & Chief Financial Officer since January 1, 2009, Vice President & Corporate Controller (2002); Corporate Controller (2000); Assistant Controller (1999).	10/24/06
Jeffery D. Ansell (41) (01/05/68)	Vice President & President, Stanley Consumer Tools Group. President – Consumer Tools and Storage (2004); President of Industrial Tools & Storage (2002); Vice President – Global Consumer Tools Marketing (2001); Vice President Consumer Sales America (1999).	02/22/06
Bruce H. Beatt (56) (07/24/52)	Vice President, General Counsel and Secretary since October 2000.	10/09/00
Brett D. Bontrager (46) (10/27/62)	President, Convergent Security Solutions and Vice President, Business Development (2007); Vice President, Business Development (2004); Director, Business Development (2003).	04/25/07
Justin C. Boswell (41) (12/03/67)	Vice President & President, Mechanical Access Solutions since January 2007. President, Stanley Securities Solutions (2003). President Stanley Access Technologies (2000).	07/26/05
Jeff Chen (50) (08/22/58)	Vice President & President, Asia; Director, Asia Operations (2002); Managing Director, Thailand (1999).	04/27/05
Hubert Davis, Jr. (60) (08/28/48)	Senior Vice President, Business Transformation since 2006. Vice President, Chief Information Officer (June 2000). Chief Information Officer and e-commerce Leader (2000).	05/25/04


		Date Elected to
Name, Age, Date of Birth	Office	Office
James M. Loree (50) (06/14/58)	Executive Vice President and Chief Operating Officer since January 1, 2009. Executive Vice President Finance and Chief Financial Officer (1999).	07/19/99
Mark J. Mathieu (57) (02/20/52)	Vice President, Human Resources since September 1997.	09/17/97


ITEM 11.	EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the information set forth under the section entitled “Executive Compensation” of the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required by Items 201(d) and 403 of Regulation S-K, is incorporated herein by reference to the information set forth under the sections entitled “Security Ownership of Certain Beneficial Owners”, “Security Ownership of Directors and Officers”, “Executive Compensation”, and “2009 LTIP Benefits” of the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

EQUITY COMPENSATION PLAN INFORMATION

Compensation plans under which the Company’s equity securities are authorized for issuance at January 3, 2009 follow:


	(A)	(B)	(C)
			Number of securities
			remaining available for
			future issuance under
	Number of securities to		equity compensation
	be issued upon exercise of	Weighted-average	plans (excluding
	outstanding options	exercise price of	securities reflected in
Plan category	and stock awards	outstanding options	column (A))
Equity compensation plans approved by security holders	8,132,898(1)	$37.08(2)	6,278,122

Equity compensation plans not approved by security holders(3)	—	—	—

Total	8,132,898	$37.08	6,278,122


(1)		Consists of shares underlying outstanding stock options (whether vested or unvested), shares underlying time-vesting restricted stock units that have not yet vested, and the maximum number of shares that will be issued pursuant to outstanding long term performance awards if all established goals are met. All stock-based compensation plans are discussed in Note K, Capital Stock, of the Notes to the Consolidated Financial Statements in Item 8.

(2)		There is no cost to the recipient for shares issued pursuant to time-vesting restricted stock units or long term performance awards. Because there is no strike price applicable to these stock awards they are excluded from the weighted-average exercise price which pertains solely to outstanding stock options.

(3)		There is a non-qualified deferred tax savings plan for highly compensated salaried employees which mirrors the qualified plan provisions, but was not specifically approved by security holders. U.S. employees are eligible to contribute from 1% to 15% of their salary to a tax deferred savings plan as described in the ESOP section of Item 8 Note M, Employee Benefit Plans, to the Consolidated Financial Statements of this Form 10-K. Prior to January 1, 2009 the Company contributed an amount equal to one-half of the employee contribution up to the first 7% of their salary. The investment of the employee’s contribution and the


		Company’s contribution was controlled by the employee participating in the plan and may include an election to invest in Company stock. The same matching arrangement was provided for highly compensated salaried employees in the “non-qualified” plan, except that the arrangement for these employees is outside of the ESOP, and is not funded in advance of distributions. Shares of the Company’s common stock may be issued at the time of a distribution from the plan. The number of securities remaining available for issuance under the plan at January 3, 2009 is not determinable, since the plan does not authorize a maximum number of securities.


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Items 404 and 407(a) of Regulation S-K is incorporated by reference to the information set forth under the section entitled “Board of Directors — Related Party Transactions” of the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.


ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 9(e) of Schedule 14A is incorporated herein by reference to the information set forth under the section entitled “Fees of Independent Auditors” of the Company’s definitive proxy statement, which will be filed pursuant to Regulation 14A under the Exchange Act within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

PART IV


ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) Index to documents filed as part of this report:

1. and 2. Financial Statements and Financial Statement Schedules.

The response to this portion of Item 15 is submitted as a separate section of this report beginning with an index thereto on page 40.

3. Exhibits

See Exhibit Index in this Form 10-K on page 85.

(b) See Exhibit Index in this Form 10-K on page 85.


(c)	The response in this portion of Item 15 is submitted as a separate section of this Form 10-K with an index thereto beginning on page 40.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE STANLEY WORKS


	By:	/s/ John F. Lundgren

John F. Lundgren, Chairman
and Chief Executive Officer

Date: February 25, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.


Signature	Title	Date


/s/ John F. Lundgren John F. Lundgren	Chairman and Chief Executive Officer and Director	February 25, 2009

/s/ Donald Allan, Jr. Donald Allan, Jr.	Vice President and Chief Financial Officer and Principal Accounting Officer	February 25, 2009

* John G. Breen	Director	February 25, 2009

* Patrick D. Campbell	Director	February 25, 2009

* Carlos M. Cardoso	Director	February 25, 2009

* Virgis W. Colbert	Director	February 25, 2009

* Robert B. Coutts	Director	February 25, 2009

* Eileen S. Kraus	Director	February 25, 2009

* Marianne M. Parrs	Director	February 25, 2009

* Lawrence A. Zimmerman	Director	February 25, 2009

*By: /s/ Bruce H. Beatt
Bruce H. Beatt
(As Attorney-in-Fact)

FORM 10-K

ITEM 15(a) (1) AND (2)

THE STANLEY WORKS AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

Schedule II — Valuation and Qualifying Accounts of The Stanley Works and subsidiaries is included in Item 15 (page 41).

Management’s Report on Internal Control Over Financial Reporting (page 42).

Report of Independent Registered Public Accounting Firm — Financial Statement Opinion (page 43).

Report of Independent Registered Public Accounting Firm — Internal Control (page 44).

Consolidated Statements of Operations — fiscal years ended January 3, 2009, December 29, 2007, and December 30, 2006 (page 45).

Consolidated Balance Sheets — January 3, 2009 and December 29, 2007 (page 46).

Consolidated Statements of Cash Flows — fiscal years ended January 3, 2009, December 29, 2007, and December 30, 2006 (page 47).

Consolidated Statements of Changes in Shareowners’ Equity — fiscal years ended January 3, 2009, December 29, 2007, and December 30, 2006 (page 48).

Notes to Consolidated Financial Statements (page 49).

Selected Quarterly Financial Data (Unaudited) (Page 84).

Consent of Independent Registered Public Accounting Firm and Report on Schedule (Exhibit 23).

All other schedules are omitted because either they are not applicable or the required information is shown in the financial statements or the notes thereto.

Schedule II — Valuation and Qualifying Accounts
The Stanley Works and Subsidiaries
Fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006
(Millions of Dollars)


			ADDITIONS
			Charged to		(b) Charged
	Beginning		Costs and		To Other		(a)		Ending
Description	Balance		Expenses		Accounts		Deductions		Balance

Allowance for Doubtful Accounts:
Year Ended 2008
Current		$40.3		$17.5		$6.1		$24.1		$39.8
Non-current		0.8		0.1		(0.4)		—		0.5
Year Ended 2007
Current		$33.3		$9.3		$5.5		$7.8		$40.3
Non-current		2.0		—		(0.7)		0.5		0.8
Year Ended 2006
Current		$34.4		$3.8		$2.0		$6.9		$33.3
Non-current		2.3		—		(0.3)		—		2.0
Tax Valuation Allowance:
Year Ended 2008		$27.3		$2.5		$(2.1)		$3.2		$24.5
Year Ended 2007		26.8		3.4		1.7		4.6		27.3
Year Ended 2006		27.2		2.6		2.8		5.8		26.8


(a)		With respect to the allowance for doubtful accounts, represents amounts charged-off, less recoveries of accounts previously charged-off.


(b)		Represents foreign currency translation impact, acquisitions, and net transfers to / from other accounts.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of The Stanley Works is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of The Stanley Works’ internal control over financial reporting as of January 3, 2009. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control — Integrated Framework. Management concluded that based on its assessment, The Stanley Works’ internal control over financial reporting was effective as of January 3, 2009. Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Sonitrol Corporation (“Sonitrol”) which was acquired on July 18, 2008 and Generale de Protection (“GdP”) which was acquired on October 1, 2008. Both Sonitrol and GdP are included in the 2008 consolidated financial statements of The Stanley Works and constituted total assets of approximately $564 million at January 3, 2009 and approximately $78 million of revenues for the year then ended. Ernst & Young LLP, the auditor of the financial statements included in this annual report, has issued an attestation report on the registrant’s internal control over financial reporting, a copy of which appears on page 44.

/s/ John F. Lundgren

John F. Lundgren, Chairman and Chief Executive Officer

/s/ Donald Allan Jr.
Donald Allan Jr., Vice President and Chief Financial Officer

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of The Stanley Works

We have audited the accompanying consolidated balance sheets of The Stanley Works and subsidiaries as of January 3, 2009 and December 29, 2007, and the related consolidated statements of operations, changes in shareowners’ equity, and cash flows for each of the three fiscal years in the period ended January 3, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Stanley Works and subsidiaries at January 3, 2009 and December 29, 2007, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended January 3, 2009, in conformity with U.S. generally accepted accounting principles.

As discussed in Note R to the consolidated financial statements, the Company adopted Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of SFAS No. 109”, effective December 31, 2006. As discussed in Note M to the consolidated financial statements, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Post-retirement Plans – An amendment to FASB Statement Nos. 87, 88, 106 and 132(R)” effective December 30, 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Stanley Works’ internal control over financial reporting as of January 3, 2009, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Hartford, Connecticut

February 19, 2009

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of The Stanley Works

We have audited The Stanley Works’ internal control over financial reporting as of January 3, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Stanley Works’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Sonitrol Corporation (“Sonitrol”) and Generale de Protection (“GdP”), companies acquired in 2008, which are included in the 2008 consolidated financial statements of The Stanley Works and constituted total assets of approximately $564 million at January 3, 2009 and approximately $78 million of revenues for the fiscal year then ended. Our audit of internal control over financial reporting of The Stanley Works also did not include an evaluation of the internal control over financial reporting of Sonitrol and GdP.

In our opinion, The Stanley Works maintained, in all material respects, effective internal control over financial reporting as of January 3, 2009, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of The Stanley Works’ and subsidiaries as of January 3, 2009 and December 29, 2007, and the related consolidated statements of operations, changes in shareowners’ equity, and cash flows for each of the three fiscal years in the period ended January 3, 2009 and our report dated February 19, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Hartford, Connecticut

February 19, 2009

Consolidated Statements of Operations
Fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006
(In Millions of Dollars, except per share amounts)


	2008		2007		2006

Net Sales		$4,426.2		$4,360.5		$3,897.3
Costs and Expenses
Cost of sales		$2,754.8		$2,707.5		$2,484.3
Selling, general and administrative		1,090.0		1,029.1		928.5
Provision for doubtful accounts		17.6		9.3		3.8
Interest income		(9.2)		(5.1)		(4.4)
Interest expense		82.0		85.2		69.3
Other-net		104.2		87.1		54.3
Restructuring charges and asset impairments		85.5		12.8		13.8

		$4,124.9		$3,925.9		$3,549.6
Earnings from continuing operations before income taxes		301.3		434.6		347.7
Income taxes		75.9		109.3		69.0

Net earnings from continuing operations		$225.4		$325.3		$278.7
Earnings from discontinued operations before income taxes		132.8		16.5		17.9
Income taxes on discontinued operations		44.9		5.2		7.1

Net earnings from discontinued operations		$87.9		$11.3		$10.8

Net Earnings		$313.3		$336.6		$289.5

Basic earnings per share of common stock:
Continuing operations		$2.86		$3.95		$3.40
Discontinued operations		1.11		0.14		0.13

Total basic earnings per share of common stock		$3.97		$4.09		$3.54

Diluted earnings per share of common stock:
Continuing operations		$2.82		$3.87		$3.33
Discontinued operations		1.10		0.13		0.13

Total diluted earnings per share of common stock		$3.92		$4.00		$3.46

See Notes to Consolidated Financial Statements.

Consolidated Balance Sheets
January 3, 2009 and December 29, 2007
(Millions of Dollars)


	2008		2007

Assets
Current Assets
Cash and cash equivalents		$211.6		$240.4
Accounts and notes receivable, net		677.7		805.7
Inventories, net		514.7		556.4
Deferred taxes		39.4		22.3
Assets held for sale		—		115.7
Other current assets		55.9		60.6

Total Current Assets		1,499.3		1,801.1
Property, Plant and Equipment, net		579.8		564.9
Goodwill		1,747.4		1,512.5
Customer Relationships, net		482.3		321.4
Trade names, net		333.6		332.2
Other Intangible Assets, net		41.0		40.6
Other Assets		195.8		190.3

Total Assets		$4,879.2		$4,763.0


Liabilities and Shareowners’ Equity
Current Liabilities
Short-term borrowings		$213.8		$282.5
Current maturities of long-term debt		13.9		10.3
Accounts payable		461.5		498.6
Accrued expenses		508.0		450.9
Liabilities held for sale		—		20.4

Total Current Liabilities		1,197.2		1,262.7
Long-Term Debt		1,419.5		1,212.1
Deferred Taxes		119.5		80.5
Other Liabilities		455.0		479.2

Shareowners’ Equity
Preferred stock, without par value:
Authorized and unissued 10,000,000 shares		—		—
Common stock, par value $2.50 per share:
Authorized 200,000,000 shares
Issued 92,343,410 shares in 2008 and 2007		233.9		233.9
Retained earnings		2,269.5		2,045.5
Accumulated other comprehensive income (loss)		(151.4)		47.7
ESOP		(87.2)		(93.8)

		2,264.8		2,233.3
Less: cost of common stock in treasury (13,467,376 shares in 2008 and 11,964,623 shares in 2007)		576.8		504.8

Total Shareowners’ Equity		1,688.0		1,728.5

Total Liabilities and Shareowners’ Equity		$4,879.2		$4,763.0

See Notes to Consolidated Financial Statements.

Consolidated Statements of Cash Flows
Fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006
(Millions of Dollars)


	2008		2007		2006

Operating Activities:
Net earnings		$313.3		$336.6		$289.5
Adjustments to reconcile net earnings to cash provided by operating activities:
Depreciation and amortization		183.0		162.2		121.2
Pretax (gain) loss on sale of businesses		(126.5)		—		1.5
Other non-cash items		113.3		48.8		47.5
Changes in operating assets and liabilities:
Accounts receivable		129.1		(30.6)		50.9
Inventories		26.5		47.4		(62.7)
Accounts payable		(32.9)		34.9		40.5
Accrued expenses		12.7		(47.9)		(49.6)
Income taxes (includes taxes on gain on sale of business)		(17.3)		14.4		(30.0)
Other		(84.6)		(21.7)		30.3

Net cash provided by operating activities		516.6		544.1		439.1
Investing Activities:
Capital expenditures		(94.6)		(65.5)		(59.6)
Capitalized software		(46.2)		(21.4)		(20.9)
Proceeds from sales of assets		4.3		17.6		31.9
Business acquisitions		(575.0)		(642.5)		(571.8)
Proceeds from sales of businesses		204.6		—		0.9
Net investment hedge terminations		19.1		—		—
Other		23.2		(5.1)		(6.8)

Net cash used in investing activities		(464.6)		(716.9)		(626.3)
Financing Activities:
Payments on long-term debt		(44.9)		(227.6)		(4.2)
Proceeds from long-term borrowings		249.7		529.9		—
Convertible notes hedge premium		0.1		(49.3)		—
Net proceeds (repayments) on short-term borrowings		(73.5)		192.3		(66.4)
Debt issuance costs and interest rate swap terminations		14.7		(12.1)		5.9
Stock purchase contract fees, net of partial extinguishment		(11.1)		(10.4)		—
Purchase of common stock for treasury		(103.3)		(206.9)		(201.6)
Proceeds from issuance of common stock and warrants		19.1		96.5		64.4
Cash dividends on common stock		(99.0)		(99.8)		(96.1)
Other		—		(2.0)		—

Net cash provided by (used in) financing activities		(48.2)		210.6		(298.0)
Effect of exchange rate changes on cash		(32.6)		26.0		4.0

Increase (Decrease) in cash and cash equivalents		(28.8)		63.8		(481.2)
Cash and cash equivalents, beginning of year		240.4		176.6		657.8

Cash and cash equivalents, end of year		$211.6		$240.4		$176.6

See Notes to Consolidated Financial Statements.

Consolidated Statements of Changes in Shareowners’ Equity
Fiscal years ended January 3, 2009, December 29, 2007 and December 30, 2006
(Millions of Dollars, Except Per Share Amounts)


					Accumulated Other
	Common		Retained		Comprehensive				Treasury		Shareowners’
	Stock		Earnings		Income (Loss)		ESOP		Stock		Equity

Balance December 31, 2005		$237.7		$1,657.2		$(91.3)		$(108.2)		$(250.5)		$1,444.9
Comprehensive income:
Net earnings				289.5								289.5
Currency translation adjustment and other						57.3						57.3
Cash flow hedge, net of tax						8.0						8.0
Minimum pension liability, net of tax						5.3						5.3

Total comprehensive income												360.1
Cash dividends declared–$1.18 per share				(96.1)								(96.1)
Issuance of common stock				(6.8)						69.3		62.5
Repurchase of common stock (4,026,224 shares)										(201.6)		(201.6)
Minority interest common stock		(3.8)										(3.8)
Other, stock-based compensation related, net of tax				29.4								29.4
Adoption of SFAS No. 158, net of tax						(61.1)						(61.1)
Tax benefit related to stock options exercised				8.1								8.1
ESOP and related tax benefit				2.3				7.3				9.6

Balance December 30, 2006		233.9		1,883.6		(81.8)		(100.9)		(382.8)		1,552.0
Comprehensive income:
Net earnings				336.6								336.6
Currency translation adjustment and other						102.1						102.1
Cash flow hedge, net of tax						0.7						0.7
Change in pension, net of tax						26.7						26.7

Total comprehensive income												466.1
Cash dividends declared–$1.22 per share				(99.8)								(99.8)
Issuance of common stock				(16.3)						84.9		68.6
Repurchase of common stock (3,786,813 shares)										(206.9)		(206.9)
Adoption of FIN 48				(13.5)								(13.5)
Convertible notes hedge, net of tax benefit				(36.3)								(36.3)
Issuance of stock warrants				18.8								18.8
Equity purchase contract and issuance costs				(56.7)								(56.7)
Other, stock-based compensation related, net of tax				14.1								14.1
Tax benefit related to stock options exercised				12.8								12.8
ESOP and related tax benefit				2.2				7.1				9.3

Balance December 29, 2007		233.9		2,045.5		47.7		(93.8)		(504.8)		1,728.5
Comprehensive income:
Net earnings				313.3								313.3
Currency translation adjustment and other						(158.0)						(158.0)
Cash flow hedge, net of tax						(0.3)						(0.3)
Change in pension, net of tax						(40.8)						(40.8)

Total comprehensive income												114.2
Cash dividends declared–$1.26 per share				(99.0)								(99.0)
Issuance of common stock				(16.0)						31.3		15.3
Repurchase of common stock (2,240,451 shares)										(103.3)		(103.3)
Tax benefit on convertible notes hedge				1.0								1.0
Equity units repurchase				5.4								5.4
Other, stock-based compensation related, net of tax				13.9								13.9
Tax benefit related to stock options exercised				3.2								3.2
ESOP and related tax benefit				2.2				6.6				8.8

Balance January 3, 2009		$233.9		$2,269.5		$(151.4)		$(87.2)		$(576.8)		$1,688.0

See Notes to Consolidated Financial Statements.

Notes to Consolidated Financial Statements

A. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION The Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries which require consolidation, after the elimination of intercompany accounts and transactions. The Company’s fiscal year ends on the Saturday nearest to December 31. There were 53 weeks in the fiscal year 2008 and 52 weeks in both of the fiscal years 2007 and 2006.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as certain financial statement disclosures. While management believes that the estimates and assumptions used in the preparation of the financial statements are appropriate, actual results could differ from these estimates.

FOREIGN CURRENCY TRANSLATION For foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates; income and expenses are translated using weighted-average exchange rates. Resulting translation adjustments are reported in a separate component of shareowners’ equity. Exchange gains and losses on transactions are included in earnings, and amounted to a net gain of $2.0 million for 2008 and net losses of $1.4 million and $3.8 million for 2007 and 2006, respectively.

CASH EQUIVALENTS Highly liquid investments with original maturities of three months or less are considered cash equivalents.

ACCOUNTS AND NOTES RECEIVABLE Trade receivables are stated at gross invoice amount less discounts, other allowances and provision for uncollectible accounts.

ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company estimates its allowance for doubtful accounts using two methods. First, a specific reserve is established for individual accounts where information indicates the customers may have an inability to meet financial obligations. Second, a reserve is determined for all customers based on a range of percentages applied to aging categories. These percentages are based on historical collection and write-off experience. Actual write-offs are charged against the allowance when internal collection efforts have been unsuccessful.

INVENTORIES U.S inventories are predominantly valued at the lower of Last-In First-Out (“LIFO”) cost or market because the Company believes it results in better matching of costs and revenues. Other inventories are valued at the lower of First-In, First-Out (“FIFO”) cost or market primarily because LIFO is not permitted for statutory reporting outside the U.S. See Note C, Inventory, for a quantification of the LIFO impact on inventory valuation.

PROPERTY, PLANT AND EQUIPMENT The Company generally values property, plant and equipment (“PP&E”), including capitalized software, on the basis of historical cost less accumulated depreciation and amortization. Costs related to maintenance and repairs which do not prolong the assets’ useful lives are expensed as incurred. Depreciation and amortization are provided using straight-line methods over the estimated useful lives of the assets as follows:


		Useful Life
		(Years)

Land improvements		10 – 20
Buildings		40
Machinery and equipment		3 – 15
Computer software		3 – 5

Leasehold improvements are depreciated over the shorter of the estimated useful life or the term of the lease.

The Company assesses its long-lived assets for impairment when indicators that the carrying values may not be recoverable are present. In assessing long-lived assets for impairment, the Company groups its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are generated (“asset

group”) and estimates the undiscounted future cash flows that are directly associated with and expected to be generated from the use of and eventual disposition of the asset group. If the carrying value is greater than the undiscounted cash flows, an impairment loss must be determined and the asset group is written down to fair value. The impairment loss is quantified by comparing the carrying amount of the asset group to the estimated fair value, which is determined using weighted-average discounted cash flows that consider various possible outcomes for the disposition of the asset group. During 2008, asset impairments totaled $13.6 million related to the Company’s restructuring actions which are described further in Note P Restructuring and Asset Impairments. PP&E impairment losses were minor in 2007 and 2006.

GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Intangible assets acquired are recorded at estimated fair value. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are tested for impairment annually during the third quarter, and at any time when events suggest an impairment may have occurred. To assess goodwill for impairment, the Company determines the fair value of its reporting units, which are primarily determined using management’s assumptions about future cash flows based on long-range strategic plans. This approach incorporates many assumptions including future growth rates, discount factors and tax rates. In the event the carrying value of a reporting unit exceeded its fair value, an impairment loss would be recognized to the extent the carrying amount of the reporting unit’s goodwill exceeded the implied fair value of the goodwill. Indefinite-lived intangible asset carrying amounts are tested for impairment by comparing to current fair market value, usually determined by the estimated cost to lease the asset from third parties. Intangible assets with definite lives are amortized over their estimated useful lives generally using an accelerated method. Under this accelerated method, intangible assets are amortized reflecting the pattern over which the economic benefits of the intangible assets are consumed. Definite-lived intangible assets are also evaluated for impairment when impairment indicators are present. If the carrying value exceeds the total undiscounted future cash flows, a discounted cash flow analysis is performed to determine the fair value of the asset. If the carrying value of the asset were to exceed the fair value, it would be written down to fair value. No goodwill or other intangible asset impairments were recorded during 2008, 2007 or 2006.

FINANCIAL INSTRUMENTS Derivative financial instruments are employed to manage risks, including foreign currency and interest rate exposures, and are not used for trading or speculative purposes. The Company recognizes all derivative instruments, such as interest rate swap agreements, foreign currency options, and foreign exchange contracts, in the Consolidated Balance Sheets at fair value. Changes in the fair value of derivatives are recognized periodically either in earnings or in Shareowners’ Equity as a component of other comprehensive income, depending on whether the derivative financial instrument is undesignated or qualifies for hedge accounting, and if so, whether it qualifies as a fair value, cash flow, or net investment hedge. Changes in fair values of derivatives accounted for as fair value hedges are recorded in earnings along with the changes in the fair value of the hedged items that relate to the hedged risk. Gains and losses on derivatives designated as cash flow hedges, to the extent they are effective, are recorded in other comprehensive income, and subsequently reclassified to earnings to offset the impact of the hedged items when they occur. In the event it becomes probable the forecasted transaction to which a cash flow hedge relates will not occur, the derivative would be terminated and the amount in other comprehensive income would generally be recognized in earnings. Changes in the fair value of derivatives used as hedges of the net investment in foreign operations are reported in other comprehensive income. Changes in the fair value of derivatives not designated as hedges under Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, and any portion of a hedge that is considered ineffective, are reported in earnings in either Cost of sales for those derivatives relating to inventory purchases or Other-net for all other derivatives.

The net interest paid or received on interest rate swaps is recognized as interest expense. Gains and losses resulting from the early termination of interest rate swap agreements are deferred and amortized as adjustments to interest expense over the remaining period of the debt originally covered by the terminated swap.

REVENUE RECOGNITION General: Revenue is recognized when the earnings process is complete, collectibility is reasonably assured, and the risks and rewards of ownership have transferred to the customer,

which generally occurs upon shipment of the finished product but sometimes is upon delivery to customer facilities. Provisions for customer volume rebates, product returns, discounts and allowances are recorded as a reduction of revenue in the same period the related sales are recorded.

Multiple Element Arrangements: In 2008, approximately $975 million in revenues were generated by multiple element arrangements, primarily in the Security segment. These sales contracts typically consist of products sold and installed by the Company at the customer location. Revenue from equipment sales is generally recognized once installation is complete. Certain sales agreements also include maintenance and monitoring services pertaining to the installed equipment. Service revenue is recognized ratably over the contract term as services are rendered.

Customer billings for equipment not yet installed and for monitoring services not yet rendered are deferred. The associated deferred revenue is included in Accrued expenses in the Consolidated Balance Sheets to the extent that customers have paid in advance of equipment or service delivery.

When a sales agreement involves multiple elements, deliverables are separately identified and consideration is allocated based on their relative fair values in accordance with Emerging Issues Task Force Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.” Fair value is generally determined by reference to the prices charged in standalone transactions.

ADVERTISING COSTS Television advertising is expensed the first time the advertisement airs, whereas other advertising is expensed as incurred. Advertising costs are classified in SG&A and amounted to $39.3 million in 2008, $42.1 million in 2007 and $42.1 million in 2006. Cooperative advertising expense reported as a deduction in net sales was $29.0 million in 2008, $28.0 million in 2007 and $25.8 million in 2006.

ACQUISITION COSTS Certain costs directly related to acquisitions including legal, audit and other fees, were recorded to goodwill for all acquisitions consummated during 2008 and earlier years as required under SFAS No. 141, “Business Combinations” (“SFAS 141”). Beginning in fiscal 2009 all such costs associated with new business acquisitions will be expensed as incurred. Refer to the section entitled New Accounting Standards also included within Note A for further details.

SALES TAXES Sales and value added taxes collected from customers and remitted to governmental authorities are excluded from net sales reported in the Consolidated Statements of Operations.

SHIPPING AND HANDLING COSTS The Company generally does not bill customers for freight. Shipping and handling costs associated with inbound freight are reported in cost of sales. Shipping costs associated with outbound freight are reported as a reduction of net sales and amounted to $129.7 million, $130.1 million and $124.9 million in 2008, 2007 and 2006, respectively. Distribution costs are classified as SG&A and amounted to $122.2 million, $128.7 million and $118.2 million in 2008, 2007 and 2006, respectively.

STOCK-BASED COMPENSATION Compensation cost relating to stock-based compensation grants is recognized on a straight-line basis over the vesting period, which is generally four years. The expense for stock options and restricted stock units awarded to retirement eligible employees (those aged 55 and over, and with 10 or more years of service) is recognized by the date they became retirement eligible.

INCOME TAXES Income tax expense is based on reported earnings before income taxes. Interest and penalties related to income taxes are classified as Income taxes in the Consolidated Statements of Operations. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse. A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.

EARNINGS PER SHARE Basic earnings per share equals net earnings divided by weighted-average shares outstanding during the year. Diluted earnings per share include the impact of common stock equivalents using the treasury stock method when the effect is dilutive.

NEW ACCOUNTING STANDARDS

Implemented: In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.”(“SFAS 157”). SFAS 157 establishes a single definition of fair value and a framework for measuring fair value, sets out a fair value hierarchy to be used to classify the source of information used in fair value measurements, and requires new disclosures of assets and liabilities measured at fair value based on their level in the hierarchy. SFAS 157 indicates that an exit value (selling price) should be utilized in fair value measurements rather than an entrance value, or cost basis, and that performance risks, such as credit risk, should be included in the measurements of fair value even when the risk of non-performance is remote. SFAS 157 also clarifies the principle that fair value measurements should be based on assumptions the marketplace would use when pricing an asset whenever practicable, rather than company-specific assumptions. In February 2008, the FASB issued Staff Positions (“FSPs”) No. 157-1 and No. 157-2, which, respectively, remove leasing transactions from the scope of SFAS 157 and defer its effective date for one year relative to nonfinancial assets and nonfinancial liabilities except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Accordingly, in fiscal 2008 the Company has applied SFAS 157 guidance to: (i) all applicable financial assets and liabilities; and (ii) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually). The adoption of SFAS 157 for these items did not have a material affect on the Company. The remaining assets and liabilities, to which the FSP 157-2 deferral relates, will be measured at fair value as applicable beginning in fiscal 2009. This deferral relates to such items as impairment testing for goodwill, other intangible and long-lived assets and nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination. Refer to Note N for disclosures required by this pronouncement.

In February 2007, the FASB issued SFAS No 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). This statement became effective for the Company at the beginning of 2008. SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The Company did not elect to utilize voluntary fair value measurements as permitted by the standard.

Not Yet Implemented: In May 2008, the FASB issued Staff Position Accounting Principles Board (“APB”) 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB 14-1”). FSP APB 14-1 applies to convertible debt instruments that have a “net settlement feature” permitting settlement partially or fully in cash upon conversion. The guidance requires issuers of such convertible debt securities to separately account for the liability and equity components in a manner that reflects the issuer’s nonconvertible, unsecured debt borrowing rate. The FSP requires bifurcation of a component of the debt into equity, representative of the approximate fair value of the conversion feature at inception, and the amortization of the resulting debt discount to interest expense in the Consolidated Statement of Operations. The Company is in the process of assessing the impact of FSP APB 14-1, but estimates that approximately $55 million of Long-term debt will be reclassified to equity as of the inception of the $330.0 million of convertible notes issued in March 2007. The estimated $55 million debt discount will be amortized to interest expense resulting in the recognition of approximately $8 — $12 million of additional non-cash interest expense annually. This non-cash interest expense is expected to total approximately $11 million in 2009. The non-cash interest recognized will gradually increase over time using the effective interest method. FSP APB 14-1 will become effective for the Company beginning in the first quarter of 2009 and is required to be applied retrospectively with early adoption prohibited.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition), establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose the information needed to evaluate and understand the nature and effect of the business combination. This statement applies to all transactions or other events in which the acquirer obtains control of one or more businesses, including those sometimes referred to as “true mergers” or “mergers of equals” and combinations achieved without the transfer of consideration, for example, by contract alone or

through the lapse of minority veto rights. For new acquisitions made following the adoption of SFAS 141(R), significant costs directly related to the acquisition including legal, audit and other fees, as well as most acquisition-related restructuring, will have to be expensed as incurred rather than recorded to goodwill as is generally permitted under SFAS 141. Additionally, contingent purchase price arrangements (also known as earn-outs) will be re-measured to estimated fair value with the impact reported in earnings, whereas under present rules the contingent purchase consideration is recorded to goodwill when determined. SFAS 141(R) applies prospectively for the Company to business combinations for which the acquisition date is on or after January 4, 2009.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”). SFAS 160 requires reporting entities to present non-controlling (minority) interests as equity (as opposed to a liability or mezzanine equity) and provides guidance on the accounting for transactions between an entity and non-controlling interests. SFAS 160 will apply prospectively and is effective as of the beginning of fiscal 2009, except for the presentation and disclosure requirements which will be applied retrospectively for all periods presented upon adoption. The Company has determined that the adoption of SFAS 160 will have a minimal impact on its results of operations and financial position.

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, and interim periods within those years, with retrospective application required. It is not expected to have a significant impact on the Company’s calculation of earnings per share.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” which is effective for fiscal years and interim periods beginning after November 15, 2008. Upon adoption in the first quarter of fiscal 2009, the statement will require enhanced disclosures related to the Company’s derivative instruments and will not impact the accounting for derivative instruments.

RECLASSIFICATIONS The assets and liabilities of discontinued operations have been reclassified as held for sale in the Consolidated Balance Sheets, and earnings from discontinued operations have been reclassified within the Consolidated Statement of Operations. Certain other prior year amounts have been reclassified to conform to the current year presentation.


B.	ACCOUNTS AND NOTES RECEIVABLE


(Millions of Dollars)	2008		2007

Trade accounts and notes receivable		$682.2		$802.1
Other receivables		35.3		43.9

Gross accounts and notes receivable		717.5		846.0
Allowance for doubtful accounts		(39.8)		(40.3)

Net accounts and notes receivable		$677.7		$805.7

Trade receivables are dispersed among a large number of retailers, distributors and industrial accounts in many countries. Adequate reserves have been established to cover anticipated credit losses.

Previously, the Company had agreements to sell, on a revolving basis, undivided interests in defined pools of accounts receivable to a Qualified Special Purpose Entity (“QSPE”). The entity was designed to facilitate the securitization of certain trade accounts receivable and was used as an additional source of liquidity. In June 2008, the Company acquired a third party’s interest in the QSPE. As a result, the entity became non-qualified. The net assets of this entity, which consisted of accounts receivable of $17.3 million, were consolidated in the Company’s balance sheet. Net cash flows between the Company and the entity totaled $43.2 million in 2008

and $18.0 million in 2007. Such activity primarily related to receivable sales, collections on receivables and servicing fees. In November 2008, this entity was dissolved. There were no gains or losses upon the acquisition of the third party interest or upon dissolution of the entity. The amounts deducted from receivables in the December 29, 2007 Consolidated Balance Sheet under this arrangement was $42.3 million.


C.	INVENTORY


(Millions of Dollars)	2008		2007
Finished products		$365.0		$392.1
Work in process		58.2		57.4
Raw materials		91.5		106.9

Total		$514.7		$556.4

Net inventories in the amount of $159.2 million at January 3, 2009 and $204.7 million at December 29, 2007 were valued at the lower of LIFO cost or market. If the LIFO method had not been used, inventories would have been $76.0 million higher than reported at January 3, 2009 and $66.0 million higher than reported at December 29, 2007.

D. ASSETS HELD FOR SALE

Assets held for sale are reported at the lower of fair value less cost to sell or carrying value. At December 29, 2007, $115.7 million of assets were classified as held for sale including $91.4 million in assets of the CST/berger business and three other small businesses as more fully discussed in Note U, Discontinued Operations. Additionally at December 29, 2007, $24.3 million of financing lease receivables generated by the Blick business within the Security segment were classified as held for sale. These receivables were sold for an amount approximating net book value. There are no assets held for sale in the January 3, 2009 balance sheet as all sales were completed during the current year.


E.	PROPERTY, PLANT AND EQUIPMENT


(Millions of Dollars)	2008		2007
Land		$42.9		$41.9
Land improvements		19.4		17.2
Buildings		277.9		273.2
Leasehold improvements		24.7		23.6
Machinery and equipment		900.3		937.4
Computer software		192.8		155.7

Gross PP&E		$1,458.0		$1,449.0
Less: accumulated depreciation and amortization		878.2		884.1

Total		$579.8		$564.9

Depreciation and amortization expense associated with PP&E was as follows:

(Millions of Dollars)

2008

2007

2006

Depreciation

$74.0

$66.1

$69.4

Amortization

18.5

17.1

12.2

Depreciation and amortization expense

$92.5

$83.2

$81.6

The amounts above are inclusive of depreciation and amortization expense for discontinued operations amounting to $0.5 million in 2008, $0.9 million in 2007 and $1.4 million in 2006.


F.	ACQUISITIONS

The Company completed 30 acquisitions during 2008, 2007 and 2006. These businesses were acquired pursuant to the Company’s growth and portfolio repositioning strategy. The acquisitions were accounted for by

the purchase method in accordance with SFAS 141, and their results are included in the Company’s consolidated operating results from the respective acquisition dates. All of the acquisitions have resulted in the recognition of goodwill. Goodwill reflects the future earnings and cash flow potential of the acquired business in excess of the fair values that are assigned to all other identifiable assets and liabilities. Goodwill arises because the purchase price paid reflects numerous factors including the strategic fit and expected synergies these targets bring to existing operations, the competitive nature of the bidding process and the prevailing market value for comparable companies. SFAS 141 requires all identifiable assets and liabilities acquired to be reported at fair value and the excess is recorded as goodwill. The Company obtains information during due diligence and from other sources which forms the basis for the initial allocation of purchase price to the estimated fair value of assets and liabilities acquired. In the months following an acquisition, intangible asset valuation reports, asset appraisals and other data are obtained in order for management to finalize the fair values assigned to acquired assets and liabilities.

Integration of certain acquisitions requires reduction of redundant personnel, closure of facilities, and other restructuring actions related to the acquired businesses. In such cases, a restructuring accrual is recorded for actions identified in integration strategy plans initially developed by the Company as of the acquisition date, with a resulting increase to goodwill. As integration strategies are executed, the Company monitors the previously established restructuring accruals and makes adjustments to the extent actual expenditures differ from the estimated accruals. Adjustments recorded to previously established restructuring accruals until the time integration plans are fully executed, not to exceed one year from the date of original acquisition, are reflected in the final goodwill amount included in the purchase price allocation. Adjustments made subsequent to the finalization of integration strategies, or after one year from the date of original acquisition, are appropriately reflected in earnings if increases to the originally established accruals are required, while accruals that are not fully utilized are recorded as a reduction of goodwill.

2008 ACQUISITIONS In July 2008, the Company completed the acquisition of Sonitrol Corporation (“Sonitrol”) for $282.1 million in cash. Sonitrol is a market leader in North American commercial security monitoring services, access control and fire detection systems, with annual revenues of approximately $110 million. The acquisition will complement the product offering of the pre-existing security integration businesses including HSM acquired in early 2007.

Also in July 2008, the Company completed the acquisition of Xmark Corporation (“Xmark”) for $47.1 million in cash. Xmark, headquartered in Canada, markets and sells radio frequency identification-based systems used to identify, locate and protect people and assets, with annual revenues of approximately $30 million. The acquisition expands the Company’s personal security business.

In October of 2008, the Company completed the acquisition of Generale de Protection (“GdP”) for $168.6 million in cash. GdP, headquartered in Vitrolles, France, is a leading provider of audio and video security monitoring services, primarily for small and mid-sized businesses located in France and Belgium. GdP’s annual revenues are approximately $87 million.

The Company also made eleven small acquisitions relating to its mechanical access systems, convergent security solutions, industrial healthcare storage and fastening businesses during 2008. These eleven acquisitions were completed for a combined purchase price of $74.6 million.

The total purchase price of $572.4 million reflects transaction costs and is net of cash acquired, amounts allocated to the assets acquired and liabilities assumed are based on their estimated fair values at the acquisition dates. Goodwill associated with the 2008 acquisitions that is deductible for income tax purposes amounts to $40.7 million. The purchase price allocations of these acquisitions are preliminary, mainly with respect to the finalization of intangible asset valuations, related deferred taxes, and certain other items.

The following table summarizes the estimated fair values of major assets acquired and liabilities assumed for the 2008 acquisitions in the aggregate:


(Millions of Dollars)	2008

Current assets, primarily accounts receivable and inventories	$	72.3
Property, plant, and equipment		10.4
Goodwill		329.3
Trade names		21.1
Customer relationships		239.5
Technology		14.1
Other intangible assets		1.4
Other assets		8.7

Total assets	$	696.8

Current liabilities	$	74.4
Deferred tax liabilities and other		50.0

Total liabilities	$	124.4

The weighted average useful lives assigned to the amortizable assets identified above are trade names — 10 years; customer relationships — 13 years; technology — 8 years; and other intangible assets — 1 year.

2007 ACQUISITIONS The Company completed the acquisition of HSM Electronic Protection Services, Inc. (“HSM”) on January 16, 2007 for $546.1 million which was financed with debt and equity units as more fully described in Note I, Long-Term Debt and Financing Arrangements. HSM is a market leader in the North American commercial security monitoring industry, with annual revenues of approximately $200 million. HSM has a stable customer base, an extensive North American field network and the second largest market share in the U.S. commercial monitoring market. The acquisition has served as a growth platform in the monitoring sector of the security industry.

The Company also made eight small acquisitions relating to its hydraulic, access technologies, industrial healthcare storage, mechanical access solutions and security integration businesses during 2007 for a combined purchase price of $100.1 million. Goodwill associated with the 2007 acquisitions that is deductible for tax purposes amounted to $104.9 million.

The total purchase price of $646.2 million for the 2007 acquisitions reflects transaction costs and is net of cash acquired. Amounts allocated to the assets acquired and liabilities assumed are based on their estimated fair values at the acquisition dates. Adjustments to reflect the fair value of the assets acquired and liabilities assumed are complete for all 2007 acquisitions.

The following table summarizes the fair values of major assets acquired and liabilities assumed for all 2007 acquisitions:


(Millions of Dollars)	2007
Current assets, primarily accounts receivable and inventories		$44.9
Property, plant, and equipment		10.7
Goodwill		386.4
Trade names		13.1
Customer relationships		227.3
Technology		1.9
Other intangible assets		1.0
Other assets		22.6

Total assets		$707.9

Current liabilities		$59.0
Deferred tax liabilities and other		2.7

Total liabilities		$61.7

The weighted average useful lives assigned to the amortizable assets identified above are trade names — 7 years; customer relationships — 15 years; technology — 8 years; and other intangible assets — 4 years.

PRO FORMA EARNINGS FOR ACQUISITIONS The information for 2008, 2007 and 2006 set forth below reflects the pro forma consolidated results as if the 2008, 2007, and 2006 acquisitions had occurred at the beginning of 2006. Non-recurring expenses of the acquired companies have been eliminated, while the effects of the Company’s inventory step-up charges, increased intangible asset amortization expense, taxes and interest have been added to the results below.

Operating results for the acquisitions during these pre-acquisition periods were not necessarily indicative of future results.

(Millions of Dollars, except per share amounts) (Unaudited)

2008

2007

2006

Net sales

$4,659.5

$4,721.6

$4,480.7

Net earnings

$319.6

$340.4

$293.7

Diluted earnings per share

$4.00

$4.05

$3.51

G. GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL The changes in the carrying amount of goodwill by segment are as follows:


(Millions of Dollars)	Security		Industrial		CDIY		Total
Balance December 29, 2007		$911.1		$387.3		$214.1		$1,512.5
Acquisitions during the year		324.5		4.8		—		329.3
Foreign currency translation and other		(69.5)		(17.8)		(7.1)		(94.4)

Balance January 3, 2009		$1,166.1		$374.3		$207.0		$1,747.4

OTHER INTANGIBLE ASSETS Other intangible assets at January 3, 2009 and December 29, 2007 were as follows:

2008

2007

Gross

Carrying

Accumulated

Carrying

Accumulated

(Millions of Dollars)

Amount

Amortization

Amount

Amortization

Amortized Intangible Assets
— Definite lives

Patents and copyrights

$50.4

$(33.3)

$57.0

$(32.1)

Trade names

60.0

(26.2)

41.2

(20.7)

Customer relationships

661.6

(179.3)

446.9

(125.5)

Other intangible assets

54.1

(30.2)

41.9

(26.2)

Total

$826.1

$(269.0)

$587.0

$(204.5)

Total indefinite-lived trade names are $299.8 million at January 3, 2009 and $311.7 million at December 29, 2007. The decrease is attributable to foreign currency fluctuations.

Aggregate other intangible assets amortization expense by segment was as follows:


(Millions of Dollars)	2008		2007		2006

Security		$79.6		$65.5		$28.5
Industrial		8.0		6.8		5.0
CDIY		2.9		6.7		6.1

Consolidated		$90.5		$79.0		$39.6

Future amortization expense in each of the next five years amounts to $101.7 million for 2009, $86.1 million for 2010, $72.5 million for 2011, $59.1 million for 2012 and $49.4 million for 2013.


H.	ACCRUED EXPENSES

Accrued expenses at January 3, 2009 and December 29, 2007 were as follows:


(Millions of Dollars)	2008		2007

Payroll and related taxes		$107.6		$102.6
Restructuring costs		67.9		23.7
Trade allowances		65.0		79.3
Income and other taxes		40.6		39.1
Deferred revenue		34.7		33.6
Insurance and benefits		33.3		29.7
Other		158.9		142.9

Total		$508.0		$450.9


I.	LONG-TERM DEBT AND FINANCING ARRANGEMENTS

Long-term debt and financing arrangements at January 3, 2009 and December 29, 2007 follow:


(Millions of Dollars)	Interest Rate	2008		2007
U.K. loan notes, payable on demand	UK Libor less 0.5%		$0.7		$1.3
ESOP loan guarantees, payable in varying monthly installments through 2009	6.1%		1.3		4.2
Industrial Revenue Bonds due in 2010	6.3-6.8%		—		5.6
Notes payable due in 2010	5.0%		199.9		199.8
Notes payable due in 2012	4.9%		208.4		200.0
Notes payable due in 2013	6.15%		257.2		—
Convertible notes payable due in 2012	3 month LIBOR less 3.5%		320.0		330.0
Notes payable due in 2045 (subordinated)	5.9%		415.7		450.1
Other, payable in varying amounts through 2013	0.0-6.6%		30.2		31.4

Total debt			$1,433.4		$1,222.4
Less: current maturities			13.9		10.3

Long-term debt			$1,419.5		$1,212.1

Aggregate annual maturities of long-term debt for each of the years from 2009 to 2013 are $13.9 million, $207.2 million, $5.7 million, $532.1 million and $258.8 million, respectively. Interest paid during 2008, 2007, and 2006 amounted to $78.9 million, $85.0 million and $70.3 million, respectively.

On February 27, 2008, the Company amended its credit facility to provide for an increase and extension of its committed credit facility to $800.0 million from $550.0 million. In May 2008, the Company’s commercial paper program was also increased to $800.0 million. The credit facility is designated as a liquidity back-stop for the Company’s commercial paper program. The amended and restated facility expires in February 2013.

Included in Short-term borrowings on the Consolidated Balance Sheets as of January 3, 2009 and December 29, 2007, is commercial paper of $205.7 million and $277.7 million, respectively. In addition, the Company has uncommitted short-term lines of credit with numerous banks aggregating $246.0 million, of which $233.7 million was available at January 3, 2009. Short-term arrangements are reviewed annually for renewal. The aggregate long-term and short-term lines amounted to $1.046 billion. The weighted average interest rates on short-term borrowings at January 3, 2009 and December 29, 2007 were 2.4% and 4.6%, respectively.

Company used the net proceeds from the offering primarily to reduce borrowings under its existing commercial paper program. The $257.2 million of debt reported at January 3, 2009 reflects the unamortized balance of the $7.9 million gain from a December 2008 swap termination. This fixed-to-floating interest rate swap was entered into upon issuance of the 2013 Term Notes as detailed in Note J Financial Instruments. The 2013 Term Notes include a Change of Control Triggering Event that would apply should a Change of Control event (as defined in the Indenture governing the 2013 Term Notes) occur. The Company would be required to make an offer to repurchase, in cash, all of the outstanding 2013 Term Notes for a purchase price at 101.0% of the original principal amount, plus any accrued and unpaid interest outstanding up to the purchase date.

In May 2008, the Company entered into a fixed-to-floating interest rate swap on its $200.0 million notes payable due in 2012. The $8.4 million increase in the carrying value of the debt at January 3, 2009 pertains to the gain recognized upon termination of this swap in December 2008 as more fully discussed in Note J Financial Instruments.

Junior Subordinated Debt Securities

In November 2005, the Company issued $450.1 million of junior subordinated debt securities to The Stanley Works Capital Trust I (the “Trust”), with a 40-year term and a fixed initial coupon rate of 5.902% for the first five years. The Trust, which was not consolidated in accordance with Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Interest Entities, an interpretation of ARB No. 51” (“FIN 46R”), obtained the funds it loaned to the Company through the capital market sale of $450.0 million of Enhanced Trust Preferred Securities (“ETPS”) and through the sale of $0.1 million in Trust Common Securities to the Company. The obligations, tenor and terms of the ETPS mirrored those of the junior subordinated debt securities. The securities may be redeemed after five years without penalty. If not redeemed after 5 years, the coupon rate will reset quarterly to 1.4% plus the highest of 3-month LIBOR, the 10-Year US Treasury CMT or the 30-Year US Treasury CMT, limited to a maximum rate of 13.25%. Net proceeds of the issuance were used to partially finance the acquisitions of Facom (January 1, 2006) and National (November 30, 2005).

In October 2008, the Company repurchased $34.3 million of the ETPS for $24.9 million in cash, and in December 2008 the Trust was dissolved. Upon the dissolution of the Trust, the $0.1 million investment in the unconsolidated Trust was unwound with a corresponding reduction in debt. Additionally the Company caused the remaining $415.7 million of junior subordinated debt securities held by the Trust to be distributed to the holders of ETPS in exchange for the ETPS upon dissolution of the Trust. A pre-tax gain of $9.4 million was recognized in Other-net in the Statement of Operations pertaining to the partial extinguishment of this debt.

Financing of the January 2007 HSM Acquisition

During 2007, the Company initially funded the $546.1 million HSM acquisition with a combination of short-term borrowings and cash. A $500.0 million 364-day revolving credit bridge facility was entered into on January 8, 2007, of which $130.0 million was utilized to acquire HSM; the remainder of the HSM purchase price was funded through commercial paper borrowings and cash.

On March 20, 2007, the Company completed two security offerings: “Equity Units”, which consisted of $330.0 million of convertible debt and $330.0 million of forward stock purchase contracts and $200.0 million of unsecured notes (the “2010 Term Notes”) . With respect to the $860.0 million in offerings, the Company will not receive the $330.0 million cash pertaining to the forward stock purchase contracts until May 2010. The $488.1 million net cash proceeds of these offerings and the related financial instruments described below were used to pay down the short-term bridge facility and commercial paper borrowings.

The 2010 Term Notes mature March 15, 2010 with fixed interest payable semi-annually, in arrears at a rate of 5.0% per annum and rank equally with other unsecured and unsubordinated debt of the Company. The $199.7 million of debt recorded at issuance reflects a $0.3 million discount to achieve a 5.0% fixed interest rate. The Company received proceeds from the 2010 Term Notes of $198.9 million net of this discount and underwriters fees; this $1.1 million in discount and fees will be amortized to expense over the three year term.

The 2010 Term Notes include a change in control provision (“Change in Control Provision”) that would apply in the event there is a Change in Control (as defined in the Indenture governing the 2010 Term Notes) and the 2010 Term Notes are rated below investment grade. The Change in Control Provision provides investors with the right to require the Company to repurchase all or any part of their 2010 Term Notes in cash at a price equal to 100.0% of the principal amount plus accrued and unpaid interest.

Equity Units: On March 20, 2007, the Company issued 330,000 Equity Units, each with a stated value of $1,000. The Equity Units are comprised of a senior convertible note (a “Convertible Note”) and a forward common stock purchase contract (an “Equity Purchase Contract”). The Company received $320.1 million in cash proceeds from the Equity Units offering, net of underwriting fees, and recorded $330.0 million in long-term debt for the Convertible Notes. These proceeds were used to repay short-term borrowings and, along with $18.8 million in proceeds from the sale of stock warrants, to fund the $49.3 million cost of the convertible notes hedge as more fully described below.

In November 2008, the Company repurchased $10.0 million of the Equity Units for $5.3 million in cash (the “$10 Million Repurchase”). To properly account for the transaction, the Equity Unit elements were bifurcated as essentially the Company paid $10.0 million to extinguish the Convertible Notes and received $4.7 million from the seller to settle its obligation under the Equity Purchase Contracts. As further detailed below, the Equity Purchase Contracts obligated the holder to purchase shares of the Company’s common stock at a minimum purchase price of approximately $54.45 per share on May 17, 2010. At the repurchase date, the Company’s common stock had a closing market value of $25.38. The remaining liability for Contract Adjustment Payment fees associated with the $10.0 million of settled Equity Purchase Contracts was reversed, resulting in an increase to equity of $0.7 million. The related $10.0 million in Convertible Note Hedges (the “Bond Hedge”) and Stock Warrants were unwound with a nominal impact to equity. As a result of the $10 Million Repurchase, there was an insignificant gain recorded in earnings and a net increase in equity of $5.4 million.

Equity Purchase Contracts:

The Equity Purchase Contracts obligate the holders to purchase on May 17, 2010, newly issued shares of the Company’s common stock for $320.0 million in cash. A maximum of 5.9 million shares of common stock may be issued on the May 17, 2010 settlement date, subject to adjustment for standard anti-dilution provisions. Equity Purchase Contract holders may elect to settle their obligation early, in cash. The Convertible Notes, described further below, are pledged as collateral to guarantee the holders’ obligations to purchase common stock under the terms of the Equity Purchase Contracts. The agreed upon number of shares that each Equity Purchase Contract holder must purchase is called the “settlement amount”. The settlement amount is equal to the sum of the daily settlement amounts determined over a 20 consecutive trading day period (the “observation period”) ending on and including the third trading day prior to the purchase contract settlement date. The settlement amount may be affected by standard anti-dilution protection provisions in the Equity Purchase Contracts or a cash merger. In effect, the Company will receive a minimum purchase price from investors of approximately $54.45 per share. The daily settlement amount for each trading day during the observation period is calculated as follows:


	•	if the applicable market value of the Company’s common stock on that trading day is less than or equal to $54.45 (the “reference price”), the daily settlement amount for that trading day will be 0.9183 shares of the Company’s common stock; and

	•	if the applicable market value of the Company’s common stock on that trading day is greater than the reference price, the daily settlement amount for that trading day will be a number of shares of the Company’s common stock equal to $50 divided by the applicable market value, rounded to the nearest ten thousandth share.

Holders of the Equity Purchase Contract are paid a quarterly contract adjustment payment (“Contract Adjustment Payment”) of 5.125% per annum, and the first payment thereof was made August 17, 2007. The $49.6 million present value of the Contract Adjustment Payments reduced Shareowners’ Equity at inception. As each quarterly Contract Adjustment Payment is made, the related liability will be relieved with the

difference between the cash payment and the present value of the Contract Adjustment Payment recorded as interest expense (at inception approximately $3.9 million accretion over the three year term). Due to the $10 Million Repurchase, $0.7 million in remaining liability for the related Contract Adjustment Payments was reversed. At January 3, 2009 the liability reported for the Contract Adjustment Payments amounted to $22.9 million.

Convertible Notes:

The $320.0 million Convertible Notes currently outstanding have a five-year maturity and are due May 17, 2012. At maturity, the Company is obligated to repay the principal in cash, and may elect to settle the conversion option value, if any, as detailed further below, in either cash or shares of the Company’s common stock. The Convertible Notes bear interest at an annual rate of 3-month LIBOR minus 3.5%, reset quarterly (but never less than zero), and initially set at 1.85%. Interest is payable quarterly commencing August 17, 2007. The Convertible Notes are unsecured general obligations and rank equally with all of the Company’s other unsecured and unsubordinated debt. The Convertible Notes are pledged as collateral to guarantee the holders’ obligations to purchase common stock under the terms of the Equity Purchase Contract described above.

The Company is obligated to remarket the Convertible Notes commencing on May 10, 2010 to the extent that holders of the Convertible Note element of an Equity Unit or holders of separate Convertible Notes elect to participate in the remarketing. Holders of Equity Units who elect to have the Convertible Note element of these units not participate in the remarketing must create a Treasury Unit (replace the Convertible Notes with a zero-coupon U.S. Treasury security as substitute collateral to guarantee their performance under the Equity Purchase Contract), settle the Equity Purchase Contract early or settle it in cash prior to May 17, 2010. Upon a successful remarketing, the proceeds will be utilized to satisfy in full the Equity Unit holders’ obligations to purchase the Company’s common stock under the Equity Purchase Contract. In the event the remarketing of the Convertible Notes is not successful, the holders may elect to pay cash or to deliver the Convertible Notes to the Company as consideration to satisfy their obligation to purchase common shares under the Equity Purchase Contract.

The conversion premium for the Convertible Notes is 19.0%, equivalent to the initial conversion price of $64.80 based on the $54.45 value of the Company’s common stock at the date of issuance. Upon conversion on May 17, 2012 (or a cash merger event), the Company will deliver to each holder of the Convertible Notes $1,000 cash for the principal amount of the note. Additionally at conversion, to the extent, if any, that the conversion option is “in the money”, the Company will deliver, at its election, either cash or shares of the Company’s common stock based on an initial conversion rate of 15.4332 shares (equivalent to the initial conversion price set at $64.80) and the applicable market value of the Company’s common stock. The ultimate conversion rate may be increased above 15.4332 shares in accordance with standard anti-dilution provisions applicable to the Convertible Notes or in the event of a cash merger. An increase in the ultimate conversion rate will apply if the Company increases the per share common stock dividend rate during the five year term of the Convertible Notes; accordingly such changes to the conversion rate are within the Company’s control under its discretion regarding dividends it may declare. Also, the holders may elect to accelerate conversion, and “make whole” adjustments to the conversion rate may apply, in the event of a cash merger or “fundamental change”. Subject to the foregoing, if the market value of the Company’s common shares is below the conversion price at conversion, (initially set at a rate equating to $64.80 per share), the conversion option would be “out of the money” and the Company would have no obligation to deliver any consideration beyond the $1,000 principal payment required under each of the Convertible Notes. To the extent, if any, that the conversion option of the Convertible Notes becomes “in the money” in any interim period prior to conversion, there will be a related increase in diluted shares outstanding utilized in the determination of the Company’s diluted earnings per share in accordance with the treasury stock method prescribed by SFAS No. 128, Earnings Per Share.

Convertible Notes Hedge: In order to offset the common shares that may be deliverable pertaining to the previously discussed conversion option feature of the Convertible Notes, the Company entered into Bond Hedges with certain major financial institutions. The Company paid the financial institutions a premium of

$49.3 million for the Bond Hedge which was recorded, net of $14.0 million of anticipated tax benefits, as a reduction of Shareowners’ Equity. The terms of the Bond Hedge mirror those of the conversion option feature of the Convertible Notes such that the financial institutions may be required to deliver shares of the Company’s common stock to the Company upon conversion at its exercise in May 2012. To the extent, if any, that the conversion option feature becomes “in the money” during the five year term of the Convertible Notes, diluted shares outstanding will increase accordingly. Because the Bond Hedge is anti-dilutive, it will not be included in any diluted shares outstanding computation prior to its maturity. However, at maturity of the Convertible Notes and the Bond Hedge in 2012, the aggregate effect of these instruments is that there will be no net increase in the Company’s common shares.

Stock Warrants: Simultaneously, the Company issued 5,092,956 of unregistered common stock warrants (“Stock Warrants”) to financial institutions for $18.8 million. The cash proceeds received were recorded as an increase to Shareowners’ Equity. The Stock Warrants are exercisable during the period August 17, 2012 through September 28, 2012, and have a strike price of $87.12 established at 160.0% of the market value of $54.45 on the issuance date. The Stock Warrants will be net share settled and are deemed to automatically be exercised at their expiration date if they are “in the money” and were not previously exercised. The strike price for the Stock Warrants may be adjusted for increases to the Company’s dividend rate per share, or special dividends, if any, that occur during their five year term (consistent with the standard anti-dilution provisions discussed earlier with respect to the conversion spread on the Convertible Notes). In the event the Stock Warrants become “in the money” during their five year term due to the market value of the Company’s common stock exceeding the $87.12 strike price, there will be a related increase in diluted shares outstanding utilized in the determination of the Company’s diluted earnings per share. In November 2008, 154,332 Stock Warrants were repurchased from the financial institutions at a cost of $.15 per warrant, pertaining to the previously mentioned $10 Million Repurchase. As a result, there were 4,938,624 Stock Warrants Outstanding as of January 3, 2009.


J.	FINANCIAL INSTRUMENTS

The Company’s objectives in using debt and foreign currency related financial instruments are to obtain the lowest cost source of funds within a targeted range of variable to fixed-rate debt proportions, to better match financial obligations to sources of operating cash flows, and to minimize the foreign exchange risks arising from cross-border cash flows. To meet these risk management objectives, the Company enters into interest rate swap and currency swap agreements, purchased currency options and foreign exchange contracts. Derivative instruments are not employed for speculative purposes and are recognized in the Consolidated Balance Sheets at fair value. If the Company elects to do so, hedge accounting is applied based on the criteria specified in SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”(as amended) whereby management designates its derivative instruments as cash flow hedges, fair value hedges or net investment hedges.

CASH FLOW HEDGES Foreign exchange forward contracts are used to hedge multi-currency inter-company and trade cash flows expected to occur generally over a twelve to eighteen month period. The objective of these instruments is to minimize the impact of foreign currency fluctuations on operating results. In addition, interest rate swaps are utilized to manage the mix of fixed versus floating rate liabilities.

Forward contracts: The Company has entered into foreign exchange forward contracts denominated in Australian dollars, Canadian dollars, Chinese renminbi, euros, Great Britain pounds, Polish zloty, Taiwanese dollars, and Thai bhat. At January 3, 2009 and December 29, 2007 the notional value of forward contracts designated as cash flow hedges and hedging inter-company transactions totaled $85.9 million and $206.3 million, respectively. The aggregate fair value of these contracts is a loss of $1.5 million that is recorded in Other current assets and Accrued expenses in the Consolidated Balance Sheet. The pre-tax amount recorded in Accumulated other comprehensive income related to forwards designated as cash flow hedges as of January 3, 2009 is $5.3 million. These amounts are expected to be reclassified into earnings over the next 12 months as the underlying hedged transactions affect earnings.

Interest rate swaps: In December 2008, the Company terminated its lease and purchased one of its major distribution centers. In conjunction with the termination of the lease, the Company also terminated the interest rate swap used to exchange the floating rate rental liability to a fixed rental liability. The interest rate swap had a notional amount of $14.9 million and resulted in an immaterial gain upon termination.

In March 2007, concurrent with the issuance of the Equity Units, the Company executed interest rate swaps with an aggregate notional amount of $330.0 million to convert the floating rate coupon on the Convertible Notes (LIBOR less 350 basis points) to a fixed rate coupon (1.43%) for a period of three years. In November 2008, the Company repurchased $10 million of the Equity Units and reduced the amount of the interest rate swap by the corresponding amount to ensure that the notional amounts of the derivative and the underlying continued to match. At January 3, 2009, the aggregate fair value of the outstanding interest rate swaps is a net loss of $6.6 million as reflected in Accrued expenses and Other Liabilities in the Consolidated Balance Sheet.

In 2005 the Company entered into a thirty year floating to fixed interest rate swap with a notional value of $150.0 million. The swap hedged the interest rate exposure associated with the forecasted refinancing of the $150.0 million 3.5% bonds maturing November 2007. During 2006 the swap was terminated, resulting in a $5.9 million gain before tax. The termination of this financial instrument was consistent with the Company’s risk management objective to obtain the lowest cost source of funds within a targeted range of variable to fixed rate interest rate proportions. The gain arising from the swap termination was reflected in Accumulated other comprehensive income in the Consolidated Balance Sheet during 2006. In November 2007, upon the maturity of the bonds linked to the associated hedged interest rate exposure, $5.0 million of the gain was reclassified out of Accumulated other comprehensive income and recorded as a gain in Other-net in the Consolidated Statement of Operations. The remaining $0.9 million in Accumulated other comprehensive income will be amortized as a reduction to interest expense through May 2012.

Cross currency swaps: The Company and its subsidiaries have entered into various inter-company transactions whereby the notional values are denominated in currencies other than the functional currencies of the party executing the trade (United States dollar and euro). In order to better match the cash flows of its inter-company obligations with cash flows from operations, the Company enters into cross currency swaps. At January 3, 2009, the aggregate fair value of the Company’s cross currency swaps that were designated as cash flow hedges was a net loss of $21.4 million as reflected in Accrued expenses and Other liabilities in the Consolidated Balance Sheet. The swaps have an aggregate United States dollar notional value of $150.0 million and maturity dates in November 2010. In December 2008, the Company made a payment of $13.4 million related to the termination of a $90.5 million cross currency swap hedging an affiliate loan. The termination had a nominal impact to the Company’s earnings.

For derivative instruments that are so designated at inception and qualify as cash flow hedges, the Company records the effective portions of the gain or loss on the derivative instrument in Accumulated other comprehensive income, a separate component of Shareowners’ Equity, and subsequently reclassifies these amounts into earnings in the period during which the hedged transaction is recognized in earnings. The ineffective portion of the gain or loss, if any, is immediately recognized in the same caption where the hedged items are recognized in the Consolidated Statements of Operations, generally Other-net. There is a $4.8 million after-tax gain reported for cash flow hedge effectiveness in Accumulated other comprehensive income as of January 3, 2009. Of this amount $4.6 million is expected to be reclassified to earnings as the hedged transactions occur or as amounts are amortized within the next 12 months, with the remainder through 2010. The ultimate amount recognized will vary based on fluctuations of the hedged currencies (Australian dollar, Canadian dollar, Chinese renminbi, euro, Great Britain pound, Polish zloty, Taiwanese dollar, Thai baht and United States dollar) through the maturity dates. During 2008, 2007, and 2006, $42.9 million, $(31.7) million, and $25.7 million, respectively, pertaining to cash flow hedges, was reclassified from Accumulated other comprehensive income into earnings, during the periods in which the underlying hedged transactions affected earnings; due to the effectiveness of these instruments in matching the underlying on a net basis there was no significant earnings impact.

FAIR VALUE HEDGES For derivative instruments that are designated and qualify as fair value hedges, the Company recognizes the gain or loss on the derivative instrument in earnings in the same caption where the offsetting gain or loss on the hedged item is recognized in the current period.

Interest rate swaps: In an effort to continue to optimize the mix of fixed versus floating rate debt in the Company’s capital structure, in May 2008 and November 2008 the Company entered into interest rate swaps with notional values which equaled the Company’s $200.0 million 4.9% notes due November 2012 and $250.0 million 6.15% notes due 2013. The interest rate swaps effectively converted the Company’s fixed rate debt to floating rate debt based on LIBOR, thereby hedging the fluctuation in the fair value resulting from changes in interest rates. The changes in fair value of the interest rate swaps were recognized in earnings as well as the offsetting changes in fair value of the underlying notes.

In December 2008, the Company terminated both interest rate swaps resulting in pre-tax gains of $16.5 million which was offset by the fair value adjustment to the carrying value of the underlying notes. At January 3, 2009 the carrying amounts of the $200.0 million and $250.0 million notes were increased by $8.4 million and $7.7 million respectively, related to this adjustment and will be amortized over the remaining term of the notes as a reduction of interest expense. The swaps were highly effective and, accordingly, no amount is recorded for ineffectiveness in the Consolidated Statement of Operations.

Cross currency swaps: During 2008, the Company elected to discontinue the practice of designating cross currency swaps as fair value hedges. Previously designated cross currency swaps were dedesignated, and new cross currency swaps are undesignated. There was minimal impact to the Company’s financial statements resulting from this policy change.

NET INVESTMENT HEDGE The Company utilizes net investment hedges to offset the translation adjustment arising from remeasuring its investment in the assets, liabilities, revenues, and expenses of its foreign subsidiaries. For derivative instruments that are designated and qualify as net investment hedges, the Company records the effective portion of the gain or loss on the derivative instrument in Accumulated other comprehensive income. The Company had cross currency swaps and foreign exchange contracts denominated in Great Britain pounds and euro with an aggregate United States dollar notional value of $281.6 million to hedge its net investments of certain Great Britain pound and euro denominated assets. During the fourth quarter 2008, these contracts were terminated and resulted in gains of $19.1 million that will remain in Accumulated other comprehensive income until the underlying assets are disposed of. In order to continue to offset the translation adjustment of its net investment in euro assets, in December 2008 the Company entered into a foreign exchange contract to hedge its net investment on euro assets. The contract has a notional value $223.4 million United States dollars, and a maturity of February 2010. At January 3, 2009, the fair value of this contract was a loss of $20.7 million and is recorded in Other liabilities in the Consolidated Balance Sheet and the pre-tax loss on the net investment hedge included in Accumulated other comprehensive income is $20.7 million.

UNDESIGNATED HEDGES Cross currency swaps and foreign exchange forward contracts are used to reduce exchange risks arising from the change in fair value of certain foreign currency denominated assets and liabilities (i.e. affiliate loans, payables, receivables). The objective of these practices is to minimize the impact of foreign currency fluctuations on operating results.

At January 3, 2009 and December 29, 2007, the notional amount of forward contracts hedging inter-company transactions totaled $203.9 million. These foreign exchange forward contracts are denominated in the Australian dollar, Canadian dollar, Czech koruna, Danish krone, euro, Japanese yen, Great Britain pound, Mexican peso, New Zealand dollar, Polish zloty, South African rand, Swiss franc, Swedish krona, Taiwanese dollar and Thai baht. The contracts mature in less than one year. The aggregate fair value of these forward contracts is a $3.8 million gain that is recorded in Other current assets and Accrued expenses in the Consolidated Balance Sheet.

At January 3, 2009, the notional amount of cross currency swaps hedging inter-company transactions totaled $259.3 million. These swaps are denominated in Canadian dollars, euros, Great Britain pounds and United States dollars. The contracts have maturities ranging January 2009 to September 2010. The aggregate fair

value of these contracts is a net loss of $6.0 million that is recorded in Other currents assets, Accrued expenses, Other assets and Other liabilities in the Consolidated Balance Sheet.

HEDGE EFFECTIVENESS For forward contracts and cross currency swaps designated as cash flow, fair value or net investment hedges, the Company measures hedge effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item, both of which are based on forward rates. The ineffective portion, if any, of the hedge is recognized in earnings immediately. Hedge ineffectiveness was negligible for 2008, 2007, and 2006.

For interest rate swaps designated as cash flow hedges, the Company measures the hedge effectiveness by offsetting the change in the variable portion of the interest rate swap with the change in the expected interest flows due to fluctuations in the LIBOR based interest rate.

The counterparties to all of the above mentioned financial instruments are major international financial institutions. The Company is exposed to credit risk for net exchanges under these agreements, but not for the notional amounts. The risk of default is considered remote.

The carrying values and fair values of the Company’s financial instruments at January 3, 2009 and December 29, 2007 follow:

2008

2007

Carrying

Fair

(Millions of Dollars, (asset)/liability)

Value

Fair Value

Value

Long Term Debt, Including Current Portion

$1,433.4

$1,106.5

$1,222.4

$1,152.0

Undesignated Hedges:

Forward Contracts

(3.8)

(0.9)

Cross currency swaps

6.0

Cash Flow Hedges:

Forward contracts

1.5

(5.4)

Interest rate swaps

6.6

6.1

Cross currency swaps

21.4

68.0

Fair Value Hedges:

Cross currency swaps

(0.8)

Net Investment Hedges:

Cross currency swaps

14.5

Forward contracts

20.7

Total Financial Instruments

$1,485.8

$1,158.9

$1,303.9

$1,233.5

The fair values of long-term debt instruments are estimated using discounted cash flow analysis, based on the Company’s marginal borrowing rates. The fair values of foreign currency and interest rate swap agreements are based on current settlement values. The carrying amount of cash equivalents and short-term borrowings approximates fair value.


K.	CAPITAL STOCK

WEIGHTED-AVERAGE SHARES OUTSTANDING Weighted-average shares outstanding used to calculate basic and diluted earnings per share for each year were as follows:


	2008		2007		2006
Basic earnings per share, weighted-average shares outstanding		78,897,131		82,312,724		81,866,241
Dilutive effect of stock options and awards		977,017		1,732,848		1,838,131

Diluted earnings per share, weighted-average shares outstanding		79,874,148		84,045,572		83,704,372

As further detailed in Note I, Long-Term Debt and Financing Arrangements, in March 2007, the Company issued warrants to purchase up to 5,092,956 shares of its common stock with a strike price of $87.12 which

are anti-dilutive since the strike price of the warrants is greater than the market price of the Company’s common stock. There were 4,938,624 warrants outstanding at January 3, 2009 reflecting cancellations pertaining to the $10.0 million of Equity Units repurchased in November, 2008.

The following weighted-average stock options and warrants to purchase the Company’s common stock were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive.

2008

2007

2006

Number of stock options (in thousands)

2,101

824

738

Number of stock warrants (in thousands)

5,069

3,918

COMMON STOCK SHARE ACTIVITY Common stock share activity for 2008, 2007 and 2006 was as follows:


	2008		2007		2006
Outstanding, beginning of year		80,378,787		81,841,627		83,791,129
Issued from treasury		737,698		2,323,973		2,076,722
Returned to treasury		(2,240,451)		(3,786,813)		(4,026,224)

Outstanding, end of year		78,876,034		80,378,787		81,841,627

COMMON STOCK RESERVED Common stock shares reserved for issuance under various employee and director stock plans at January 3, 2009 and December 29, 2007 are as follows:


	2008		2007
Employee stock purchase plan		3,216,631		3,278,892
Other stock-based compensation plans		3,061,491		3,894,296

Total		6,278,122		7,173,188

PREFERRED STOCK PURCHASE RIGHTS Each outstanding share of common stock has a one share purchase right. Each purchase right may be exercised to purchase one two-hundredth of a share of Series A Junior Participating Preferred Stock at an exercise price of $220.00, subject to adjustment. The rights, which do not have voting rights, expire on March 10, 2016, and may be redeemed by the Company at a price of $0.01 per right at any time prior to the tenth day following the public announcement that a person has acquired beneficial ownership of 15% or more of the outstanding shares of common stock. In the event that the Company is acquired in a merger or other business combination transaction, provision shall be made so that each holder of a right (other than a holder who is a 14.9%-or-more shareowner) shall have the right to receive, upon exercise thereof, that number of shares of common stock of the surviving Company having a market value equal to two times the exercise price of the right. Similarly, if anyone becomes the beneficial owner of more than 15% of the then outstanding shares of common stock (except pursuant to an offer for all outstanding shares of common stock which the independent directors have deemed to be fair and in the best interest of the Company), provision will be made so that each holder of a right (other than a holder who is a 14.9%-or-more shareowner) shall thereafter have the right to receive, upon exercise thereof, common stock (or, in certain circumstances, cash, property or other securities of the Company) having a market value equal to two times the exercise price of the right. At January 3, 2009, there were 78,876,034 outstanding rights.

STOCK-BASED COMPENSATION PLANS The Company has stock-based compensation plans for salaried employees and non-employee members of the Board of Directors. The plans provide for discretionary grants of stock options, restricted stock units, and other stock-based awards. The plans are generally administered by the Compensation and Organization Committee of the Board of Directors, consisting of non-employee directors.

Stock Options: Stock options are granted at the fair market value of the Company’s stock on the date of grant and have a 10 year term. Generally, stock option grants vest ratably over four years from the date of grant.

The following describes how certain assumptions affecting the estimated fair value of stock options are determined: the dividend yield is computed as the annualized dividend rate at the date of grant divided by the

strike price of the stock option; expected volatility is based on an average of the market implied volatility and historical volatility for the 5 year expected life; the risk-free interest rate is based on U.S. Treasury securities with maturities equal to the expected life of the option; and an eight percent forfeiture rate is assumed. The Company uses historical data in order to estimate exercise, termination and holding period behavior for valuation purposes.

The number of stock options and weighted-average exercise prices follows:


	2008				2007				2006
	Options		Price		Options		Price		Options		Price
Outstanding, beginning of year		7,053,899		$37.83		8,456,508		$36.31		9,559,604		$34.06
Granted		849,360		33.73		743,000		53.11		934,000		50.44
Exercised		(400,972)		31.44		(1,820,355)		36.10		(1,817,695)		31.44
Forfeited		(420,063)		48.31		(325,254)		42.99		(219,401)		37.71

Outstanding, end of year		7,082,224		$37.08		7,053,899		$37.83		8,456,508		$36.31

Exercisable, end of year		5,368,989		$35.30		5,114,357		$33.46		5,619,112		$32.88

At January 3, 2009, the range of exercise prices on outstanding stock options was $19.34 to $63.04. Stock option expense was $4.9 million, $8.6 million and $8.2 million for the years ended January 3, 2009, December 29, 2007 and December 30, 2006, respectively.

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2008, 2007 and 2006, respectively: dividend yield of 3.8%, 2.4% and 2.4%; expected volatility of 45.0%, 28.0%, 26.0%; and risk-free interest rates of 1.8%, 3.6%, 4.2%. An expected life of 5 years was used in each period and a weighted average vesting period of 2.0 years in 2008, 2.5 years in 2007 and 2.3 years in 2006. The weighted average fair value of stock options granted in 2008, 2007 and 2006 was $9.25, $12.15, and $12.03, respectively.

At January 3, 2009, the Company had $15.3 million of unrecognized pre-tax compensation expense for stock options. This expense will be recognized over the remaining vesting periods which are 2.0 years on a weighted average basis.

During 2008, the Company received $12.6 million in cash from the exercise of stock options. The related tax benefit from the exercise of these options is $2.5 million. During 2008, 2007 and 2006 the total intrinsic value of options exercised was $6.8 million, $37.9 million and $35.5 million, respectively. When options are exercised, the related shares are issued from treasury stock.

SFAS 123R requires the benefit arising from tax deductions in excess of recognized compensation cost to be classified as a financing cash flow rather than as an operating cash flow as all such tax benefits were classified under earlier accounting guidance. To quantify the recognized compensation cost on which the excess tax benefit is computed, both actual compensation expense recorded following the adoption of SFAS 123R and pro-forma compensation cost reported in disclosures under the previous SFAS 123 standard in earlier periods is considered. An excess tax benefit is generated on the extent to which the actual gain, or spread, an optionee receives upon exercise of an option exceeds the fair value determined at the grant date; that excess spread over the fair value of the option times the applicable tax rate represents the excess tax benefit. In 2008 and 2007, the Company reported $3.8 million and $8.6 million, respectively, of excess tax benefits as a financing cash flow.

Outstanding and exercisable stock option information at January 3, 2009 follows:


	Outstanding Stock Options
			Weighted-average				Exercisable Stock Options
			Remaining		Weighted-average				Weighted-average
Exercise Price Ranges	Options		Contractual Life		Exercise Price		Options		Exercise Price
$30.00 and below		831,592		1.51		$22.39		831,592		$22.39
$30.01 – 45.00		4,380,690		4.65		34.25		3,555,330		34.45
$45.01 – higher		1,869,942		7.80		50.26		982,067		49.32

		7,082,224		5.12		$37.08		5,368,989		$35.30

Compensation cost for new grants is recognized on a straight-line basis over the vesting period. The expense for retirement eligible employees (those aged 55 and over and with 10 or more years of service) is recognized by the date they became retirement eligible, as such employees may retain their options for the 10 year contractual term in the event they retire prior to the end of the vesting period stipulated in the grant.

Employee Stock Purchase Plan: The Employee Stock Purchase Plan (“ESPP”) enables substantially all employees in the United States and Canada to subscribe at any time to purchase shares of common stock on a monthly basis at the lower of 85% of the fair market value of the shares on the grant date ($48.85 per share for fiscal year 2008 purchases) or 85% of the fair market value of the shares on the last business day of each month. A maximum of 6,000,000 shares are authorized for subscription. During 2008, 2007 and 2006 shares totaling 62,261, 68,848 and 64,590, respectively, were issued under the plan at average prices of $37.31, $44.33 and $39.26 per share, respectively and the intrinsic value of the ESPP purchases was $0.4 million, $0.8 million and $0.6 million respectively. For 2008, the Company received $2.3 million in cash from ESPP purchases, and there is no related tax benefit. The fair value of ESPP shares was estimated using the Black Scholes option pricing model. ESPP compensation cost is recognized ratably over the one year term based on actual employee stock purchases under the plan. The fair value of the employees’ purchase rights under the ESPP was estimated using the following assumptions for 2008, 2007 and 2006, respectively: dividend yield of 3.7%, 2.2% and 2.4%; expected volatility of 28.0%, 22.0% and 23.0%; risk-free interest rates of 0.3%, 4.4% and 4.3%; and expected lives of one year. The weighted average fair value of those purchase rights granted in 2008, 2007 and 2006 was $6.59, $10.95 and $9.70, respectively.

Restricted Share Units: Compensation cost for restricted share units, including restricted shares granted to French employees in lieu of RSU’s, (collectively “RSU’s”) granted to employees is recognized ratably over the vesting term, which varies but is generally 4 years. RSU grants totaled 241,036 shares, 228,125 shares and 169,675 shares in 2008, 2007 and 2006, respectively. The weighted-average grant date fair value of RSU’s granted in 2008, 2007 and 2006 was $35.28, $49.13 and $49.28 per share, respectively. Total compensation expense recognized for RSU’s amounted to $6.3 million, $7.6 million and $4.1 million, respectively; and the related tax benefit recorded was $2.1 million, $2.2 million and $1.0, respectively, in 2008, 2007 and 2006. As of January 3, 2009, unrecognized compensation expense for RSU’s amounted to $15.8 million and this cost will be recognized over a weighted-average period of 1.9 years.

A summary of non-vested restricted stock unit activity as of January 3, 2009, and changes during the twelve month period then ended is as follows:


			Weighted Average
	Restricted Share		Grant
	Units		Date Fair Value
Non-vested at December 29, 2007		406,723		$48.68
Granted		241,036		35.28
Vested		(122,043)		47.46
Forfeited		(44,845)		47.17

Non-vested at January 3, 2009		480,871		$42.55

The total fair value of shares vested (market value on the date vested) during 2008, 2007 and 2006 was $4.4 million, $5.1 million and $5.2 million, respectively.

Additionally, non-employee members of the Board of Directors received restricted share-based grants which must be cash settled and accordingly mark-to-market accounting is applied. The after-tax expense recognized for such grants amounted to $0.2 million in 2008, $0.4 million in 2007, and $0.5 million in 2006.

Long-Term Performance Awards:

Cyclical 3-year Plans: The Company has granted Long Term Performance Awards (“LTIPs”) under its 1997 and 2001 Long Term Incentive Plans to senior management employees for achieving Company performance measures, specifically earnings per share and return on capital employed. Awards are payable in shares of common stock, which may be restricted if the employee has not achieved certain stock ownership levels, and generally no award is made if the employee terminates employment prior to the payout date. There are three award cycles in progress: one for the three year period ending in December, 2008, the second for the three year period ending in December, 2009, and the third for the three year period ending in December, 2010. The ultimate issuance of shares, if any, is determined based on performance in the final year of the cycle. Based on performance in fiscal 2008, a total of 27,031 shares will be issued to senior management in 2009.

Special Bonus Program: In 2007, the Company adopted a special bonus program under its 1997 Long Term Incentive Plan. The program provides senior managers the opportunity to receive stock in the event certain working capital turn objectives are achieved by December 31, 2009 and sustained for a period of at least six months. The ultimate issuances of shares, if any, will be determined based on performance during the performance period.

Expense recognized for the various performance-contingent grants amounted to $1.9 million in 2008, $1.5 million in 2007 and $7.4 million in 2006. In the event performance goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. A summary of the activity pertaining to the maximum number of shares that may be issued under both the Cyclical 3-year Plans and the Special Bonus Program is as follows:


			Weighted Average Grant
	Share Units		Date Fair Value
Non-vested at December 29, 2007		472,519		$48.14
Granted		238,068		44.22
Vested		(110,033)		48.61
Forfeited		(30,751)		50.25

Non-vested at January 3, 2009		569,803		$49.50

L. ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income (loss) at the end of each fiscal year was as follows:


(Millions of Dollars)	2008		2007		2006
Currency translation adjustment		$(66.6)		$99.3		$(8.3)
Pension loss, net of tax		(83.0)		(42.2)		(68.9)
Fair value of net investment hedge effectiveness, net of tax		(6.6)		(14.5)		(9.0)
Fair value of cash flow hedge effectiveness, net of tax		4.8		5.1		4.4

Accumulated other comprehensive income (loss)		$(151.4)		$47.7		$(81.8)

M. EMPLOYEE BENEFIT PLANS

EMPLOYEE STOCK OWNERSHIP PLAN (“ESOP ”) Substantially all U.S. employees may contribute from 1% to 15% of their eligible compensation to a tax-deferred 401(k) savings plan, subject to restrictions under tax laws. Employees generally direct the investment of their own contributions into various investment funds. An employer match benefit is provided under the plan equal to one-half of each employee’s tax-deferred contribution up to the first 7% of their compensation. Participants direct the entire employer match benefit such that no participant is required to hold the Company’s common stock in their 401(k) account. The

employer match benefit totaled $10.4 million, $8.4 million and $7.9 million, in 2008, 2007 and 2006, respectively.

In addition, approximately 4,100 U.S. salaried and non-union hourly employees receive a non-contributory benefit under the Cornerstone plan. Cornerstone benefit allocations range from 3% to 9% of eligible employee compensation based on age. Approximately 1,300 U.S. employees receive an additional average 1.7% contribution actuarially designed to replace previously curtailed pension benefits. Allocations for benefits earned under the Cornerstone plan were $15.6 million in 2008, $13.8 million in 2007, and $13.2 million in 2006. Assets held in participant Cornerstone accounts are invested in target date retirement funds which are age-based mix of investments.

Shares of the Company’s common stock held by the ESOP were purchased with the proceeds of external borrowings in 1989 and borrowings from the Company in 1991 (“1991 internal loan”). The external ESOP borrowings are guaranteed by the Company and are included in long-term debt. Shareowners’ equity reflects a reduction equal to the cost basis of unearned (unallocated) shares purchased with the internal and the external borrowings.

The Company accounts for the ESOP under Statement of Position (“SOP”) 76-3, “Accounting Practices for Certain Employee Stock Ownership Plans”, as affected by the Emerging Issues Task Force (“EITF”) 89-8, “Expense Recognition for Employee Stock Ownership Plans.” Net ESOP activity recognized is comprised of the cost basis of shares released, the cost of the aforementioned Cornerstone and 401(k) match defined contribution benefits, interest expense on the external 1989 borrowing, less the fair value of shares released and dividends on unallocated ESOP shares. Net ESOP expense was $10.6 million in 2008, $1.6 million in 2007 and $2.4 million in 2006. ESOP expense is affected by the market value of the Company’s common stock on the monthly dates when shares are released. The market value of shares released averaged $43.65 per share in 2008, $56.04 per share in 2007 and $49.28 in 2006.

Unallocated shares are released from the trust based on current period debt principal and interest payments as a percentage of total future debt principal and interest payments. Dividends on both allocated and unallocated shares may be used for debt service and to credit participant accounts for dividends earned on allocated shares. Dividends paid on the shares acquired with the 1991 internal loan were used solely to pay internal loan debt service in all periods. Dividends on ESOP shares, which are charged to shareowners’ equity as declared, were $9.7 million in 2008, $11.0 million in 2007 and $11.7 million in 2006. Dividends on ESOP shares were utilized entirely for debt service in all years. Interest costs incurred by the ESOP on the 1989 external debt in 2008, 2007 and 2006 were $0.2 million, $0.3 million and $0.3 million, respectively. Interest costs incurred by the ESOP on the 1991 internal loan, which have no earnings impact, were $8.4 million, $8.7 million and $9.2 million for 2008, 2007, and 2006, respectively. Both allocated and unallocated ESOP shares are treated as outstanding for purposes of computing earnings per share. As of January 3, 2009, the number of ESOP shares allocated to participant accounts was 3,630,455 and the number of unallocated shares was 4,704,184. At January 3, 2009, there were 30,475 released shares in the ESOP trust holding account pending allocation. The Company made cash contributions to the ESOP totaling $15.6 million in 2008, $11.7 million in 2007 and $11.2 million in 2006.

PENSION AND OTHER BENEFIT PLANS The Company sponsors pension plans covering most domestic hourly and certain executive employees, and approximately 4,300 foreign employees. Benefits are generally based on salary and years of service, except for U.S. collective bargaining employees whose benefits are based on a stated amount for each year of service.

The Company contributes to multi-employer plans for certain collective bargaining U.S. employees. In addition, various other defined contribution plans are sponsored worldwide. The expense for such defined contribution plans, aside from the earlier discussed ESOP plans, follows:

(Millions of Dollars)

2008

2007

2006

Multi-employer plan expense

$0.6

$0.5

Other defined contribution plan expense

$5.0

$6.5

$4.7

The components of net periodic pension expense are as follows:


			U.S. Plans						Non-U.S. Plans
(Millions of Dollars)	2008		2007		2006		2008		2007		2006

Service cost	$	2.7	$	2.7	$	2.6	$	4.7	$	4.4	$	5.9
Interest cost		9.8		9.0		8.1		15.4		15.0		13.8
Expected return on plan assets		(10.3)		(9.8)		(7.9)		(19.0)		(18.2)		(16.9)
Amortization of prior service cost		1.4		1.5		1.4		0.1		0.1		0.2
Transition amount amortization		-		-		-		0.1		0.1		-
Actuarial loss amortization		-		0.6		1.1		3.9		6.3		6.4
Settlement / curtailment loss		-		-		-		1.0		0.6		6.1


Net periodic pension expense	$	3.6	$	4.0	$	5.3	$	6.2	$	8.3	$	15.5

The Company provides medical and dental benefits for certain retired employees in the United States. In addition, certain U.S. employees who retire from active service are eligible for life insurance benefits. Approximately 7,500 participants are covered under these plans. Net periodic post-retirement benefit expense was $1.9 million in 2008, $2.2 million in 2007 and $2.7 million in 2006.

Changes in plan assets and benefit obligations recognized in other comprehensive income in 2008 are as follows:


(Millions of Dollars)	2008
Current year actuarial loss		$85.9
Amortization of actuarial loss		(3.6)
Amortization of prior service costs		(1.3)
Amortization of transition obligation		(0.1)
Currency / other		(21.7)

Total loss recognized in other comprehensive income (pre-tax)		$59.2

The amounts in Accumulated Other Comprehensive Loss expected to be recognized as components of net periodic benefit costs during 2009 total $6.3 million, representing amortization of $5.1 million of actuarial loss, $1.1 million of prior service cost, and $0.1 million of transition obligation.

The Company uses a fiscal year end date to value all its plans. The changes in the pension and other post-retirement benefit obligations, fair value of plan assets as well as amounts recognized in the Consolidated Balance Sheets, are shown below:


	U.S. Plans						Non-U.S. Plans				Other Benefits
	2008			2007			2008		2007		2008		2007

Change in benefit obligation
Benefit obligation at end of prior year	$	155.5		$	148.2		$	299.5	$	312.9	$	24.5	$	27.5
Service cost		2.7			2.7			4.7		4.4		1.0		1.1
Interest cost		9.8			9.0			15.4		15.0		1.4		1.4
Settlements / curtailments		-			-			(1.3)		(5.3)		-		-
Actuarial (gain) loss		8.4			(7.9	)		(22.4)		(26.4)		(1.0)		(3.4)
Plan amendments		1.1			-			0.4		-		-		-
Foreign currency exchange rates		-			-			(64.0)		14.3		-		-
Participant contributions		-			-			0.1		0.1		-		-
Acquisitions, divestitures and other		-			13.1			(0.2)		0.5		-		-
Benefits paid		(10.6	)		(9.6	)		(15.0)		(16.0)		(2.9)		(2.1)


Benefit obligation at end of year	$	166.9		$	155.5		$	217.2	$	299.5	$	23.0	$	24.5


Change in plan assets
Fair value of plan assets at end of prior year	$	129.0		$	112.2		$	281.4	$	267.1	$	-	$	-
Actual return (loss) on plan assets		(34.7	)		10.4			(36.6)		13.1		-		-
Participant contributions		-			-			0.1		0.1		-		-
Employer contributions		6.8			4.0			8.6		10.0		2.9		2.1
Settlements		-			-			(1.8)		(4.8)		-		-
Foreign currency exchange rate changes		-			-			(59.4)		11.6		-		-
Acquisitions, divestitures and other		-			12.0			(2.4)		0.3		-		-
Benefits paid		(10.6	)		(9.6	)		(15.0)		(16.0)		(2.9)		(2.1)


Fair value of plan assets at end of plan year	$	90.5		$	129.0		$	174.9	$	281.4	$	-	$	-


Funded status - assets less than benefit obligation	$	(76.4	)	$	(26.5	)	$	(42.3)	$	(18.1)	$	(23.0)	$	(24.5)
Unrecognized prior service cost (credit)		6.5			6.7			0.4		1.1		(1.0)		(1.2)
Unrecognized net actuarial loss (gain)		47.5			(5.9	)		65.7		58.3		0.3		1.0
Unrecognized net transition liability		-			-			0.7		0.9


Net amount recognized	$	(22.4	)	$	(25.7	)	$	24.5	$	42.2	$	(23.7)	$	(24.7)


Amounts recognized in the Consolidated Balance Sheets
Prepaid benefit cost (non-current)	$	-		$	16.5		$	4.2	$	16.0	$	-	$	-
Current benefit liability		(2.8	)		(2.8	)		(1.7)		(1.4)		(2.0)		(2.1)
Non-current benefit liability		(73.6	)		(40.2	)		(44.8)		(32.7)		(21.0)		(22.4)


Net liability recognized	$	(76.4	)	$	(26.5	)	$	(42.3)	$	(18.1)	$	(23.0)	$	(24.5)


Accumulated other comprehensive loss (pre-tax):
Prior service cost (credit)	$	6.5		$	6.7		$	0.4	$	1.1	$	(1.0)	$	(1.2)
Actuarial (gain) loss		47.5			(5.9	)		65.7		58.3		0.3		1.0
Transition liability		-			-			0.7		0.9


	$	54.0		$	0.8		$	66.8	$	60.3	$	(0.7)	$	(0.2)


Net amount recognized	$	(22.4	)	$	(25.7	)	$	24.5	$	42.2	$	(23.7)	$	(24.7)

In 2008, the reduction of the projected benefit obligation for actuarial gains primarily pertains to increased discount rates used to measure the pension liabilities.

The accumulated benefit obligation for all defined benefit pension plans was $366.3 million at January 3, 2009 and $427.1 million at December 29, 2007. Information regarding pension plans in which accumulated benefit obligations exceed plan assets follows:

U.S. Plans

Non-U.S. Plans

(Millions of Dollars)

2008

2007

2008

2007

Projected benefit obligation

$166.9

$58.6

$184.4

$56.2

Accumulated benefit obligation

$163.9

$55.7

$172.5

$50.0

Fair value of plan assets

$90.5

$15.6

$138.0

$22.2

Information regarding pension plans in which projected benefit obligations (inclusive of anticipated future compensation increases) exceed plan assets follows:

U.S. Plans

Non-U.S. Plans

(Millions of Dollars)

2008

2007

2008

2007

Projected benefit obligation

$166.9

$58.6

$185.0

$56.9

Accumulated benefit obligation

$163.9

$55.7

$173.0

$50.5

Fair value of plan assets

$90.5

$15.6

$138.5

$22.7

The Company adopted SFAS 158 as of December 30, 2006. The impact from recognizing the funded status of the defined benefit plans, representing the fair value of the plan assets versus the projected benefit obligation, was a decrease to Shareowners’ Equity of $61.1 million, net of $26.7 million tax benefit.

The major assumptions used in valuing pension and post-retirement plan obligations and net costs were as follows:


	Pension Benefits												Other Benefits
	U.S. Plans						Non-U.S. Plans						U.S. Plans
	2008		2007		2006		2008		2007		2006		2008		2007		2006
Weighted-average assumptions used to determine benefit obligations at year end:
Discount rate		6.0%		6.5%		5.75%		6.0%		5.5%		4.75%		6.25%		6.25%		5.75%
Rate of compensation increase		6.0%		6.0%		6.0%		3.5%		3.75%		3.75%		4.0%		4.0%		4.0%
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate		6.5%		5.75%		5.5%		5.5%		4.75%		5.0%		6.25%		5.75%		5.5%
Rate of compensation increase		6.0%		6.0%		5.5%		3.75%		3.75%		3.75%		4.0%		4.0%		4.0%
Expected return on plan assets		8.0%		8.0%		7.75%		7.5%		7.0%		7.5%		-		—		—

The expected long-term rate of return on plan assets is determined considering the returns projected for the various asset classes and the relative weighting for each asset class as reflected in the target asset allocation below. In addition the Company considers historical performance, the opinions of outside actuaries and other data in developing the return assumption. The Company expects to use a weighted-average long-term rate of return assumption of 7.5% for the U.S. plans and 7.0% for the non-U.S. plans in the determination of fiscal 2009 net periodic benefit expense.

PENSION PLAN ASSETS Plan assets are invested in equity securities, bonds and other fixed income securities, money market instruments and insurance contracts. The Company’s weighted-average worldwide actual asset allocations at January 3, 2009 and December 29, 2007 by asset category are as follows:

Plan Assets

Target

Asset Category

2008

2007

Allocation

Equity securities

58%

65%

50–70%

Fixed income securities

35%

30%

20–40%

Other

0–10%

Total

100%

100%

The Company’s investment strategy for pension plan assets includes diversification to minimize interest and market risks, and generally does not involve the use of derivative financial instruments. Plan assets are rebalanced periodically to maintain target asset allocations. Maturities of investments are not necessarily related to the timing of expected future benefit payments, but adequate liquidity to make immediate and medium term benefit payments is ensured.

CONTRIBUTIONS The Company’s funding policy for its defined benefit plans is to contribute amounts determined annually on an actuarial basis to provide for current and future benefits in accordance with federal law and other regulations. The Company expects to contribute approximately $20 million to its pension and other post-retirement benefit plans in 2009.

EXPECTED FUTURE BENEFIT PAYMENTS Benefit payments, inclusive of amounts attributable to estimated future employee service, are expected to be paid as follows over the next 10 years:


(Millions of Dollars)	Total		Year 1		Year 2		Year 3		Year 4		Year 5		Years 6-10
Future payments		$288.2		$23.9		$24.6		$25.4		$26.8		$31.4		$156.1

These benefit payments will be funded through a combination of existing plan assets and amounts to be contributed in the future by the Company.

HEALTH CARE COST TRENDS The weighted average annual assumed rate of increase in the per-capita cost of covered benefits (i.e., health care cost trend rate) is assumed to be 9.5% for 2009, reducing gradually to 6% by 2015 and remaining at that level thereafter. A one percentage point change in the assumed health care cost trend rate would have an immaterial effect on the net periodic post-retirement benefit cost and the post-retirement benefit obligation as of January 3, 2009.

N. FAIR VALUE MEASUREMENTS

As discussed in Note 1, the Company adopted SFAS 157 (as impacted by FSP’s 157-1 and 157-2) in 2008 with respect to (i) all applicable financial assets and liabilities and (ii) nonfinancial assets and liabilities that are recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually). SFAS 157 defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value. SFAS 157 requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs and significant value drivers are observable.

Level 3 – Instruments that are valued using unobservable inputs.

The Company holds various derivative financial instruments that are employed to manage risks, including foreign currency and interest rate exposures. These financial instruments are carried at fair value and are included within the scope of SFAS 157. The Company determines the fair value of derivatives through the use of matrix or model pricing, which utilizes verifiable inputs such as market interest and currency rates. When determining the fair value of these financial instruments for which Level 1 evidence does not exist, the Company considers various factors including the following: exchange or market price quotations of similar instruments, time value and volatility factors, the Company’s own credit rating and the credit rating of the counter-party.

The following table presents the fair value and the hierarchy levels, for financial assets and liabilities that are measured at fair value as of January 3, 2009 (in millions):

Total Carrying

Quoted Prices in

Significant Other

Significant

Value at

Active Markets

Observable Inputs

Unobservable Inputs

January 3, 2009

(Level 1)

(Level 2)

(Level 3)

Derivative assets

$31.8

$ -

$31.8

$ -

Derivative liabilities

$84.2

$ -

$84.2

$ -

As indicated in Note 1, the remaining aspects of SFAS 157 for which the effective date for the Company was deferred under FSP 157-2 until fiscal 2009 relate to nonfinancial assets and nonfinancial liabilities that are measured at fair value, but are recognized or disclosed on a nonrecurring basis. This deferral relates to such items as impairment testing for goodwill, other intangible and long-lived assets and nonfinancial assets and nonfinancial liabilities initially measured at fair value in a business combination.

O. OTHER COSTS AND EXPENSES

Other-net is primarily comprised of intangible asset amortization expense, gains and losses on asset dispositions, currency impact, environmental expense and net expenses related to the Mac Tools extended financing programs, mainly financing receivable losses and interest income.

Research and development costs were $25.4 million, $24.5 million and $22.1 million for fiscal years 2008, 2007 and 2006, respectively.

P. RESTRUCTURING AND ASSET IMPAIRMENTS

At January 3, 2009, the restructuring reserve balance was $67.9 million. A summary of the restructuring reserve activity and related charges from December 29, 2007 to January 3, 2009 is as follows:


			Acquisition		Net
(Millions of Dollars)	12/29/07		Accrual		Additions		Usage		Currency		1/3/09
Acquisitions
Severance and related costs		$18.8		$5.3		$—		$(12.8)		$(0.5)		$10.8
Facility closure		1.6		1.1		—		(0.9)		—		1.8
Other		1.0		—		—		(1.0)		—		—

Subtotal acquisitions		21.4		6.4		—		(14.7)		(0.5)		12.6

2008 Actions
Severance and related costs		—		—		70.0		(15.5)		(0.4)		54.1
Asset impairments		—		—		13.6		(13.6)		—		—
Facility closure		—		—		0.7		(0.7)		—		—
Other		—		—		1.2		—		—		1.2

Subtotal 2008 actions		—		—		85.5		(29.8)		(0.4)		55.3

Pre-2008 Actions		2.3		—		—		(2.3)		—		—

Total		$23.7		$6.4		$85.5		$(46.8)		$(0.9)		$67.9

Restructuring and asset impairment charges by segment were as follows:


(Millions of Dollars)	2008		2007		2006
Security		$13.8		$5.3		$5.9
Industrial		29.7		1.5		1.6
CDIY		35.6		5.6		5.3
Non-operating		6.4		0.4		1.0

Consolidated		$85.5		$12.8		$13.8

Of the $35.6 million of restructuring and asset impairment charges noted above for the CDIY segment, $13.6 million is for asset impairments related to the current and planned closure of several facilities. There were no asset impairments for the Security and Industrial segments in 2008. Fair value for impaired production assets was based on the present value of discounted cash flows. This included an estimate for future cash flows as production activities are phased out as well as auction values (prices for similar assets) for assets where use has been discontinued or future cash flows are minimal. Real estate values are based on estimates of the Company’s anticipated sales values (less costs to sell) which have been based on sales of comparable properties and estimates from third party brokers.

Q. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS

The Security segment is a provider of access and security solutions primarily for retailers, educational, financial and healthcare institutions, as well as commercial, governmental and industrial customers. The Company provides an extensive suite of mechanical and electronic security products and systems, and a variety of security services. These include security integration systems, software, related installation, maintenance, monitoring services, automatic doors, door closers, exit devices, hardware and locking mechanisms. Security products are sold primarily on a direct sales basis and in certain instances, through third party distributors. The Industrial segment manufactures and markets: professional industrial and automotive mechanics tools and storage systems; engineered healthcare storage systems; hydraulic tools and accessories; plumbing, heating and air conditioning tools; assembly tools and systems; and specialty tools. These products are sold to industrial customers and distributed primarily through third party distributors as well as through direct sales forces. The Construction and Do-It-Yourself (“CDIY”) segment manufactures and markets hand tools, consumer mechanics tools, storage systems, and pneumatic tools and fasteners, as these products are principally utilized in construction and “Do-It-Yourself” projects. These products are sold to professional end users as well as consumers, and are distributed through retailers (including home centers, mass merchants, hardware stores, and retail lumber yards).

The Company utilizes segment profit, which is defined as net sales minus cost of sales and SG&A inclusive of the provision for doubtful accounts (aside from corporate overhead expense), and segment profit as a percentage of net sales to assess the profitability of each segment. Segment profit excludes the corporate overhead expense element of SG&A, interest income, interest expense, other-net (inclusive of intangible asset amortization expense), restructuring, and income tax expense. Refer to Note P, Restructuring and Asset Impairments for the amount of restructuring charges and asset impairments by segment, and to Note G,

Goodwill and Other Intangible Assets for intangible amortization expense by segment. Corporate overhead is comprised of world headquarters facility expense, cost for the executive management team and cost for certain centralized functions that benefit the entire Company but are not directly attributable to the businesses, such as legal and corporate finance functions. Transactions between segments are not material. Segment assets primarily include accounts receivable, inventory, other current assets, property, plant and equipment, intangible assets and other miscellaneous assets. Corporate assets and unallocated assets are cash and deferred income taxes. Geographic net sales and long-lived assets are attributed to the geographic regions based on the geographic location of each Company subsidiary.

The following information excludes the CST/berger laser leveling and measuring business, as well as three other smaller businesses, which are classified as discontinued operations as disclosed in Note U Discontinued Operations, unless otherwise noted.

BUSINESS SEGMENTS


(Millions of Dollars)	2008		2007		2006
Net Sales
Security		$1,497.2		$1,399.5		$1,127.4
Industrial		1,273.5		1,245.8		1,129.4
CDIY		1,655.5		1,715.2		1,640.5

Consolidated		$4,426.2		$4,360.5		$3,897.3


Segment Profit
Security		$268.7		$239.9		$169.2
Industrial		164.2		182.7		122.9
CDIY		190.7		254.2		251.9

Segment Profit		623.6		676.8		544.0
Corporate overhead		(59.8)		(62.2)		(63.3)

Total		563.8		614.6		480.7

Restructuring charges and asset impairments		(85.5)		(12.8)		(13.8)
Interest income		9.2		5.1		4.4
Interest expense		(82.0)		(85.2)		(69.3)
Other-net		(104.2)		(87.1)		(54.3)

Earnings from continuing operations before income taxes		$301.3		$434.6		$347.7


Segment Assets
Security		$2,378.6		$1,950.5		$1,347.7
Industrial		1,227.2		1,312.2		1,211.0
CDIY		959.6		1,097.0		1,064.2

		4,565.4		4,359.7		3,622.9
Discontinued operations		—		91.4		98.6
Corporate assets		313.8		311.9		213.9

Consolidated		$4,879.2		$4,763.0		$3,935.4


Capital and Software Expenditures
Security		$52.6		$27.1		$28.7
Industrial		38.5		19.5		15.4
CDIY		49.3		39.3		35.3
Discontinued operations		0.4		1.0		1.1

Consolidated		$140.8		$86.9		$80.5


Depreciation and Amortization
Security		$108.6		$90.0		$46.6
Industrial		30.3		25.9		25.7
CDIY		42.2		42.8		44.8
Discontinued operations		1.9		3.5		4.1

Consolidated		$183.0		$162.2		$121.2

In connection with its acquisitions, the Company recorded $21.6 million in cost of sales (“inventory step-up amortization”) during 2006 related to the initial turn of acquired inventory which was written-up in purchase accounting to its fair market value. This non-cash inventory step-up amortization amounted to $0.1 million in the Security segment, $8.2 million in the CDIY segment, $13.3 million in the Industrial segment. Inventory step-up amortization was not significant in 2008 and 2007.

Sales to The Home Depot were 13%, 16% and 18% of the CDIY segment net sales in 2008, 2007 and 2006, respectively.

GEOGRAPHIC AREAS


(Millions of Dollars)	2008		2007		2006
Net Sales
United States		$2,514.3		$2,535.0		$2,304.9
Other Americas		420.4		394.8		357.5
France		571.5		520.7		457.1
Other Europe		680.9		664.5		580.5
Asia		239.1		245.5		197.3

Consolidated		$4,426.2		$4,360.5		$3,897.3

Long-Lived Assets
United States		$1,799.6		$1,519.8		$919.2
Other Americas		195.2		179.9		164.3
France		675.2		512.4		479.7
Other Europe		414.6		456.3		426.5
Asia		232.4		244.3		240.4

Consolidated		$3,317.0		$2,912.7		$2,230.1

R. INCOME TAXES

Significant components of the Company’s deferred tax assets and liabilities at the end of each fiscal year were as follows:


(Millions of Dollars)	2008		2007
Deferred tax liabilities:
Depreciation		$62.4		$75.8
Amortization of Intangibles		149.0		76.5
Inventories		3.1		4.8
Other		8.4		2.9

Total deferred tax liabilities		$222.9		$160.0
Deferred tax assets:
Employee benefit plans		$96.0		$87.0
Doubtful accounts		12.8		9.4
Accruals		13.0		11.0
Restructuring charges		16.0		1.3
Operating loss carryforwards		27.9		44.2
Other		50.4		21.4

Total deferred tax assets		$216.1		$174.3
Net Deferred Tax (Assets) Liabilities before
Valuation Allowance		$6.8		$(14.3)

Valuation allowance		$24.5		$27.3

Net Deferred Tax Liabilities after Valuation Allowance		$31.3		$13.0

Valuation allowances reduced the deferred tax asset attributable to foreign and state loss carry-forwards to the amount that, based upon all available evidence, is more likely than not to be realized. Reversal of the valuation

allowance is contingent upon the recognition of future taxable income and capital gains in specific foreign countries and specific states, or changes in circumstances which cause the recognition of the benefits to become more likely than not. The U.S. federal, foreign and state loss carry-forwards expire in various years beginning in 2009 or have indefinite carry-forwards.

The classification of deferred taxes as of January 3, 2009 and December 29, 2007 is as follows:

2008

2007

Deferred

Tax

Tax Asset

Tax Liability

Tax Asset

Liability

Current

$(39.4)

$14.1

$(22.3)

$4.0

Non-current

(62.9)

119.5

(49.2)

80.5

Total

$(102.3)

$133.6

$(71.5)

$84.5

Income tax expense (benefit) attributable to continuing operations consisted of the following:


(Millions of Dollars)	2008		2007		2006
Current:
Federal		$27.0		$52.1		$26.2
Foreign		37.6		13.4		25.4
State		8.7		13.4		8.0

Total current		$73.3		$78.9		$59.6
Deferred (Benefit):
Federal		$2.4		$7.0		$(6.7)
Foreign		2.8		27.8		18.2
State		(2.6)		(4.4)		(2.1)

Total deferred		2.6		30.4		9.4

Total		$75.9		$109.3		$69.0

Income taxes paid during 2008, 2007 and 2006 were $134.4 million, $102.9 million and $104.5 million, respectively. During 2008, the Company had tax holidays with Thailand and China. Tax holidays resulted in a reduction of tax expense amounting to $2.7 million in 2008, $4.3 million in 2007, and $3.1 million in 2006. The tax holiday in Thailand is in place until 2010 while the tax holiday in China expires between 2009 and 2015.

The reconciliation of federal income tax at the statutory federal rate to income tax at the effective rate for continuing operations is as follows:


(Millions of Dollars)	2008		2007		2006
Tax at statutory rate		$105.4		$152.1		$121.6
State income taxes, net of federal benefits		5.5		4.2		3.7
Difference between foreign and federal income tax		(33.9)		(37.1)		(36.3)
Extraterritorial income exclusion		—		—		(2.0)
Branch activity		1.8		(0.5)		1.2
Tax accrual reserve		(0.5)		2.2		3.3
U.S. audit settlement		—		—		(16.6)
Dividends		0.5		0.3		(3.7)
FAS 109 tax rate change		(0.4)		(3.4)		—
Other-net		(2.5)		(8.5)		(2.2)

Income taxes		$75.9		$109.3		$69.0

The components of earnings from continuing operations before income taxes consisted of the following:

(Millions of Dollars)

2008

2007

2006

United States

$84.3

$193.4

$131.3

Foreign

217.0

241.2

216.4

Total pre-tax earnings

$301.3

$434.6

$347.7

The Company’s future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where the statutory rates are lower. The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. The Company evaluates the likelihood of unfavorable adjustments arising from the examinations and believes adequate provisions have been made in the income tax provision.

Undistributed foreign earnings of $737.9 million at January 3, 2009 are considered to be invested indefinitely or will be remitted substantially free of additional tax. Accordingly, no provision has been made for taxes that might be payable upon remittance of such earnings, nor is it practicable to determine the amount of this liability.

As of the beginning of the 2007 fiscal year, the Company adopted the provisions of FIN 48 “Accounting for Uncertainty in Income Taxes — an Interpretation of SFAS 109”. The unrecognized tax benefits at January 3, 2009 and December 29, 2007 relate to U.S. and various foreign jurisdictions.

The following table summarizes the activity related to the unrecognized tax benefits:


(Millions of Dollars)	2008		2007
Balance at beginning of year		$49.1		$54.0
Additions based on tax positions related to current year		5.6		8.1
Additions based on tax positions related to prior years		3.0		1.8
Reductions based on tax positions related to prior years		(5.9)		(7.3)
Settlements		-		(2.6)
Expirations of the statute of limitations		(8.7)		(4.9)

Balance at end of year		$43.1		$49.1

Included in the unrecognized tax benefits of $43.1 million at January 3, 2009 and $49.1 million at December 29, 2007 were $37.7 million and $41.7 million of tax benefits that, if recognized, would impact the annual effective tax rates. The accrual for potential penalties and interest related to these unrecognized tax benefits was increased by $1.3 million in tax year 2008 and $1.5 million in tax year 2007, and in total, a liability for potential penalties and interest of $5.5 million and $4.4 million has been recorded in tax years 2008 and 2007 respectively. The Company classifies all tax-related interest and penalties as income tax expense.

It is reasonably possible the Company may recognize up to $8 - $12 million of currently unrecognized tax benefits over the next 12 months, pertaining primarily to expiration of statutes of limitations in various jurisdictions.

The Company files U.S., state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Tax years 2005 and forward remain subject to federal examination while tax years 2005 and forward generally remain subject to examination by most state tax authorities. In significant foreign jurisdictions, tax years 2003 and forward generally remain subject to examination by their respective tax authorities.

S. COMMITMENTS AND GUARANTEES

COMMITMENTS The Company has non-cancelable operating lease agreements, principally related to facilities, vehicles, machinery and equipment. Minimum payments have not been reduced by minimum sublease rentals of $3.8 million due in the future under non-cancelable subleases. In addition, the Company is a party to a synthetic lease, which qualifies as an operating lease, for one of its major distribution centers.

Rental expense, net of sublease income, for operating leases was $66.4 million in 2008, $62.2 million in 2007 and $49.9 million in 2006.

Outsourcing and other commitments are comprised of: $6.9 million for outsourcing arrangements, primarily related to information systems and telecommunications; and $20.3 million in marketing obligations.

The following is a summary of the future commitments for operating lease obligations, material purchase commitments, outsourcing and other arrangements:


(Millions of Dollars)	Total		2009		2010		2011		2012		2013		Thereafter
Operating lease obligations		$130.0		$33.8		$26.3		$20.0		$12.5		$9.5		$27.9
Material purchase commitments		14.9		12.9		2.0		—		—		—		—
Outsourcing and other		27.2		13.4		12.5		1.3		—		—		—

Total		$172.1		$60.1		$40.8		$21.3		$12.5		$9.5		$27.9

The Company has numerous assets, predominantly vehicles and equipment, under a one-year term U.S. master personal property lease. Residual value obligations under this master lease were $27.9 million at January 3, 2009 while the fair value of the underlying assets was approximately $32.1 million. The U.S. master personal property lease obligations are not reflected in the future minimum lease payments since the initial and remaining term does not exceed one year. The Company routinely exercises various lease renewal options and from time to time purchases leased assets for fair value at the end of lease terms.

The Company is a party to a synthetic lease for one of its major distribution centers. The program qualifies as an operating lease for accounting purposes, where only the monthly lease cost is recorded in earnings and the liability and value of underlying assets are off-balance sheet. As of January 3, 2009, the estimated fair value of assets and remaining obligation for the property were $36.0 million and $29.9 million respectively.

GUARANTEES The following is a summary of guarantees as of January 3, 2009:


		Maximum		Carrying
		Potential		Amount of
(Millions of Dollars)	Term	Payment		Liability
Financial guarantees as of January 3, 2009:
Guarantees on the residual values of leased properties	Through 2009		$57.8		$—
Standby letters of credit	Generally 1 year		35.1		—
Guarantee on the external Employee Stock Ownership Plan borrowings	Through 2009		1.3		1.3
Commercial customer financing arrangements	Up to 5 years		16.2		15.2

Total			$110.4		$16.5

The Company has guaranteed a portion of the residual value arising from its previously mentioned synthetic lease and U.S. master personal property lease programs. The lease guarantees aggregate $57.8 million while the fair value of the underlying assets is estimated at $68.1 million. The related assets would be available to satisfy the guarantee obligations and therefore it is unlikely the Company will incur any future loss associated with these lease guarantees.

The Company has issued $35.1 million in standby letters of credit that guarantee future payments which may be required under certain insurance programs. Shares of the Company’s common stock held by the ESOP were purchased with the proceeds of external borrowings in the 1980’s and borrowings from the Company in 1991. The external ESOP borrowings are guaranteed by the Company and are included in the current maturities of long-term debt. Shareowners’ equity reflects a reduction for the internal and external borrowings. The Company has sold various businesses and properties over many years and provided standard indemnification to the purchasers with respect to any unknown liabilities, such as environmental, which may arise in the future that are attributable to the time of the Company’s ownership. No liabilities have been recorded for these general indemnifications since there are no identified exposures. The Company provides various limited and full recourse guarantees to financial institutions that provide financing to U.S. and Canadian Mac Tool

distributors for their initial purchase of the inventory and truck necessary to function as a distributor. In addition, the Company provides a full recourse guarantee to a financial institution that extends credit to certain end retail customers of its U.S. Mac Tool distributors. The gross amount guaranteed in these arrangements is $16.2 million and the $15.2 million fair value of the guarantees issued is recorded in debt and other liabilities as appropriate in the consolidated balance sheet.

The Company provides product and service warranties which vary across its businesses. The types of warranties offered generally range from one year to limited lifetime, while certain products carry no warranty. Further, the Company sometimes incurs discretionary costs to service its products in connection with product performance issues. Historical warranty and service claim experience forms the basis for warranty obligations recognized. Adjustments are recorded to the warranty liability as new information becomes available.

Following is a summary of the warranty liability activity for the years ended January 3, 2009 and December 29, 2007:


(Millions of Dollars)	2008		2007
Beginning balance		$63.7		$66.8
Warranties and guarantees issued		21.8		23.2
Warranty payments		(22.8)		(21.8)
Acquisitions and other		2.9		(4.5)

Ending balance		$65.6		$63.7

T. CONTINGENCIES

The Company is involved in various legal proceedings relating to environmental issues, employment, product liability, workers’ compensation claims and other matters. The Company periodically reviews the status of these proceedings with both inside and outside counsel, as well as an actuary for risk insurance. Management believes that the ultimate disposition of these matters will not have a material adverse effect on operations or financial condition taken as a whole.

The Company recognizes liabilities for contingent exposures when analysis indicates it is both probable that an asset has been impaired or that a liability has been incurred and the amount of impairment or loss can reasonably be estimated. When a range of probable loss can be estimated, the Company accrues the most likely amount. In the event that no amount in the range of probable loss is considered most likely, the minimum loss in the range is accrued.

In the normal course of business, the Company is involved in various lawsuits and claims. In addition, the Company is a party to a number of proceedings before federal and state regulatory agencies relating to environmental remediation. Also, the Company, along with many other companies, has been named as a potentially responsible party (“PRP”) in a number of administrative proceedings for the remediation of various waste sites, including 15 active Superfund sites. Current laws potentially impose joint and several liabilities upon each PRP. In assessing its potential liability at these sites, the Company has considered the following: whether responsibility is being disputed, the terms of existing agreements, experience at similar sites, and the Company’s volumetric contribution at these sites.

The Company’s policy is to accrue environmental investigatory and remediation costs for identified sites when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. The amount of liability recorded is based on an evaluation of currently available facts with respect to each individual site and includes such factors as existing technology, presently enacted laws and regulations, and prior experience in remediation of contaminated sites. The liabilities recorded do not take into account any claims for recoveries from insurance or third parties. As assessments and remediation progress at individual sites, the amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. As of January 3, 2009 and December 29, 2007, the Company had reserves of $28.8 million and $30.1 million, respectively, for remediation activities associated with Company-owned properties, as well as for Superfund sites, for losses that are probable and estimable. Of the 2008 amount, $7.1 million is classified as current and $21.7 million as long-term which is expected to be paid over the next

ten years. The range of environmental remediation costs that is reasonably possible is $19.1 million to $51.3 million which is subject to change in the near term. The Company may be liable for environmental remediation of sites it no longer owns. Liabilities have been recorded on those sites in accordance with policy.

The environmental liability for certain sites that have cash payments beyond the current year that are fixed or reliably determinable have been discounted using a rate of 3.9% to 4.4%, depending on the expected timing of disbursements. The discounted and undiscounted amount of the liability relative to these sites is $5.7 million and $7.3 million, respectively. The payments relative to these sites are expected to be $0.8 million in 2009, $1.7 million in 2010, $1.0 million in 2011, $0.3 million in 2012, $0.3 million in 2013 and $3.2 million thereafter.

The amount recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional technical and legal information that becomes available. Actual costs to be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating certain exposures. Subject to the imprecision in estimating future contingent liability costs, the Company does not expect that any sum it may have to pay in connection with these matters in excess of the amounts recorded will have a materially adverse effect on its financial position, results of operations or liquidity.

U. DISCONTINUED OPERATIONS

On July 25, 2008, the Company sold its CST/berger laser leveling and measuring business to Robert Bosch Tool Corporation. The Company received cash proceeds of $196.7 million and recorded an $83.9 million after-tax gain as a result of the sale. Additionally, the Company sold three other smaller businesses for total cash proceeds of $7.9 million and a total after-tax loss of $0.3 million. Total goodwill allocated to the disposal of these businesses was $28.6 million. The divestures of these businesses were made pursuant to the Company’s growth strategy which entails a reduction of risk associated with certain large customer concentrations and better utilization of resources to increase shareowner value.

CST/berger, which was formally in the Company’s CDIY segment, manufactures and distributes surveying accessories as well as building and construction instruments primarily in the Americas and Europe. Two of the small businesses that were sold were part of the Security segment, while the third minor business was part of the Industrial segment.

In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the results of operations of CST/berger and the three small businesses have been reported as discontinued operations. The operating results of the four divested businesses are summarized as follows:


(Millions of Dollars)	2008		2007		2006
Net sales		$60.8		$123.4		$133.4
Pretax earnings		132.8		16.5		17.9
Income taxes		44.9		5.2		7.1

Net earnings from discontinued operations		$87.9		$11.3		$10.8

The assets and liabilities of the four divested businesses classified as held for sale in the Consolidated Balance Sheets at December 29, 2007 are as follows:


(Millions of Dollars)	2007
Accounts receivable		$27.0
Inventories		10.9
Other assets		3.1
Property, plant and equipment		4.5
Goodwill and other intangible assets		45.9

Total assets		$91.4


Accounts payable		$10.0
Accrued expenses		9.5
Other liabilities		0.9

Total liabilities		$20.4

QUARTERLY RESULTS OF OPERATIONS (unaudited)



(Millions of Dollars, except per share amounts)	Quarter
2008	First		Second		Third		Fourth		Year
Net sales		$1,071.0		$1,151.7		$1,117.6		$1,085.9		$4,426.2
Gross profit		405.9		441.6		431.4		392.5		1,671.4
Selling, general and administrative expenses		274.6		282.9		274.8		275.3		1,107.6
Net earnings from continuing operations		65.6		75.7		78.7		5.4		225.4
Net earnings (loss) from discontinued operations		2.4		3.9		85.9		(4.3)		87.9

Net earnings		$68.0		$79.6		$164.6		$1.1		$313.3

Basic earnings (loss) per common share:
Continuing operations		$0.83		$0.96		$1.00		$0.07		$2.86
Discontinued operations		0.03		0.05		1.09		(0.06)		1.11

Total basic earnings per common share		$0.86		$1.01		$2.09		$0.01		$3.97

Diluted earnings (loss) per common share:
Continuing operations		$0.82		$0.95		$0.98		$0.07		$2.82
Discontinued operations		0.03		0.05		1.08		(0.06)		1.10

Total diluted earnings per common share		$0.85		$1.00		$2.06		$0.01		$3.92


2007	First		Second		Third		Fourth		Year
Net sales		$1,032.9		$1,090.7		$1,098.7		$1,138.2		$4,360.5
Gross profit		385.4		422.4		420.4		424.8		1,653.0
Selling, general and administrative expenses		253.8		262.9		251.8		269.9		1,038.4
Net earnings from continuing operations		65.3		82.9		88.1		89.0		325.3
Net earnings from discontinued operations		2.3		2.4		3.3		3.3		11.3

Net earnings		$67.6		$85.3		$91.4		$92.3		$336.6

Basic earnings per common share:
Continuing operations		$0.79		$1.00		$1.07		$1.09		$3.95
Discontinued operations		0.03		0.03		0.04		0.04		0.14

Total basic earnings per common share		$0.82		$1.03		$1.11		$1.13		$4.09

Diluted earnings per common share:
Continuing operations		$0.77		$0.98		$1.05		$1.07		$3.87
Discontinued operations		0.03		0.03		0.04		0.04		0.13

Total diluted earnings per common share		$0.80		$1.01		$1.09		$1.11		$4.00

In the fourth quarter of 2008, the Company recognized $60.5 million, or $.54 per diluted share, of pre-tax restructuring and asset impairment charges from continuing operations pertaining to cost actions taken in response to weak economic conditions.

EXHIBIT INDEX
THE STANLEY WORKS
EXHIBIT LIST

Some of the agreements included as exhibits to this Annual Report on Form 10-K (whether incorporated by reference to earlier filings or otherwise) may contain representations and warranties, recitals or other statements that appear to be statements of fact. These agreements are included solely to provide investors with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. Representations and warranties, recitals, and other common disclosure provisions have been included in the agreements solely for the benefit of the other parties to the applicable agreements and often are used as a means of allocating risk among the parties. Accordingly, such statements (i) should not be treated as categorical statements of fact; (ii) may be qualified by disclosures that were made to the other parties in connection with the negotiation of the applicable agreements, which disclosures are not necessarily reflected in the agreement or included as exhibits hereto; (iii) may apply standards of materiality in a way that is different from what may be viewed as material by or to investors in or lenders to the Company; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.


(3)	(i)	Restated Certificate of Incorporation (incorporated by reference to Exhibit 3(i) to the Annual Report on Form 10-K for the year ended January 2, 1999).

	(ii)	The Stanley Works By-laws as amended July 20, 2007 (incorporated by reference to Exhibit 3(ii) to Current Report on Form 8-K dated July 20, 2007).

(4)	(i)	Indenture, dated as of November 1, 2002 between the Company and The Bank of New York Mellon Trust Company, N.A., as successor trustee to JPMorgan Chase Bank, defining the rights of holders of 3 1 / 2 % Notes Due November 1, 2007, 4 9 / 10 % Notes due November 1, 2012 and 6.15% Notes due 2013 (incorporated by reference to Exhibit 4(vi) to the Annual Report on Form 10-K for the year ended December 28, 2002).

		(a) Certificate of Designated Officers establishing Terms of 3 1 / 2 % Series A Senior Notes due 2007, 4 9 / 10 % Series A Senior Notes due 2012, 3 1 / 2 % Series B Senior Notes due 2007 and 4 9 / 10 % Series B Senior Notes due 2012 (incorporated by reference to Exhibit 4(ii) to the Quarterly Report on Form 10-Q for the quarter ended September 27, 2003)

		(b) Officers’ Certificate relating to the 6.15% Notes due 2013 (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K dated September 29, 2008).

	(ii)	Indenture, dated November 22, 2005, between The Stanley Works and HSBC Bank USA, National Association, as indenture trustee (incorporated by reference to Exhibit 4.5 to Current Report on Form 8-K dated November 29, 2005).

	(iii)	First Supplemental Indenture, dated November 22, 2005, between The Stanley Works and HSBC Bank USA, National Association, as indenture trustee (incorporated by reference to Exhibit 4.6 to Current Report on Form 8-K dated November 29, 2005).

		(a) Form of 5.902% Fixed Rate/Floating Rate Junior Subordinated Debt Securities due December 1, 2045 (incorporated by reference to Exhibit 4.7 to Current Report on Form 8-K dated November 29, 2005).


	(iv)	Rights Agreement dated as of January 19, 2006, by and between The Stanley Works and Computershare Investor Services L.L.C. (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K/A dated February 22, 2006).

	(v)	Purchase Contract and Pledge Agreement, dated as of March 20, 2007, between The Stanley Works, The Bank of New York Trust Company, N.A., as Purchase Contract Agent, and HSBC Bank USA, National Association, as Collateral Agent and Securities Intermediary (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K dated March 23, 2007).

	(vi)	Form of Corporate Units Certificate (incorporated by reference to Exhibit 4.4 to Current Report on Form 8-K dated March 23, 2007).

	(vii)	Form of Treasury Units Certificate (incorporated by reference to Exhibit 4.5 to Current Report on Form 8-K dated March 23, 2007).

	(viii)	Form of Unpledged Convertible Note (incorporated by reference to Exhibit 4.6 to Current Report on Form 8-K dated March 23, 2007)).

	(ix)	Form of Pledged Convertible Note (incorporated by reference to Exhibit 4.7 to Current Report on Form 8-K dated March 23, 2007).

	(x)	Form of Officer’s Certificate, dated March 20, 2006, relating to the 5.00% Notes due 2010 (incorporated by reference to Exhibit 4.8 to Current Report on Form 8-K dated March 23, 2007).

	(xi)	Form of 5.00% Notes due 2010 (incorporated by reference to Exhibit 4.6 to Current Report on Form 8-K dated March 23, 2007).
(10)
	(i)	Note Purchase Agreement, dated as of June 30, 1998, between the Stanley Account Value Plan Trust, acting by and through Citibank, N.A. as trustee under the trust agreement for the Stanley Account Value Plan, for $41,050,763 aggregate principal amount of 6.07% Senior ESOP Guaranteed Notes Due December 31, 2009 (incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q for the quarter ended July 4, 1998).

	(ii)	New 1991 Loan Agreement, dated June 30, 1998, between The Stanley Works, as lender, and Citibank, N.A. as trustee under the trust agreement for the Stanley Account Value Plan, to refinance the 1991 Salaried Employee ESOP Loan and the 1991 Hourly ESOP Loan and their related promissory notes (incorporated by reference to Exhibit 10(ii) to the Quarterly Report on Form 10-Q for the quarter ended July 4, 1998).

	(iii)	(a) The Stanley Works Non-Employee Directors’ Benefit Trust Agreement dated December 27, 1989 and amended as of January 1, 1991 by and between The Stanley Works and Fleet National Bank, as successor trustee (incorporated by reference to Exhibit (10)(xvii)(a) to the Annual Report on Form 10-K for year ended December 29, 1990).

		(b) Stanley Works Employees’ Benefit Trust Agreement dated December 27, 1989 and amended as of January 1, 1991 by and between The Stanley Works and Fleet National Bank, as successor trustee (incorporated by reference to Exhibit (10)(xvii)(b) to the Annual Report on Form 10-K for year ended December 29, 1990).

	(iv)	Master Leasing Agreement, dated September 1, 1992 between GE Capital Commercial Inc. (f/k/a Citicorp Leasing, Inc., successor-in-interest to BLC Corporation) and The Stanley Works (incorporated by reference to Exhibit 10(i) to the Quarterly Report on Form 10-Q for the quarter ended September 26, 1992).

	(v)	Amended and Restated Credit Agreement, dated as of February 27, 2008, by and among The Stanley Works, the lenders named therein, Citibank, N.A., as Administrative Agent, Citigroup Global Markets Inc. and Banc of America Securities LLC, as Lead Arrangers and Book Runners, and Bank of America, N.A., as Syndication Agent (incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K dated February 27, 2008).


						(a) Amendment No. 1 to the Amended and Restated Credit Agreement, dated as of February 17, 2009.
				(vi)		Deferred Compensation Plan for Non-Employee Directors amended and restated as of December 11, 2007 (incorporated by reference to Exhibit 10(vii) to Annual Report on Form 10-K for the year ended December 29, 2007).*

				(vii)		Deferred Compensation Plan for Participants in Stanley’s Management Incentive Plan amended and restated as of December 11, 2007 (incorporated by reference to Exhibit 10(ix) to Annual Report on Form 10-K for the year ended December 29, 2007) .*

				(viii)		Supplemental Retirement and Account Value Plan for Salaried Employees of The Stanley Works, amended and restated effective as of January 1, 2009 except as otherwise provided therein.*

				(ix)		Supplemental Executive Retirement Program amended and restated effective January 1, 2009 except as otherwise provided therein.*

				(x)		1997 Long-Term Incentive Plan as amended effective October 17, 2008.*

						(a) Form of Award Agreement for the Long-Term Incentive Award Program for the period January 1, 2006 through January 3, 2009 (incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K dated April 27, 2006).*

						(b) Description of the Performance Criteria and Range of Certain Awards under the Long-Term Incentive Award Program for the period January 1, 2006 through January 3, 2009 (incorporated by reference to Exhibit 10.6 to Current Report on Form 8-K dated April 27, 2006).*

						(c) Form of Award Agreement for the Long-Term Incentive Award Program for fiscal years 2007 through 2009 (incorporated by reference to Exhibit 10(xiii)(f) to Annual Report on Form 10-K for the year ended December 29, 2007).*

						(d) Description of the Performance Criteria and Range of Certain Awards under the Long-Term Incentive Award Program for fiscal years 2007 through 2009 (incorporated by reference to Exhibit 10(xiii)(g) to Annual Report on Form 10-K for the year ended December 29, 2007).*

						(e) Form of Restricted Stock Unit Award Certificate for grants of restricted stock units pursuant to 1997 Long-Term Incentive Plan (incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K dated December 15, 2005).*

						(f) Summary of Material Terms of Special Bonus Program (incorporated by reference to Exhibit 10(i) to Quarterly Report on Form 10-Q for the quarter ended September 29, 2007).*

				(xi)		2001 Long-Term Incentive Plan as amended effective October 17, 2008.*

						(a) Form of Stock Option Certificate for stock options granted pursuant to 2001 Long-Term Incentive Plan (incorporated by reference to Exhibit 10(xiv)(a) to Annual Report on Form 10-K for the year ended December 29, 2007).*

						(b) Form of Restricted Stock Unit Award Certificate for grants of restricted stock units pursuant to 2001 Long-Term Incentive Plan (incorporated by reference to Exhibit 10(xiv)(c) to Annual Report on Form 10-K for the year ended December 29, 2007).*

						(c) Terms and Conditions applicable to Long Term Performance Awards issued pursuant to the 1997 and the 2001 Long Term Incentive Plans.*

						(d) Form of Award Letter for Long Term Performance Awards issued pursuant to the 2001 Long Term Incentive Plan.*

				(xii)		Agreement and General Release between The Stanley Works and Donald McIlnay dated January 20, 2009.*

				(xiii)		Agreement, dated June 9, 1999 between The Stanley Works and James Loree (incorporated by reference to Exhibit 10(ii) to the Quarterly Report on Form 10-Q for the quarter ended July 3, 1999).*


	(xiv)	Form A of Amended and Restated Change in Control Severance Agreement. James M. Loree is a party to a Restated and Amended Change in Control Severance Agreement in this Form.*

	(xv)	Form B of Amended and Restated Change in Control Severance Agreement. Each of Jeffery D. Ansell, Hubert W. Davis, Jr., and Mark J. Mathieu are parties to Amended and Restated Change in Control Severance Agreements in this Form.*

	(xvi)	Form B of Change in Control Severance Agreement. Donald Allan, Jr., is a party to a Change in Control Severance Agreement in this Form.*

	(xvii)	Amended and Restated Employment Agreement dated December 10, 2008 between The Stanley Works and John F. Lundgren.*

	(xviii)	Amended and Restated Change in Control Severance Agreement dated December 10, 2008 between The Stanley Works and John F. Lundgren.*

	(xix)	The Stanley Works Restricted Stock Unit Plan for Non-Employee Directors amended and restated as of December 11, 2007 (incorporated by reference to Exhibit 10(xx) to Annual Report on Form 10-K for the year ended December 29, 2007).*

		(a) Form of Certificate for RSUs issued pursuant to The Stanley Works Restricted Stock Unit Plan for Non-Employee Directors (incorporated by reference to Exhibit 10(xxv) to the Annual Report on Form 10-K for the year ended January 1, 2005).*

	(xx)	The Stanley Works 2006 Management Incentive Compensation Plan amended and restated as of December 11, 2007.*

	(xxi)	Special Severance Policy for Management Incentive Compensation Plan Participants Levels 1-5 as amended effective October 17, 2008.*

	(xxii)	Special Severance Plan as amended effective October 17, 2008. Donald Allan, Jr. was a participant in this Plan until February 23, 2009.*

(11)		Statement re computation of per share earnings (the information required to be presented in this exhibit appears in Notes A and K to the Company’s Consolidated Financial Statements set forth in this Annual Report on Form 10-K).

(12)		Statement re computation of ratio of earnings to fixed charges.

(14)		Code of Ethics for CEO and Senior Financial Officers (incorporated by reference to the Company’s website, www.stanleyworks.com).

(21)		Subsidiaries of Registrant.

(23)		Consent of Independent Registered Public Accounting Firm and Report on Schedule

(24)		Power of Attorney.

(31)	(i)(a)	Certification by Chief Executive Officer pursuant to Rule 13a-14(a).

	(i)(b)	Certification by Chief Financial Officer pursuant to Rule 13a-14(a).

(32)	(i)	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(ii)	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(99)	(i)	Policy on Confidential Proxy Voting and Independent Tabulation and Inspection of Elections as adopted by The Board of Directors October 23, 1991 (incorporated by reference to Exhibit (28)(i) to the Quarterly Report on Form 10-Q for the quarter ended September 28, 1991).


*		Management contract or compensation plan or arrangement

Exhibit 10(v)(a)

AMENDMENT NO. 1
to the
AMENDED AND RESTATED CREDIT AGREEMENT

Dated as of February 17, 2009

AMENDMENT NO. 1 (this “ Amendment ”) dated as of the date first above written among The Stanley Works (the “ Company ”) and the Lenders executing this Amendment on the signature pages hereto.

WHEREAS, the Company, the Lenders party thereto and Citibank, N.A., as administrative agent (the “ Administrative Agent ”), are parties to an Amended and Restated Credit Agreement dated as of February 27, 2008 (the “ Credit Agreement ”), providing, subject to the terms and conditions thereof, for revolving credit loans to be made to the Company and the Designated Borrowers; and

WHEREAS, the parties hereto wish to amend the Credit Agreement in certain respects;

NOW THEREFORE, the parties hereto hereby agree as follows:

Section 1. Definitions . Except as otherwise defined in this Amendment, terms defined in the Credit Agreement are used herein as defined therein. References in the Credit Agreement (including references to the Credit Agreement as amended hereby) to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed to be references to the Credit Agreement as amended hereby.

Section 2. Amendments to the Credit Agreement . Subject to satisfying the conditions precedent in Section 4 hereof, but with effect as of the date hereof, the Credit Agreement is hereby amended to delete the stricken text (indicated textually in the same manner as the following example: ~~stricken text~~ ) and to add the underlined text (indicated textually in the same manner as the following example: double-underlined text ) as set forth in Annex A hereto.

Section 3. Representations and Warranties . The Company represents and warrants to the Lenders and the Administrative Agent, as to itself and each of its subsidiaries, that (a) the representations and warranties set forth in Article IV of the Credit Agreement and in each of the other Loan Documents that have been entered into by the Company or any of the Designated Borrowers, are true and correct in all material respects on the date hereof as if made on and as of the date hereof (or, if any such representation or warranty is expressly stated to have been made as of a specific date, such representation or warranty shall be true and correct in all material respects as of such specific date) and as if each reference in said Article IV to “this Agreement” included reference to this Amendment; provided that (x) in Sections 4.01(f) and 4.01(h) of the Credit Agreement, the reference to the Company’s Annual Report on Form 10-K for the year ended December 29, 2007 shall be deemed to be a reference to such Annual Report and each of the Company’s reports on Form 8-K and 10-Q during the period from February 27, 2008 through and including September 27, 2008 and (y) in Section 4.01(g) of the Credit Agreement, the reference to December 29, 2007 shall be deemed to be a reference to September

27, 2008 and (b) no Default or Event of Default has occurred and is continuing.

Section 4. Conditions Precedent . The amendments set forth in Section 2 hereof shall become effective, as of the date hereof, upon satisfaction of the following conditions:

4.01. Execution . The Administrative Agent shall have received counterparts of this Amendment executed by the Company and the Lenders party to the Credit Agreement constituting the Required Lenders.

4.02. Amendment Fee . The Administrative Agent shall have received for the account of each Lender, an amendment fee in an amount equal to 0.10% of the aggregate amount of the Commitment of each Lender on the date hereof.

4.03 Fee and Expenses . The Company shall have paid in full the costs, expenses and fees as set forth in Section 8.04(a) of the Credit Agreement.

4.04. Opinion of Counsel to Company . The Administrative Agent shall have received favorable opinions of counsel for the Company (which counsel shall be reasonably satisfactory to the Administrative Agent), in form and substance reasonably satisfactory to the Administrative Agent and covering such matters (including as to the enforceability of this Amendment and the Credit Agreement as amended hereby, the valid organization, good standing and due authorization of the Company, and the lack of any conflicts of the Company (including with respect to any material agreements)) as the Administrative Agent shall reasonably request.

4.05. Corporate Documents . The Administrative Agent shall have received certified copies of the charter and by-laws of the Company and of all corporate authority for the Company (including, without limitation, board of director resolutions and evidence of the incumbency of officers for the Company) with respect to the execution, delivery and performance of this Amendment and the Credit Agreement as amended hereby (and the Administrative Agent and each Lender may conclusively rely on such certificate until it receives notice in writing from the Company to the contrary).

Section 5. Miscellaneous . Except as herein provided, the Credit Agreement shall remain unchanged and in full force and effect. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of a counterpart by electronic transmission shall be effective as delivery of a manually executed counterpart hereof. This Amendment shall be governed by, and construed in accordance with, the law of the State of New York.

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.


	THE STANLEY WORKS
	By:
		Name:
		Title:


	LENDERS CITIBANK, N.A.
	By:
		Name:
		Title:

	WELLS FARGO BANK, N.A.
	By:
		Name:
		Title:

	WILLIAM STREET LLC
	By:
		Name:
		Title:

	BARCLAYS BANK PLC
	By:
		Name:
		Title:

	BNP PARIBAS
	By:
		Name:
		Title:


	By:
		Name:
		Title:

	THE BANK OF NEW YORK MELLON
	By:
		Name:
		Title:

	BANK OF AMERICA, N.A.
	By:
		Name:
		Title:


	HSBC BANK USA, NATIONAL ASSOCIATION
	By:
		Name:
		Title:

	J.P. MORGAN CHASE BANK, N.A.
	By:
		Name:
		Title:

	MERRILL LYNCH BANK USA
	By:
		Name:
		Title:

	MORGAN STANLEY BANK, N.A.
	By:
		Name:
		Title:

	ROYAL BANK OF CANADA
	By:
		Name:
		Title:

	WACHOVIA BANK, N.A.
	By:
		Name:
		Title:

	THE NORTHERN TRUST COMPANY
	By:
		Name:
		Title:

	UBS LOAN FINANCE LLC
	By:
		Name:
		Title:


	By:
		Name:
		Title:

Annex A

Amendments to the Credit Agreement

[Attached]

CREDIT AGREEMENT

This AMENDED AND RESTATED CREDIT AGREEMENT (as amended, supplemented or otherwise modified from time to time, the “ Agreement ”) is made as of this 27 ^th day of February, 2008 between THE STANLEY WORKS, a Connecticut corporation (the “ Company ”), the banks, financial institutions and other institutional lenders (the “ Initial Lenders ”) listed on the signature pages hereof, and CITIBANK, N.A. (“ Citibank ”), as administrative agent (in such capacity, the “ Administrative Agent ”) for the Lenders (as hereinafter defined).

The Company, certain banks, financial institutions and other institutional lenders and the Administrative Agent are parties to a Credit Agreement dated as of December 1, 2005 (as amended, supplemented or otherwise modified from time to time, and as in effect on the date hereof, the “ Existing Credit Agreement ”), providing for the making of loans by such banks, financial institutions and other institutional lenders to the Company in an aggregate principal amount at any one time outstanding not exceeding $550,000,000.

The parties hereto wish to amend the Existing Credit Agreement to, among other things, increase the aggregate amount of the Commitments to $800,000,000 and make certain other amendments and to restate the entire Existing Credit Agreement, as so amended, as set forth herein.

Accordingly, subject to the occurrence of the Effective Date (as defined below), the parties hereto hereby agree that the Existing Credit Agreement is amended and restated to read in its entirety as follows:

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

SECTION 1.01. Certain Defined Terms . As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“ Acquiring Person ” means any person (other than the ESOP) who is or becomes the beneficial owner, directly or indirectly, of 10% or more of the Company’s outstanding common stock.

“ Additional Commitment Agreement ” has the meaning provided in Section 2.01(d)(iii).

“ Additional Commitment Lender ” has the meaning provided in Section 2.01(d)(iii).

“ Advance ” means a Committed Advance or an Uncommitted Advance. For the purposes of determining the unutilized amount of each Lender’s Commitment at any time, the

amount of each Advance of such Lender that is outstanding in an Alternate Currency shall be deemed to be the Dollar Equivalent of the amount of such Advance.

“ Administrative Agent’s Account ” means, with respect to any Currency, the account of the Administrative Agent maintained by the Administrative Agent for such Currency and most recently designated by it by notice to the Lenders and the Company.

“ Affiliate ” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“ Agent’s Group ” has the meaning provided in Section 7.02(b).

“ Alternate Currencies ” means Euros and Pounds Sterling.

“Applicable Eurocurrency Margin” means, on any date for each Eurocurrency Rate Advance, the rate per annum equal to the arithmetical mean of the five-year credit default swap mid-rate spreads of the Company (the “Credit Default Swap Spread”) (as provided by Markit Group Limited (or any successor thereto) to the Administrative Agent) for each Business Day during the period of 30 days (the “Calculation Period”) immediately preceding but not including the day which falls two Business Days prior to the first day of the applicable Interest Period for such Advance; provided, that the Applicable Eurocurrency Margin shall in no event be less than a rate per annum equal to 0.75% or greater than a rate per annum equal to 2.50%; provided, further, that if the Applicable Eurocurrency Margin is unavailable on any Business Day during the Calculation Period, the arithmetical mean shall be calculated based on the actual number of Business Days within the Calculation Period for which such rate is available.

“ Applicable Eurocurrency Margin ” means, on any date for each Eurocurrency Rate Advance, (i) 0.1000% if on such date the Company’s outstanding Long-Term Indebtedness is rated A+ or higher by Standard & Poor’s, A1 or higher by Moody’s, or A+ or higher by Fitch, (ii) 0.1400% if on such date clause (i) is inapplicable and the Company’s outstanding Long-Term Indebtedness is rated A or higher by Standard & Poor’s, A2 or higher by Moody’s, or A or higher by Fitch, (iii) 0.1800% if on such date clauses (i) and (ii) are inapplicable and the Company’s outstanding Long-Term Indebtedness is rated A- or higher by Standard & Poor’s, A3 or higher by Moody’s, or A- or higher by Fitch, (iv) 0.2700% if on such date clauses (i), (ii) and (iii) are inapplicable and the Company’s outstanding Long-Term Indebtedness is rated BBB+ or higher by Standard & Poor’s, Baa1 or higher by Moody’s, or BBB+ or higher by Fitch, and (v) 0.3500% if on such date clauses (i), (ii), (iii) and (iv) are inapplicable (including if such Long-Term Indebtedness is no longer rated by any agency); provided that if the respective levels of the Company’s outstanding Long-Term Indebtedness credit ratings differ, the “Applicable Eurocurrency Margin” will be determined based on, (a) if two of the ratings are at the same level and the other rating is one level higher or lower than those same ratings, the level corresponding the two same ratings shall apply, (b) if two of the ratings are at the same level and the other rating is two or more levels above the two same ratings, the level corresponding to the rating that is one level above these same ratings shall apply, (c) if two of the ratings are at the same level and the other rating is two or more levels below these same ratings, the level corresponding to the rating that is one level below the two same ratings shall apply and (d) if each of the three ratings fall within different levels, then the level corresponding to the rating that is in between the highest and the lowest ratings shall apply.

If at any time the Applicable Eurocurrency Margin cannot be determined or is otherwise unavailable, the Company and the Required Lenders shall negotiate in good faith (for a period of up to thirty days after the Applicable Eurocurrency Margin first becomes unavailable (such thirty-day period, the “Negotiation Period”)) to agree on an alternative method for establishing the Applicable Eurocurrency Margin. The Applicable Eurocurrency Margin at any date of determination thereof which falls during the Negotiation Period shall be based upon the then most recently available quote as provided by Markit Group Limited (or any successor thereto) of the Credit Default Swap Spread; provided that the Applicable Eurocurrency Margin shall in no event be less than a rate per annum equal to 0.75% or greater than a rate per annum equal to 2.50%. If no such alternative method is agreed upon during the Negotiation Period, the Applicable Eurocurrency Margin at any date of determination subsequent to the end of the Negotiation Period shall be a rate per annum equal to 2.50%.

“ Applicable Facility Fee Rate ” means, on any date, a rate per annum equal to (i) ~~0.0500~~ 0.0800 % if on such date the Company’s outstanding Long-Term Indebtedness is rated A+ or higher by Standard & Poor’s, A1 or higher by Moody’s, or A+ or higher by Fitch, (ii) ~~0.0600~~ 0.1000 % if on such date clause (i) is inapplicable and the Company’s outstanding Long-Term Indebtedness is rated A or higher by Standard & Poor’s, A2 or higher by Moody’s, or A or higher by Fitch, (iii) ~~0.0700~~ 0.1250 % if on such date clauses (i) and (ii) are inapplicable and the Company’s outstanding Long-Term Indebtedness is rated A- or higher by Standard & Poor’s, A3 or higher by Moody’s, or A- or higher by Fitch, (iv) ~~0.0800~~ 0.1500 % if on such date clauses (i), (ii) and (iii) are inapplicable and the Company’s outstanding Long-Term Indebtedness is rated BBB+ or higher by Standard & Poor’s, Baa1 or higher by Moody’s, or BBB+ or higher by Fitch, and (v) ~~0.1000~~ 0.2000 % if on such date clauses (i), (ii), (iii) and (iv) are inapplicable (including if such Long-Term Indebtedness is no longer rated by any agency); provided that if the respective levels of the Company’s outstanding Long-Term Indebtedness credit ratings differ, the “Applicable Facility Fee Rate” will be determined based on, (a) if two of the ratings are at the same level and the other rating is one level higher or lower than those same ratings, the level corresponding the two same ratings shall apply, (b) if two of the ratings are at the same level and the other rating is two or more levels above the two same ratings, the level corresponding to the rating that is one level above these same ratings shall apply, (c) if two of the ratings are at the same level and the other rating is two or more levels below these same ratings, the level corresponding to the rating that is one level below the two same ratings shall apply and (d) if each of the three ratings fall within different levels, then the level corresponding to the rating that is in between the highest and the lowest ratings shall apply.

“ Applicable Lending Office ” means, with respect to each Lender, such Lender’s Domestic Lending Office in the case of a Base Rate Advance and such Lender’s Eurocurrency Lending Office in the case of a Eurocurrency Rate Advance and, in the case of an Uncommitted Advance, the office of such Lender notified by such Lender to the Administrative Agent and the Company as its Applicable Lending Office with respect to such Uncommitted Advance.

“ Applicable Utilization Fee Rate ” means, for each day on which the Utilization Ratio exceeds 0.50, a rate per annum equal to (i) 0.05000% if on such date the Company’s outstanding Long-Term Indebtedness is rated A- or higher by Standard & Poor’s, A3 or higher by Moody’s, or A- or higher by Fitch, and (ii) 0.1000% if on such date clause (i) is inapplicable (including if such Long-Term Indebtedness is no longer rated by any agency); provided that if the respective levels of the Company’s outstanding Long-Term Indebtedness credit ratings differ, the “Applicable Utilization Fee Rate” will be determined based on, (a) if two of the ratings are at the same level and the other rating is one level higher or lower than those same ratings, the level

corresponding the two same ratings shall apply, (b) if two of the ratings are at the same level and the other rating is two or more levels above the two same ratings, the level corresponding to the rating that is one level above these same ratings shall apply, (c) if two of the ratings are at the same level and the other rating is two or more levels below these same ratings, the level corresponding to the rating that is one level below the two same ratings shall apply and (d) if each of the three ratings fall within different levels, then the level corresponding to the rating that is in between the highest and the lowest ratings shall apply.

“ Approved Electronic Communications ” means each Communication that any Borrower is obligated to, or otherwise chooses to, provide to the Administrative Agent pursuant to any Loan Document or the transactions contemplated therein, including any financial statement, financial and other report, notice, request, certificate and other information material; provided , however, that, solely with respect to delivery of any such Communication by any Borrower to the Administrative Agent and without limiting or otherwise affecting either the Administrative Agent’s right to effect delivery of such Communication by posting such Communication to the Approved Electronic Platform or the protections afforded hereby to the Administrative Agent in connection with any such posting, “Approved Electronic Communication” shall exclude (i) any notice of borrowing, letter of credit request, swing loan request, notice of conversion or continuation, and any other notice, demand, communication, information, document and other material relating to a request for a new, or a conversion or continuation of an existing, Borrowing, (ii) any notice pursuant to Section 2.07(a) and Section 2.07(b) and any other notice relating to the payment of any principal or other amount due under any Loan Document prior to the scheduled date therefor, (iii) all notices of any Default or Event of Default and (iv) any notice, demand, communication, information, document and other material required to be delivered to satisfy any of the conditions set forth in Article 3 or any other condition to any Borrowing or other extension of credit hereunder or any condition precedent to the effectiveness of this Agreement.

“ Approved Electronic Platform ” has the meaning provided in Section 8.02(b).

“ Assignment and Acceptance ” means an assignment and acceptance accepted by the Administrative Agent in substantially the form of Exhibit G hereto.

“ Attributable Debt ” means, in respect of any lease transaction described in Section 5.02(c), as of the date of determination, the lesser of (i) the sale price of the property so leased multiplied by a fraction the numerator of which is the remaining portion of the base term of the lease included in such transaction and the denominator of which is the base term of such lease, and (ii) the total obligation (discounted to present value at the implicit interest factor, determined in accordance with generally accepted financial practice, included in the rental payments or, if such interest factor cannot readily be determined, at a rate of interest of 10% per annum, compounded semi-annually) of the lessee for rental payments (other than amounts required to be paid on account of property taxes as well as maintenance, repairs, insurance, water rates and other items which do not constitute payments for property rights) during the remaining portion of the base term of the lease included in such transaction.

“ Control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to

exercise voting power, by contract or otherwise. “ Controlling ” and “ Controlled ” have meanings correlative thereto.

“ Currency ” means either Dollars or an Alternate Currency.

“ Current Termination Date ” has the meaning provided in Section 2.01(d)(i).

“ Declining Lender ” has the meaning provided in Section 2.01(d)(ii).

“ Default ” means an event which would constitute an Event of Default but for the giving of notice, the lapse of time or both.

“ Designated Borrowers ” means any Subsidiary of the Company as to which a Designation Letter has been delivered to the Administrative Agent in accordance with and together with the other documents required by Section 2.14, and no Termination Letter has been delivered to the Administrative Agent thereunder.

“ Designation Letter ” has the meaning provided in Section 2.l4.

“ Dollar Equivalent ” means, with respect to any amount denominated in an Alternate Currency on any date, the amount of Dollars that would be required to purchase such amount of such Alternate Currency at or about 11:00 A.M. (Local Time) on such date, for delivery two Business Days later, as determined by the Administrative Agent on the basis of the spot selling rate for the offering of such Alternate Currency for Dollars in the London foreign exchange market, determinations thereof made in good faith by the Administrative Agent to be conclusive and binding on the parties in the absence of manifest error.

“ Dollars ” and “ $ ” mean lawful money of the United States of America.

“ Domestic Lending Office ” means, with respect to any Lender, the office of such Lender specified as its “Domestic Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance, the Additional Commitment Agreement or the accession agreement pursuant to which it became a Lender, or such other office of such Lender as such Lender may from time to time specify in writing to the Company and the Administrative Agent.

“ EBITDA ” means, for any period, the sum (without duplication) for the Company and its Consolidated Subsidiaries on a consolidated basis of the following: (a) net income for such period plus (b) to the extent deducted in determining net income for such period, the sum of (i) depreciation and amortization for such period, (ii) Interest Expense for such period and (iii) taxes for such period. Notwithstanding the foregoing, in calculating EBITDA for any period that includes one or more Restructuring Periods, EBITDA shall be increased by an amount equal to the Applicable Restructuring Charges for any such Restructuring Periods.

As used herein:

“Restructuring Period” means (a) each fiscal quarter of the Company during its fiscal year ending in 2008 and (b) if the Company reports taking any restructuring charges during any quarter of its fiscal year ending in 2009 in the Company’s Exchange Act disclosure documents filed with the Securities and Exchange Commission on Forms

8K, 10K or 10Q (or their equivalents) (the Company’s “SEC Filings”), each such fiscal quarter of the Company during its fiscal year ending in 2009.

“Applicable Restructuring Charge” means

(a) for the Restructuring Period that is the Company’s first quarter of its fiscal year ending in 2008, $3,300,000; for the Restructuring Period that is the Company’s second quarter of its fiscal year ending in 2008, $16,900,000; for the Restructuring Period that is the Company’s third quarter of its fiscal year ending in 2008, $4,800,000 and for the Restructuring Period that is the Company’s fourth quarter of its fiscal year ending in 2008, $60,600,000; and

(b) for any Restructuring Period falling in the Company’s fiscal year ending in 2009, the restructuring charges reported in the Company’s SEC Filings in such fiscal quarter; provided that the sum of the Applicable Restructuring Charges for all of the Restructuring Periods in the Company’s fiscal year ending in 2009 will not exceed $50,000,000 in the aggregate.

“ Effective Date ” has the meaning provided in Section 3.01.

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successors thereto, and the regulations promulgated and the rulings found thereunder.

“ ERISA Controlled Group ” means a group consisting of any ERISA Person and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control with such Person that, together with such Person, are treated as a single employer under regulations promulgated under ERISA.

“ ERISA Person ” has the meaning provided in Section 3(9) of ERISA for the term “person.”

“ ERISA Plan ” means (i) any Plan that (x) is not a Multiemployer Plan and (y) has Unfunded Benefit Liabilities in excess of $20,000,000 and (ii) any Plan that is a Multiemployer Plan.

“ ESOP ” means Stanley Account Value Plan or any successor plan.

“ Euro ” has the meaning provided in Section 2.15.

“ Eurocurrency Liabilities ” has the meaning provided in Regulation D (or any successor regulation) of the Federal Reserve Board, as in effect from time to time.

“ Eurocurrency Lending Office ” means, with respect to any Lender, the office of such Lender specified as its “Eurocurrency Lending Office” opposite its name on Schedule I hereto or in the Assignment and Acceptance, the Additional Commitment Agreement or the accession agreement pursuant to which it became a Lender (or, if no such office of such Lender is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify in writing to the Company and the Administrative Agent.

“ Eurocurrency Rate ” means, for any Interest Period:

(a) for each Eurocurrency Rate Advance denominated in Dollars comprising part of the same Committed Borrowing, an interest rate per annum equal to the offered rate for deposits in such Currency as quoted on the relevant Screen Page at 11:00 A.M. (London time) two London Banking Days before the first day of such Interest Period in an amount substantially equal to the Reference Bank’s Eurocurrency Rate Advance comprising part of such Committed Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period;

(b) for each Eurocurrency Rate Advance denominated in Pounds Sterling comprising part of the same Committed Borrowing, (i) an interest rate per annum equal to the offered rate for deposits in such Currency as quoted on the relevant Screen Page at 11:00 A.M. (London time) on the first day of such Interest Period, for a period equal to such Interest Period plus (ii) the MCR Cost, if any; or

(c) for each Eurocurrency Rate Advance denominated in Euros comprising part of the same Committed Borrowing, (i) an interest rate per annum equal to the offered rate for deposits in such Currency as quoted on the relevant Screen Page at 11:00 A.M. (Brussels time) two TARGET Days before the first day of such Interest Period, for a period equal to such Interest Period plus (ii) the MCR Cost, if any.

“ Eurocurrency Rate Advance ” means a Committed Advance that bears interest as provided in Section 2.05(b).

“ Eurocurrency Rate Reserve Percentage ” for any Lender for any Eurocurrency Rate Advances owing to such Lender means the reserve percentage applicable two Business Days before the first day of the applicable Interest Period under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for such Lender with respect to liabilities or assets consisting of or including Eurocurrency Liabilities having a term equal to the applicable Interest Period.

“ Events of Default ” has the meaning provided in Section 6.01.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect.

“ Excluded Representation ” means the representation and warranty set forth in Section 4.01(g).

“ Existing Credit Agreement ” has the meaning provided in the recitals of this Agreement.

“ GAAP ” means United States generally accepted accounting principles as in effect from time to time.

“ Hedge Agreements ” means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements.

“ Indebtedness ” of any Person means, without duplication, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business of such Person), (ii) all indebtedness of such Person evidenced by a note, bond, debenture or similar instrument, (iii) the principal component of all Capital Lease obligations of such Person, (iv) the face amount of all letters of credit issued for the account of such Person and, without duplication, all unreimbursed amounts drawn thereunder, (v) all indebtedness of any other Person secured by any Lien on any property owned by such Person, whether or not such indebtedness has been assumed, (vi) all Contingent Obligations of such Person, and (vii) all indebtedness of such Person in respect of Hedge Agreements.

“ Information Memorandum ” means the document in the form approved by the Company concerning the Borrowers and their Subsidiaries which, at the Company’s request and on its behalf, was prepared in relation to this transaction and distributed by the Lead Arrangers to selected financial institutions before the date of this Agreement.

“ Initial Lenders ” has the meaning provided in the first paragraph of this Agreement.

“ Interest Coverage Ratio ” means, for any period of four consecutive fiscal quarters, the ratio of (a) EBITDA for such period to (b) Interest Expense for such period.

“ Interest Expense ” means, for any period, the sum (determined without duplication) of the aggregate amount of interest reported in respect of such period on the Indebtedness of the Company and its Consolidated Subsidiaries on a consolidated basis, including, without limitation, the interest portion of payments under Capital Lease obligations and any capitalized interest but excluding imputed (non-cash) interest expense in respect of convertible bonds issued by the Company or any of its Consolidated Subsidiaries as calculated in accordance with the Financial Accounting Standards Board’s Staff Position Accounting Principles Board Opinion No. 14-1 (“Accounting for Convertible Debt Instruments That May be Settled in Cash upon Conversion (Including Partial Cash Settlement)”) , minus (i) interest income of the Company and its Consolidated Subsidiaries on a consolidated basis reported in respect of such period and (ii) interest on deferred compensation reported in respect of such period.

“ Interest Period ” means, for each Eurocurrency Rate Advance comprising part of the same Committed Borrowing, each Floating Rate Advance comprising part of the same Uncommitted Borrowing and each Fixed Rate Advance comprising part of the same Uncommitted Borrowing, the period commencing on the date of such Advance or the date of the continuation of such Eurocurrency Rate Advance or the date of the conversion of any Base Rate

“ Uncommitted Note ” has the meaning provided in Section 2.11.

“ Unfunded Benefit Liabilities ” means with respect to any Plan at any time, the amount (if any) by which (i) the present value of all benefit liabilities under such Plan as defined in Section 4001(a)(16) of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to

such benefits, all determined as of the then most recent valuation date for such Plan (on the basis of assumptions prescribed by the PBGC for the purpose of Section 4044 of ERISA).

“ Utilization Ratio ” means, at any time, the ratio of (i) the aggregate outstanding principal amount of the Advances at such time to (ii) the aggregate amount of the Commitments at such time.

SECTION 1.02. Computation of Time Periods; Terms Generally . In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”.

SECTION 1.03. Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with GAAP.

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

SECTION 2.01. The Commitment . (a) The Committed Advances . (i) Each Lender agrees, on the terms and conditions hereinafter set forth to make Committed Advances to the Company and any Designated Borrower in Dollars or an Alternate Currency from time to time on any Business Day during the period from the Effective Date until the Termination Date in an aggregate amount not to exceed at any time outstanding (1) such Lender’s Commitment minus (2) such Lender’s Pro Rata Share of the aggregate principal amount of all Uncommitted Advances then outstanding; provided that (A) at no time shall the aggregate outstanding principal amount of all Advances exceed the total amount of the Commitments at such time; and (B) at no time shall the Dollar Equivalent of the aggregate outstanding principal amount of all Committed Advances denominated in an Alternate Currency to the Borrowers exceed the Foreign Currency Sublimit.

(ii) Within the limits of each Lender’s Commitment and subject to the limitation set forth in Section 2.07(c), each Borrower may borrow, repay, prepay (as provided in Section 2.07) and reborrow such amount or any portion thereof.

(f) Failure to Make Advances . The failure of any Lender to make the Committed Advance to be made by it as part of any Committed Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Committed Advance on the date of such Committed Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Committed Advance to be made by such other Lender on the date of any Committed Borrowing.

SECTION 2.03. Fees . (a) Facility Fee . The Company agrees to pay to the Administrative Agent for the account of each Lender a facility fee in Dollars on the aggregate amount of such Lender’s Commitment (whether or not utilized and, after the Termination Date (or, for any Declining Lender, after the Current Termination Date applicable to such Lender), on the aggregate outstanding principal amount of the Advances of such Lender, if any) from the date hereof in the case of each Lender and, in the case of each Person which becomes a Lender pursuant to Section 8.07, from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender and, in the case of a Person becoming a Lender pursuant to Section 2.01(c) or 2.01(d), from the effective date specified in the accession agreement or Additional Commitment Agreement, as applicable, pursuant to which it became a Lender, until the Termination Date at the Applicable Facility Fee Rate, payable quarterly in arrears on the last day of each March, June, September and December during the term hereof and on the Termination Date. All computations of the facility fee shall be based on a year of 360 days.

(b) Administrative Agent’s Fees . The Company shall pay to the Administrative Agent in Dollars for its own account such fees as may from time to time be agreed between the Company and the Administrative Agent.

(c) Utilization Fee . Each Borrower shall pay to the Administrative Agent for the pro rata account of the Lenders a utilization fee on the outstanding principal amount of the Advances made to it (which fee shall be payable in the Currency in which such Advances were denominated), for each day on which the Utilization Ratio exceeds 0.50 and for each day after the Termination Date regardless of the Utilization Ratio, at a rate per annum equal to the Applicable Utilization Fee Rate, payable on each day on which a payment of interest is due under Section 2.05.

SECTION 2.04. Continuation and Conversion . (a) General . Subject to the other provisions hereof, each Borrower shall have the option (i) to convert all or any part of an outstanding Committed Borrowing consisting of Base Rate Advances to a Committed Borrowing consisting of Eurocurrency Rate Advances, (ii) to convert all or any part of an outstanding Committed Borrowing in Dollars consisting of Eurocurrency Rate Advances to a Committed Borrowing consisting of Base Rate Advances, or (iii) to continue all or any part of an outstanding Committed Borrowing consisting of Eurocurrency Rate Advances as a Committed Borrowing consisting of Eurocurrency Rate Advances for an additional Interest Period; provided that no Committed Borrowing consisting of Eurocurrency Rate Advances shall be so converted other than as contemplated by Section 2.02(c) or continued, until the expiration of the Interest Period applicable thereto.

(b) Notice of Conversion or Continuation . In order to elect to convert or continue a Committed Borrowing hereunder, the Company (on its own behalf or on behalf of any Designated Borrower) shall deliver an irrevocable notice thereof (a “ Notice of Conversion or Continuation ”) to the Administrative Agent by telecopier or by telephone confirmed immediately in writing, no later than (i) 11:00 A.M., (New York City time) on the proposed conversion date in the case of a conversion to Base Rate Advances and (ii) no earlier than 9:00 A.M. (New York City time) and no later than 4:00 P.M. (New York City time) on the third Business Day in advance of the proposed conversion or continuation date in the case of a conversion to, or a continuation of, Eurocurrency Rate Advances, substantially in the form of Exhibit B hereto. A Notice of Conversion or Continuation shall specify (w) the requested conversion or continuation date (which shall be a Business Day), (x) the amount and Type of the Advances to be converted or continued, (y) whether a conversion or continuation is requested, and (z) in the case of a conversion to, or a continuation of, Eurocurrency Rate Advances, the requested Interest Period. The relevant Eurocurrency Rate for such Interest Period in the case of a conversion to, or a continuation of, Eurocurrency Rate Advances shall be determined in the manner provided in

Section 2.02(a) as if such conversion or continuation is instead new Eurocurrency Rate Advances in such amount, on such date and for such Interest Period. If the Company fails to give a Notice of Conversion or Continuation with respect to an outstanding Committed Borrowing consisting of Eurocurrency Rate Advances in Dollars as provided in clause (ii) above, the Company shall be deemed to have converted such Eurocurrency Rate Advances into Base Rate Advances in accordance with this Section 2.04 if such Advances are outstanding after the last day of the Interest Period with respect thereto. If the Company fails to give a Notice of Conversion or Continuation with respect to an outstanding Committed Borrowing consisting of Eurocurrency Rate Advances in an Alternate Currency as provided in clause (ii) above, the Company shall be deemed to have converted such Eurocurrency Rate Advances into a Eurocurrency Rate Advance with an Interest Period of one (1) month in accordance with this Section 2.04 if such Advances are outstanding after the last day of the Interest Period with respect thereto.

SECTION 2.05. Interest on Advances . Each Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date the proceeds of such Advance are made available to such Borrower until such principal amount shall be paid in full, at the following rates per annum:

(a) Base Rate Advances . If such Advance is a Base Rate Advance, a rate per annum equal to the Base Rate in effect from time to time, payable in arrears quarterly on the last Business Day of each fiscal quarter during the period such Base Rate Advance remains outstanding and on the date such Base Rate Advance shall be paid in full;

(b) Eurocurrency Rate Advances . If such Advance is a Eurocurrency Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the sum of the Eurocurrency Rate for such Interest Period plus the Applicable Eurocurrency Margin for such ~~Advance~~ Interest Period , payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period;

(c) Floating Rate Advances . If such Advance is a Floating Rate Advance, a rate per annum equal at all times during the Interest Period for such Advance to the Floating Rate for such Interest Period quoted by such Lender in accordance with Section 2.13, payable in arrears on the last Business Day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day which occurs during such Interest Period every three months from the first day of such Interest Period;

(c) Payment of Taxes . The Company shall pay or cause to be paid, and shall cause each of its Subsidiaries to pay or cause to be paid, when due, all taxes, charges and assessments and all other lawful claims required to be paid by the Company or such Subsidiaries, except (x) as contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves have been established with respect thereto in accordance with GAAP and (y) where such nonpayment could not reasonably be expected to result in a Material Adverse Effect.

(d) Preservation of Corporate Existence . Except as otherwise permitted by this Agreement, the Company shall, and shall cause each of its Subsidiaries to, do all things necessary to preserve, renew and keep in full force and effect its corporate existence and the licenses, permits, rights and franchises necessary to the proper conduct of its business, except

where the failure to do so could not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries will engage in any business if, as a result, the general nature of the business, taken on a consolidated basis, which would then be engaged in by the Company and its Subsidiaries would be substantially changed from the general nature of the business engaged in by the Company and its Subsidiaries on the date of this Agreement.

(e) Maintenance of Books and Records . The Company will maintain financial records in accordance with GAAP, consistently applied. The representatives of the Administrative Agent or any of the Lenders shall have the right to visit and inspect any of the properties of the Company and of any of its Subsidiaries, to examine their books of account and records and take notes and make transcripts therefrom, and to discuss their affairs, finances and accounts with, and be advised as to the same by, their officers upon reasonable prior notice at such reasonable times and intervals as may be requested (subject to the standard policies of the Company and its Subsidiaries as to access, safety and, without prejudice to the reasonable requirements of lending institutions and their regulatory supervisors, confidentiality).

(f) Interest Coverage Ratio . The Company shall maintain, for each period of four consecutive fiscal quarters of the Company, an Interest Coverage Ratio of not less than ~~5.00~~ 3.50 to 1.00.

SECTION 5.02. Negative Covenants . So long as any Advance or any other amount owing hereunder shall remain unpaid or any Lender shall have any Commitment hereunder:

(a) No Liens . The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist, directly or indirectly, any Lien on any Principal Property now owned or hereafter acquired (unless the Company secures the Advances made hereunder equally and ratably with such Lien), other than:

(i) Liens existing and disclosed to the Lenders in writing prior to the date hereof;

(ii) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves are being maintained in accordance with GAAP;

(iii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law created in the ordinary course

Exhibit 10 (viii)

SECOND AMENDMENT

TO THE

SUPPLEMENTAL RETIREMENT AND ACCOUNT VALUE PLAN
FOR SALARIED EMPLOYEES OF THE STANLEY WORKS
(As Amended And Restated Effective January 1, 2009, Except As Otherwise Provided)

Background . A. The Stanley Works, together with its wholly-owned U.S. subsidiaries (“Stanley”), maintains the Supplemental Retirement and Account Value Plan for Salaried Employees of The Stanley Works (“Plan”) to provide certain employees with benefits that are not provided under a tax-qualified retirement plan under Section 401(a) of the Internal Revenue Code of 1986, as amended (“Code”).

B. The Stanley Works now desires to amend the Plan in the form of a restated Plan in order for the Plan to comply with the requirements of Code Section 409A and the regulations thereunder, as follows:

Article 1

Effective Date

This amendment and restatement of the Plan shall be effective January 1, 2009, provided that Sections 4.3(c), 6.2(a), 6.2(c), 7.2(d) and 7.2(e) shall be effective as set forth therein. This amended and restated Plan shall apply with respect to any amounts contributed to or distributed from the Plan on or after January 1, 2009, provided that this restatement of the Plan shall not apply with respect to annuity payments of a Supplemental Retirement Plan Benefit that are a continuation of a series of annuity payments that began prior to January 1, 2009.

Article 2

Definitions

The following terms have the meanings set forth below.

“ Accounts ” means a Participant’s Supplemental Employee Contribution Account and Supplemental Company Contribution Account.

“ Account Value Plan ” means the Stanley Account Value Plan.

“ Actuarial Equivalent ” means a benefit which has the same present value, as of the benefit commencement date, as the single life annuity form of benefit computed in accordance with Article 7 on the basis of the factors for determining actuarial equivalence described in Section 7.2(c)(iii).

“ Beneficiary ” means any individual, trust or estate designated by a Participant, in accordance with the procedures established by the Company, to receive a death benefit payable on the Participant’s behalf under the Plan. If, at the time of death of a Participant, there is no beneficiary designation on file with the Company or there is no such designated beneficiary surviving, the death benefit, other than a death benefit for a joint annuitant provided under a joint and survivor annuity, shall be paid to the Participant’s surviving spouse, or, if there is no surviving spouse, the death benefit shall be paid to the Participant’s estate. Any benefit payable upon the death of a Participant’s joint annuitant, after beginning to receive payments under a joint and survivor annuity, shall be paid to the beneficiary designated in

writing by the joint annuitant, provided that, if no designated beneficiary survives the joint annuitant, the benefit shall be paid to the joint annuitant’s estate.

“ Committee ” means the Finance and Pension Committee of the Board of Directors of the Company.

“ Company ” means The Stanley Works.

“ Compensation ” means, with respect to a Plan Year:

(a) Subject to paragraphs (b), (c) and (d), the salary and other amounts received by a Participant from the Controlled Group for services actually rendered in the course of employment with the Controlled Group during the pertinent Plan Year, to the extent such amounts are includible in the gross income of the Participant for federal income tax purposes, including, but not limited to, bonuses, commissions and vacation pay that are paid with respect to such services rendered during the Plan Year. Compensation for a Plan Year shall also include a Participant’s Elective Deferral Contributions under the Plan, and elective contributions of the Participant that are excludable from gross income for federal income tax purposes under Section 402(g) of the Code, Section 125 of the Code or Section 132(f)(4) of the Code (a qualified transportation fringe benefit plan), provided that any such contributions are made from amounts that would be considered Compensation pursuant to the preceding sentence if paid to the Participant.

(b) Compensation for a Plan Year shall not include reimbursements or other expense allowances, fringe benefits (whether or not paid in cash), moving expenses, welfare benefits, including the cost of group term life insurance coverage, deferred compensation in the year paid if the compensation has been deferred beyond the calendar year in which it would otherwise have been paid, amounts paid to a Participant under the Company’s long-term incentive plans, amounts realized from the grant or exercise of a stock option, or, except as provided below, any amounts paid during the Plan Year for services rendered in a prior Plan Year. Subject to paragraph (d), for purposes of paragraph (a), a bonus paid to the Participant in the Plan Year that follows the Plan Year during which the services were performed with respect to which such bonus is paid will be included in Compensation for such Plan Year in which the services were performed, and any Elective Deferred Contributions with respect to a bonus, that are elected pursuant to Section 3.1(a) prior to the beginning of the Plan Year in which the services were performed with respect to which the bonus is determined, will be included in Compensation for that Plan Year. Except for a Participant’s final regular payroll check or a bonus for services performed in a prior Plan Year, Compensation shall not include amounts paid after the Participant ceases to have employment status with Stanley. Amounts described in subsection (a) that are paid after the last day of a Plan Year solely for services performed during the final payroll period that includes the last day of such Plan Year shall be treated as Compensation for the Plan Year in which such final payroll period ends. Pursuant to Treasury Regulation Section 1.409A- 2(a)(13), the preceding sentence shall not apply to any amount that is paid after the last day of a Plan Year for services performed during any period other than such final payroll period, such as a bonus paid entirely or in part with respect to services performed during a period other than the final payroll period.

(c) For purposes of subsection (a), a Participant who earns sales commission compensation is treated as providing the services to which such compensation relates in the Plan Year in which the pertinent sale occurs. For purposes of this paragraph (c), the term ‘sales commission compensation’ means compensation or portions of compensation earned by a Participant if a substantial portion of the services provided by such Participant to Stanley consists of the direct sales of products or services to unrelated customers, such compensation earned by the Participant consists of either a portion of the purchase price for products or services or an amount substantially all of which is calculated by reference to the volume of sales, and payment of such compensation is contingent upon the closing of the sales transaction and such other requirements as may be specified by Stanley prior to the closing of the sales

transaction. For this purpose, a customer is treated as an unrelated customer only if the customer is not related to either the Participant or Stanley, and a person is treated as related if the person would be treated as related under Treasury Regulation Section 1.409A-1(f)(2)(ii) or the person would be treated as providing management services under Treasury Regulation Section 1.409A-1(f)(2)(iv).

(d) Anything herein to the contrary notwithstanding, amounts that are deferred at the election of a Participant under Stanley’s Deferred Compensation Plan for Participants in Stanley’s Management Incentive Plans (the “Deferred Compensation Plan”) shall not be considered Compensation for any Plan Year for purposes of determining contributions under Section 4.1 or 4.2(a) but shall be considered Compensation for purposes of determining contributions under Section 4.2(b), in the year such amounts would have been paid to the Participant if not deferred under the Deferred Compensation Plan. Also, anything herein to the contrary notwithstanding, solely for purposes of determining contributions under Section 4.2(b), Compensation for a Plan Year shall include Compensation for the Plan Year, as determined above, if it is payable during such Plan Year, and also any amount that is payable during the Plan Year that otherwise would be considered Compensation for a prior Plan Year as a result of being attributable to services performed in the prior Plan Year, but shall not include any amount that is payable during the subsequent Plan Year that otherwise would be considered Compensation for the current Plan Year as a result of being attributable to services performed during the current Plan Year.

“ Controlled Group ” means a group of corporations or other entities of which the Company is a member, determined under Section 414(b) and Section 414(c) of the Internal Revenue Code, applied by utilizing “at least 80 percent” each place it appears in Internal Revenue Code Section 1563(a)(1), (2) and (3) and in Treasury Regulation Section 1.414(c)-2.

“ Disability ” means a Participant’s Separation from Service as a result of his or her permanent inability, by reason of a medically determinable physical or mental impairment, to perform any job for which the Participant is reasonably suited by education and experience.

“ Elective Deferral Contribution ” means the amount of Compensation that a Participant elects to defer under Section 4.1.

“ Employee ” means an individual employed by Stanley as a common law employee on a salaried basis who is subject to the income tax laws of the United States and is not an employee with ZAG Storage USA. Anything herein to the contrary notwithstanding, an individual employed after November 1, 2007, by an entity that first becomes a wholly-owned (direct or indirect) U.S. subsidiary of the Company after that date shall not be considered an Employee, unless he or she is eligible to participate in the Plan pursuant to Appendix A, provided that, anything herein to the contrary notwithstanding, an individual shall not be considered an Employee and shall not be eligible to defer Compensation with respect to a Plan Year or receive any other contributions under the Plan for the Plan Year unless he or she is eligible to make elective pre-tax contributions under the Account Value Plan on the first day of such Plan Year.

“ Highly Compensated Employee ” means, for a Plan Year, an Employee who received earnings from the Controlled Group during the preceding Plan Year in excess of the dollar amount prescribed under Code Section 414(q)(1)(B). An individual who has been a Highly Compensated Employee shall cease to be a Highly Compensated Employee, effective upon the close of business on the last day of the Plan Year in which his or her earnings for such Plan Year do not exceed the pertinent dollar amount that applies under Code Section 414(q)(1)(B) when determining his or her status as a ‘highly compensated employee’ under Code Section 414(q)(1)(B) for the subsequent Plan Year. For purposes of this definition, ‘earnings’ is an individual’s W-2 income, plus elective contributions made on behalf of the individual by the Company, and all members of the Controlled Group, that are excludable from gross income for federal income tax purposes under Code Section 125, 402(g), or 132(f)(4), except that, “earnings” for all of the last calendar quarter of a Plan Year are determined based on projected base salary, including

projected elective contributions under Code Section 125, 402(g) or 132(f)(4), with respect to such base salary, rather than actual earnings.

“ Participant ” means a Highly Compensated Employee who is eligible under Section 3.1(a)(i) to elect to defer a portion of his or her Compensation under the Plan, or an Employee who is eligible to defer a portion of his or her Compensation under the Plan, pursuant to Sections 3.1(a)(ii) and 3.2, based upon an annual rate of base salary in excess of the dollar amount prescribed under Code Section 414(q)(1)(B). Notwithstanding anything herein to the contrary, an individual who has a vested Supplemental Retirement Plan Benefit as of January 1, 2009 and is not eligible under Section 3.1 shall be a Participant for purposes of the provisions of the Plan other than Articles 3, 4, 5 and 6.

“ Plan Year ” means the calendar year.

“ Retirement Plan ” means The Stanley Works Retirement Plan as in effect on April 16, 2002, without regard to any subsequent changes in such plan.

“ Separation from Service ” means the termination of a Participant’s employment with the Controlled Group for a reason other than death. Whether a Separation from Service has occurred is determined in accordance with the standards that apply for determining if there is a ‘separation from service’ for a reason other than death pursuant to Treasury Regulation Section 1.409A-1(h)(1). There is a Separation from Service as of a particular date, if the Company and the Participant reasonably anticipated that, as of that date, the Participant would provide no further services to the Controlled Group as a common law employee or as an independent contractor or the Participant would provide services to the Controlled Group as a common law employee or an independent contractor at an annual rate that is not more than 20% of the services rendered, on average, during the immediately preceding 36 consecutive months of service (or the full period of service, if less than 36 months). For purposes of the preceding sentence, service as a director of a member of the Controlled Group shall not be taken into account.

The Participant’s employment relationship shall be treated as continuing while the Participant is on military leave, sick leave or other bona fide leave of absence, provided that the Participant is expected to return to work for a member of the Controlled Group and the period of such leave of absence does not exceed six months, or if the period is longer, the Participant has a right to reemployment with a member of the Controlled Group either by statute or by contract. If the period of a military leave, sick leave or other bona fide leave of absence exceeds six months and there is no right to reemployment, a termination of the employment relationship shall be deemed to have occurred as of the first date immediately following the first six months of the leave.

“ Specified Employee ” means a Participant who is identified as a ‘specified employee’ in accordance with Treasury Regulation Section 1.409A-1(i), pursuant to a written policy established and maintained by the Company.

“ Supplemental Company Contribution Account ” means the bookkeeping record that reflects the supplemental Company contributions credited under the Plan as of December 31, 2008, pursuant to the terms of the Plan as then in effect.

“ Supplemental Employee Contribution Account ” means the bookkeeping record that reflects amounts credited under Section 4.1.

“ Supplemental Retirement Plan Benefit ” means the frozen supplemental benefit accrued under the Plan as of July 31, 2001, determined on the basis of the provisions of the Plan as in effect on that date.

“ Valuation Date ” means the date established by the Committee for valuing Participants’ Accounts.

Article 3

Plan Participation

3.1 Date of Participation . (a) Eligibility to Defer .

(i) Except as provided in subsection (ii), an Employee shall become a Participant in the Plan effective upon the first January 1 on which he or she is a Highly Compensated Employee.

(ii) An Employee who became a Participant in the Plan in 2008, based upon an annual rate of base salary from the Controlled Group in excess of the dollar amount prescribed under Code Section 414(q)(1)(B) shall remain eligible to make Elective Deferral Contributions from Compensation payable with respect to services performed during 2009, provided that such individual is still an Employee on January 1, 2009 and, as of that date, his annual rate of base salary is in excess of the dollar amount set forth in Code Section 414(q)(1)(B).

Subject to Section 3.2, a Participant shall be eligible to elect, under Section 4.1, to defer a specified portion of the Compensation payable with respect to services performed during a Plan Year that begins after the Plan Year in which the Participant makes the election to defer such portion of Compensation, provided that the Participant must irrevocably elect to defer such portion before January 1 of such Plan Year in which the services are performed and, subject to Section 3.3, such election must remain in effect for the entire Plan Year.

(b) Deferral Elections . Any election to defer Compensation shall be effective only with respect to Compensation for services that are performed on or after the January 1 ^st on which such election becomes effective. A Participant’s election to defer Compensation by making Elective Deferral Contributions shall be submitted to the Company by the deadline established by the Company that precedes the first January 1 on which such election is to become effective. Such election shall state the portion of Compensation to be withheld. Any election to defer shall be made in accordance with procedures established by the Company and, subject to Section 3.3, shall be irrevocable for the Compensation payable with respect to services performed during the Plan Year to which such election applies.

(c) Evergreen Deferral Elections . A Participant’s election to defer a specified portion of Compensation payable with respect to services performed during a Plan Year shall remain in effect for Compensation payable with respect to services performed during subsequent Plan Years until changed or revoked by the Participant, and, subject to Sections 3.2 and 3.3, as of each December 31, such a prior election becomes irrevocable with respect to Compensation payable in connection with services performed by the Participant during the immediately following Plan Year, so that the deferral election with respect to Compensation payable with respect to services performed by the Participant during the immediately following Plan Year shall be deemed to have been irrevocably made as of December 31 of the preceding Plan Year.

3.2 Continuing Plan Participation . If an Employee becomes a Participant for a Plan Year, pursuant to Section 3.1(a)(i), he or she shall remain eligible to make Elective Deferral Contributions from Compensation payable with respect to services performed during each subsequent Plan Year in which he or she is a Highly Compensated Employee. If an Employee becomes a Participant in 2008, pursuant to Section 3.1(a)(i)(ii), he or she may remain eligible in accordance with said Section 3.1(a)(ii) to make Elective Deferral Contributions from Compensation payable with respect to services performed during the 2009 Plan Year, but shall not be eligible to make Elective Deferral Contributions from Compensation payable with respect to services performed during any Plan Year subsequent to 2009 for which he or she is not a Highly Compensated Employee. If an Employee who has become a Participant for a Plan Year, pursuant to Section 3.1(a)(i), ceases to be a Highly Compensated Employee

with respect to a subsequent Plan Year, he or she shall not be eligible to make Elective Deferral Contributions from Compensation payable with respect to services performed during that subsequent Plan Year but shall be eligible to make Elective Deferral Contributions from Compensation payable with respect to services performed during the next Plan Year in which he or she is a Highly Compensated Employee by making a new deferral election under Section 3.1(a)(i). If an Employee was eligible to contribute under the Plan pursuant to Section 3.1(a)(ii), but has ceased to be eligible to contribute with respect to a Plan Year, such Employee shall not be eligible to make Elective Deferral Contributions until the Plan Year in which he or she is a Highly Compensated Employee, and he or she may make contributions from Compensation payable with respect to services performed during that Plan Year by making a new deferral election, pursuant to Section 3.1(a)(i), before January 1 of such Plan Year in which the services are performed. The provisions of the Plan shall continue to apply to an individual until his or her vested Accounts are distributed.

3.3 Unforeseeable Emergency . With the approval of the Committee, a Participant who is faced with an “unforeseeable emergency” shall be permitted, on account of such emergency, to cancel an election previously made by the Participant to make Elective Deferral Contributions under the Plan. An election by a Participant to cancel his or her Elective Deferral Contributions with respect to Compensation payable for services performed during a Plan Year on account of an unforeseeable emergency shall cancel all remaining Elective Deferral Contributions of the Participant that would otherwise be made with respect to Compensation payable for services performed during the Plan Year, and no additional Elective Deferral Contributions shall be made until the Participant makes a new election to defer a portion of his or her Compensation for services performed during a subsequent Plan Year in accordance with Sections 3.1 and 3.2. For purposes of this Section 3.3, an unforeseeable emergency is a severe financial hardship to a Participant resulting from (a) an illness or accident of the Participant, the Participant’s spouse, the Participant’s Beneficiary, or a dependent of the Participant (as defined in Code Section 152, without regard to Section 152(b)(1), (b)(2) and (d)(1)(B)), (b) loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to the home not otherwise covered by insurance), or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The determination of whether a Participant is faced with an unforeseeable emergency shall be made by the Committee in its sole discretion, based on the facts and circumstances surrounding such emergency and such information as the Committee shall deem to be necessary in accordance with the requirements of Code Section 409A and the regulations thereunder.

Article 4

Supplemental Employee and Company Contributions

4.1 Elective Deferral Contributions . (a) Elections to Defer . A Participant may make an election for a Plan Year in accordance with Section 3.1 to defer a specified whole percentage, from 1% to 7%, of the portion of Compensation for services performed during the Plan Year in excess of the amount of Compensation for services performed during such Plan Year that may be taken into account when determining elective pre-tax contributions under the Account Value Plan (on the basis of the provisions of the Account Value Plan that were adopted prior to the first day of the Plan Year and in effect on the first day of the Plan Year). Moreover, a Participant may elect for a Plan Year, in accordance with Section 3.1, to defer from Compensation payable for services performed during the Plan Year, up to the amount, if any, by which the limitation in effect under Internal Revenue Code Section 402(g)(1)(B) for the Plan Year exceeds the maximum, available pre-tax elective contributions under the Account Value Plan for the Plan Year, other than catch-up contributions pursuant to Internal Revenue Code Section 414(v), determined on the basis of the Account Value Plan provisions that were adopted prior to the first day of the Plan Year and in effect on the first day of the Plan Year. Any election pursuant to this Section 4.1(a) shall be implemented as an irrevocable election under Section 3.1.

(b) Additional Elective Deferral Contributions . Subject to Section 3.1, a Participant who elects contributions under Section 4.1(a) may also make an election to defer a specified whole percentage, from 1% to 8%, of Compensation.

(c) Crediting of Elective Deferral Contributions . Any amount deferred under this Section 4.1 shall be credited to a Supplemental Employee Contribution Account as soon as administratively practicable following the date on which the amount would have been paid to the Participant if not for the Participant’s election to defer.

4.2 Supplemental Company Contributions . (a) Supplemental Matching Contributions for Elective Deferral Contributions . The supplemental matching contributions that were allocated under the Plan as of December 31, 2008, with respect to a Participant’s Elective Deferral Contributions to the Plan as of December 31, 2008, are credited to the Participant’s Supplemental Company Contribution Account.

Anything herein to the contrary notwithstanding, effective January 1, 2009, all supplemental matching contributions under the Plan are discontinued, so that no supplemental matching contributions shall be made with respect to a Participant’s Elective Deferral Contributions for any Plan Year beginning on or after January 1, 2009.

(b) Supplemental Cornerstone Contributions for Certain Participants . The supplemental cornerstone contributions that were allocated under the Plan as of December 31, 2008, on behalf of certain Participants, are credited to each such Participant’s Supplemental Company Contribution Account.

Anything herein to the contrary notwithstanding, effective January 1, 2009, all cornerstone contributions under the Plan are discontinued, so that no cornerstone contributions shall be made with respect to any Participant for any Plan Year beginning on or after January 1, 2009.

4.3. Investment Return . (a) Crediting of Investment Return . Subject to such rules and limitations as the Committee may establish, each Participant shall designate from among the assumed investment funds described in subsection (b) of this Section 4.3, one or more assumed investment funds in which amounts that are credited to his or her Supplemental Employee Contribution Account or Supplemental Company Contribution Account shall be deemed to be invested. At the discretion of the Committee, different investment options may be made available with respect to amounts attributable to the contributions determined under Section 4.2(b) than is the case with respect to amounts attributable to the other contributions. A Participant’s Supplemental Employee Contribution Account and Supplemental Company Contribution Account shall be adjusted periodically, as of each Valuation Date, for increases or decreases in the fair market value of the assumed investment funds in which such accounts are deemed to be invested.

(b) Assumed Investment Alternatives . The Committee shall designate the assumed investment funds, including a fund that is designed to invest primarily in Company stock, that shall be available from time to time under the Plan for purposes of measuring the investment return of a Supplemental Employee Contribution Account or a Supplemental Company Contribution Account, provided that, at the discretion of the Committee, different investment options may be made available with respect to amounts attributable to the contributions determined under Section 4.2(b) than is the case with respect to amounts attributable to the other contributions. In accordance with procedures established by the Committee, each Participant may elect how the amounts credited to his or her Supplemental Employee Contribution Account and Supplemental Company Contribution Account shall be deemed to be invested among the assumed investment funds made available by the Committee. If a Participant has not made a valid investment election, the pertinent portion of the Participant’s Supplemental Employee

Contribution Account and Supplemental Company Contribution Account shall be deemed to be invested in a default investment fund identified by the Committee.

(c) Discontinuance of Guaranteed Rate . Effective as of December 31, 2008, amounts attributable to deemed investments in a fund considered to consist primarily of Company stock, that had been subject to a guaranteed minimum investment return pursuant to the provisions of the Plan as then in effect, shall cease to be subject to a minimum guaranteed investment return. To the extent that, as of December 31, 2008, such a guarantee would have provided a lump sum distribution to a Participant as of that date in excess of the lump sum distribution that otherwise would have been made, the excess amount shall be credited on behalf of the Participant as of December 31, 2008 for reinvestment under the Plan.

Article 5

Vesting

5.1 Supplemental Employee Contribution Account and Supplemental Company Contribution Account . A Participant’s vested interest in his or her Accounts under the Plan shall be determined as follows:

(a) Supplemental Employee Contribution Account . A Participant is 100% vested at all times in the value of any amounts credited to the Participant’s Supplemental Employee Contribution Account.

(b) Supplemental Company Contribution Account . A Participant shall be 100% vested in the value of his or her Supplemental Company Contribution Account upon the Participant’s completion of 3 years of service. No portion of a Participant’s Supplemental Company Contribution Account shall be vested before completion of 3 years of service; provided, however, that a Participant shall automatically become vested in the value of his or her Supplemental Company Contribution Account if the Participant has employment status with any member of the Controlled Group (i) upon reaching his or her 65 ^th birthday, (ii) upon incurring a Disability, or (iii) upon his or her death. For purposes of this subsection (b), a year of service means each twelve month period commencing on an individual’s employment commencement date and the anniversaries thereof during which the individual has employment status with any member of the Controlled Group, during the period it is a member of the Controlled Group and the period of employment with a predecessor employer preceding the Company’s acquisition of the business conducted by such employer, whether through the purchase of all of the outstanding stock of such employer or of all, or substantially all, of the assets used by such employer in a trade or business. A Participant who ceases to have employment status with the Controlled Group on a date that is less than a full year following the most recent anniversary of his or her employment commencement date shall receive vesting service credit for each month during such partial year in which he or she had employment status. A Participant whose employment is interrupted by a break in service shall have his or her years of service determined by aggregating service with all members of the Controlled Group before and after the break in service.

Article 6

Distributions of Vested Accounts

6.1 Time and Form of Distribution of Vested Accounts . (a) Time of Distribution of Vested Accounts . Except as otherwise provided in subsection (b) of this Section 6.1, in Section 6.4, and in Section 6.5, a Participant’s vested Accounts shall be distributed as set forth below:

(i) If the Participant elected a distribution date for his or her vested Accounts pursuant to Section 6.2, the vested Accounts shall be distributed to the Participant upon such date, pursuant to Section 8.1, provided that, if the Participant dies prior to that date, the vested Accounts shall be distributed to the Participant’s Beneficiary upon the Participant’s death, as provided in Section 8.1, except that, if such a distribution was not made upon the Participant’s date of death prior to January 1, 2009, and the vested Accounts were not payable in 2008, the vested Accounts shall be distributed to the Beneficiary on March 31, 2009.

(ii) If the Participant did not elect a distribution date for his or her vested Accounts under Section 6.2, the vested Accounts shall be distributed to the Participant upon his or her Separation from Service, as provided in Section 8.1, except that, if the Participant’s Separation from Service preceded January 1, 2009, and the vested Accounts were not payable in 2008, the vested Accounts shall be distributed to the Participant between January 1, 2009 and March 31, 2009. If the Participant dies prior to the stipulated time of distribution, the vested Accounts shall be distributed to the Participant’s Beneficiary following the Participant’s death, as provided in Section 8.1, unless such a distribution was not made upon a date of death that preceded January 1, 2009, and the vested Accounts were not payable in 2008, in which case the vested Accounts shall be distributed to the Beneficiary on March 31, 2009.

(b) Delayed Distributions to Specified Employees . If a Participant is a Specified Employee as of the date of his or her Separation from Service and the Participant did not elect a distribution date for his or her vested Accounts, pursuant to Section 6.2, that is at least six months after the date of his or her Separation from Service, payment of such Participant’s vested Accounts shall be made to the Participant, as provided in Section 8.1, once six months have elapsed following the date of the Participant’s Separation from Service. However, if a Participant for whom payments are deferred under this Section 6.1(b) dies prior to receiving his or her payment under this Section 6.1(b), payment shall be made upon his or her death, as provided in Section 8.1, except that, if such a distribution was not made upon the Participant’s date of death prior to January 1, 2009 and the vested Accounts were not payable in 2008, the vested Accounts shall be distributed to the Beneficiary on March 31, 2009. If a Specified Employee with a date of Separation from Service that preceded January 1, 2008, did not elect a distribution date under Section 6.2 and the Vested Accounts were not payable in 2008, the date of distribution to the Participant shall be between January 1, 2009 and March 31, 2009.

6.2 Election of Time of Distribution . (a) Time for Making Election . At the time a Participant first makes an election to defer Compensation under the Plan, or, subject to subsection (c), in the case of an individual who became a Participant in the Plan prior to January 1, 2009, upon a date that is not later than December 31, 2008, the Participant may elect that his or her vested Accounts be distributed on the later of the last day of a specified Plan Year quarter or the last day of the Plan Year quarter which contains the date of the Participant’s Separation from Service, or, if the Participant’s Separation from Service preceded January 1, 2009, the last day of a specified Plan Year quarter.

(b) Subsequent Elections as to Time of Distribution . A Participant shall be permitted to make a written election, at any time after December 31, 2008, to delay a distribution of his or her vested Accounts, provided that any such election must specify a distribution date that is the later of

the last day of a Plan year quarter or the last day of the Plan Year quarter which contains the date of Separation from Service and must satisfy all of the following requirements:

(i) the election must be made at least twelve months prior to the date on which the distribution would otherwise have been made;

(ii) the election may not become effective until at least twelve months after the date on which the election is made; and

(c) Elections Made in 2007 or 2008 as to Time of Distribution . If an election was made in 2007 to change the time of distribution of a Participant’s vested Accounts, such new election could not defer to a later year the payment of any amount that would otherwise be payable in 2007 and could not require a payment to be made in 2007 that would otherwise be payable in a later year. Moreover, if an election was made in 2008 to change the time of distribution of a Participant’s vested Accounts, such new election could not defer to a later year the payment of any amount that would otherwise be payable in 2008 and could not require a payment to be made in 2008 that would otherwise be payable in a later year.

6.3 Form of Distribution of Vested Accounts . Subject to Sections 6.4 and 6.5, a Participant’s vested Accounts shall be distributed in a lump sum payment to the Participant or, in the case of a distribution that is made pursuant to the Participant’s death, to the Participant’s Beneficiary. Each such lump sum payment shall be made in cash.

6.4 Exceptions for Participants in the SERP . Subject to Section 6.5, in the case of a Participant who is also a participant in The Stanley Works Supplemental Executive Retirement Plan (SERP), the foregoing provisions of this Article 6 and any other provision in the Plan pertaining to the time or form of a distribution shall not apply and, instead, all vested Accounts under the Plan shall be paid at the same time and in the same form as the benefit payable to or on behalf of such Participant under the SERP. If such vested Accounts under the Plan are paid in an annuity pursuant to the provisions of this Section 6.4, the annuity shall be determined pursuant to the procedures for calculating an annuity with respect to assets attributable to the Plan, as set forth in Appendix B of the SERP, and the payment of any death benefit on behalf of the Participant shall be made at the same time and in the same form as provided under the SERP to the beneficiary determined under the SERP.

6.5. Chief Executive Officer . Anything herein to the contrary notwithstanding, in the case of the Participant who was the Company’s chief executive officer on January 1, 2007, the time and form of payment of the vested Accounts payable to or on behalf of such Participant shall be the same time and form of payment as the time and form of payment that applies to his “Pension Make-Whole” benefit provided pursuant to the terms of such Participant’s employment agreement with the Company. If such vested Accounts under the Plan are paid in an annuity pursuant to the provisions of this Section 6.5, the annuity shall be calculated pursuant to the procedures for determining an annuity with respect to the amount attributable to the Plan, as set forth in the Pension Make-Whole provisions of the employment agreement, and the payment of any death benefit on his behalf shall be made at the time and in the form provided under those provisions in such employment agreement to the beneficiary determined under such provisions.

Article 7

Supplemental Retirement Plan Benefits

7.1 Supplemental Retirement Plan Benefit . A Participant who has a vested Supplemental Retirement Plan Benefit under the Plan as of July 31, 2001 and has not received or commenced to receive payment of such benefit prior to January 1, 2009, shall be entitled to payment of such vested Supplemental Retirement Plan Benefit at the time and in the form of payment provided in this Article 7. An individual who commenced to receive periodic payments, prior to January 1, 2009, of his or her vested Supplemental Retirement Plan Benefit shall continue to receive such payments pursuant to the method of payment in effect on December 31, 2008. Subject to Section 7.2(b), the vested Supplemental Retirement Plan Benefit shall be adjusted to reflect the payment of a benefit prior to “Normal Retirement Date”, as defined in the Retirement Plan, in accordance with the actuarial factors set forth in the Retirement Plan, or, the payment of a benefit subsequent to Normal Retirement Date, based upon an interest rate of 7% and the UP84 Mortality Table.

7.2 Time and Form of Distribution of Supplemental Retirement Plan Benefit . (a) Time of Distribution . Except as otherwise provided in subsection (b) of this Section 7.2, a Participant’s vested Supplemental Retirement Plan Benefit shall be distributed, or commence to be distributed, as follows:

(i) If the Participant elected a distribution date for his or her vested Supplemental Retirement Plan Benefit pursuant to subsection (d) or (f) of this Section 7.2, the Participant’s vested Supplemental Retirement Plan Benefit shall be distributed, or commence to be distributed, upon such date, provided that if the Participant dies prior to that date, a benefit shall be distributed, or commence to be distributed, to the Participant’s Beneficiary upon the Participant’s death, as provided in Section 8.1.

(ii) If the Participant did not elect a distribution date for his or her vested Supplemental Retirement Plan Benefit pursuant to subsection (d) or (f) of this Section 7.2, the Participant’s vested Supplemental Retirement Plan Benefit shall be distributed, or commence to be distributed, upon the Participant’s Separation from Service, as provided in Section 8.1, except that, if the Separation from Service preceded January 1, 2009, and a benefit was not payable in 2008, the vested Supplemental Retirement Plan Benefit shall be distributed to the Participant upon the later of the Participant’s attainment of age 65 or June 1, 2009, and provided that, if the Participant dies prior to his or her distribution date, the Participant’s vested Supplemental Retirement Plan Benefit shall be distributed, or commence to be distributed, upon the Participant’s date of death, as provided in Section 8.1.

(b) Delayed Distributions to Specified Employees . If a Participant is a Specified Employee as of the date of his or her Separation from Service, and the Participant did not elect a distribution date for his or her vested Supplemental Retirement Plan Benefit, pursuant to subsection (d) or (f) of this Section 7.2, that is at least six months after the date of his or her Separation from Service, such Participant’s vested Supplemental Retirement Plan Benefit shall be distributed or commence to be distributed on the first day of the seventh month that begins after the date of the Participant’s Separation from Service, provided that no distribution is required to be delayed pursuant to this Section 7.2(b) beyond the date of the Participant’s death. The payments that otherwise would have been paid to a Specified Employee during the six months following his or her Separation from Service shall be accumulated and paid on the first day of the seventh month that begins after the date of the Participant’s Separation from Service. Any such accumulated payment shall be actuarially increased, pursuant to Appendix B, to reflect the delay in payment imposed under this Section 7.2(b). If a Participant for whom payments are deferred under this Section 7.2(b) dies between the date of Separation from Service and the first day of the

seventh month that begins after that date, payments shall not be made under this Section 7.2(b), but instead shall be made under subsection (g) of this Section 7.2.

(i) A Participant’s vested Supplemental Retirement Plan Benefit shall be paid to him or her in an annuity, unless he or she elects, under subsection (d) or (f) of this Section 7.2, to receive an Actuarial Equivalent lump sum payment. A Participant who does not elect a lump sum payment under subsection (d) or (f) of this Section 7.2 may select an Actuarial Equivalent annuity described in subsection (c)(ii) of this Section 7.2. If a Participant who did not elect a lump sum payment fails to elect the form of annuity payment, payments shall be made in the form of a life only annuity as described in subsection (c)(ii)(A) of this Section 7.2.

(ii) Subject to subsection (c)(i) of this Section 7.2, a Participant’s vested Supplemental Retirement Plan Benefit may be paid to the Participant under one of the following annuity options:

(A) Life Only — equal monthly annuity payments for the life of the Participant;

(B) 50% Joint & Survivor — equal monthly payments for the life of the Participant, and, upon the death of the Participant, 50% of that amount to be paid for the life of the Participant’s joint annuitant, if surviving;

(C) 100% Joint & Survivor — equal monthly payments for the life of the Participant, and, upon the death of the Participant, 100% of that amount to be paid for the life of the Participant’s joint annuitant, if surviving.

(iii) An Actuarial Equivalent lump sum shall be determined under subsection (i) with respect to the vested Supplemental Retirement Plan Benefit, expressed as a monthly annuity benefit payable for the Participant’s life, as described in Section 7.1, on the basis of the provisions of the Retirement Plan that apply for purposes of calculating a lump sum benefit (as if the lump sum were paid from the Retirement Plan), without regard to any changes implemented in the law that were enacted after April 16, 2002, with respect to the calculation of lump sum benefits. An annuity determined under subsection (ii)(B) or (C), shall be the Actuarial Equivalent of the vested Supplemental Retirement Plan Benefit, expressed as a monthly annuity benefit for the Participant’s life, as described in Section 7.1, determined by applying the factors in Appendix C. The annuity determined under subsection (ii)(A) shall be the vested Supplemental Retirement Plan Benefit that is expressed as a monthly annuity benefit payable for the Participant’s life, as described in Section 7.1.

(d) Election of Time or Form of Distribution . Subject to Sections 7.2(b) and 7.2(e), upon a date that is not later than December 31, 2008, a Participant may elect that his or her vested Supplemental Retirement Plan Benefit shall be distributed or commence to be distributed on a specified date or, if later, the first day of the month following the date of his or her Separation from Service and may elect whether to receive such benefit in a lump sum payment or in an annuity. If a Participant’s date of Separation from Service preceded January 1, 2009, he or she may not elect a distribution date prior to June 1, 2009. If a Participant who is an Employee fails to make an election regarding the date of distribution, his or her vested benefit shall be distributed upon Separation from Service, subject to the terms of subsections (a), (b) and (e) of this Section 7.2. Subject to subsection (e), if a Participant fails to make an election with respect to the form of payment of his or her vested Supplemental Retirement Plan Benefit by December 31, 2008, the Participant shall be deemed to have elected that the vested Supplemental Retirement Plan Benefit be distributed, pursuant to subsection (c)(ii)(A) of this Section 7.2,

in a life only annuity, subject to subsections (a), (b) and (e). Notwithstanding the foregoing, after December 31, 2008, a Participant may elect to change his or her election or deemed election pursuant to the provisions of subsection (f) of this Section 7.2.

(e) Elections Made in 2007 or 2008 as to Time or Form of Distribution . If a Participant’s election was made in 2007 to change the time or form of distribution of a vested Supplemental Retirement Plan Benefit, such new election could not defer to a later year the payment of any amount that would otherwise be payable in 2007 and could not require a payment to be made in 2007 that would otherwise be payable in a later year. Moreover, if an election was made in 2008 to change the time or form of distribution of a Participant’s vested Supplemental Retirement Plan Benefit, such new election could not defer to a later year the payment of any amount that would otherwise be payable in 2008 and could not require a payment to be made in 2008 that would otherwise be payable in a later year.

(f) Subsequent Elections as to Time or Form of Distribution .

(i) A Participant shall be permitted to make a written election, at any time after December 31, 2008, that pertains to the time or form of distribution of his or her vested Supplemental Retirement Plan Benefit, provided that any such election must specify a distribution date that is the later of a specified date or the first day of the month following the date of Separation from Service, and, except as otherwise provided in (ii), any election made after December 31, 2008 must satisfy all of the following requirements:

	(A)		the election must be made at least twelve months prior to the date on which the distribution would otherwise have been made (or in the case of an annuity, twelve months before the date on which the first payment was scheduled to be made);

	(B)		the election may not become effective until at least twelve months after the date on which the election is made; and

	(C)		except in the case of an election relating to a distribution to be made upon a Participant’s death, the distribution must be deferred for at least 5 years from the date on which the distribution would otherwise have been made (or in the case of an annuity, for at least 5 years from the date on which the first payment was scheduled to be made).

(ii) Notwithstanding subsection (i), a Participant who has elected a life annuity for payment of his or her Supplemental Retirement Plan Benefit that is available under Section 7.2(c)(ii) may select another Actuarial Equivalent annuity option that is made available under the Plan, pursuant to said Section 7.2(c)(ii), at any time prior to the benefit commencement date, provided that such Actuarial Equivalent life annuity option has the same scheduled date for the first annuity payment. An election by the Participant to change the identity of a joint annuitant or Beneficiary shall not be treated as a change in the time or form of distribution, provided that the time and form of the distribution are not otherwise changed. Also, an election to change the joint annuitant under a life annuity does not constitute a change in the time and form of payment if the change in the time of payments results solely from the different life expectancy of the new joint annuitant.

(g) Death before Benefit Commencement Date . If a Participant dies before the benefit commencement date, the Actuarial Equivalent of the vested Supplemental Retirement Plan Benefit shall be paid to the Beneficiary in a lump sum payment or in 120 equal monthly installments, as elected by the Participant. This benefit shall be paid in a lump sum unless the Participant elected 120 equal monthly installment payments. The amount of such lump sum shall be determined in accordance with the actuarial

assumptions of the Retirement Plan as if such lump sum were paid from the Retirement Plan and the amount of the 120 monthly installments shall be determined on the basis of the actuarial assumptions in Appendix C.

(h) Death after Benefit Commencement Date . If a Participant dies after his benefit commencement date, the benefit, if any, payable following his death depends upon the form of benefit payment that is in effect. If a Participant dies after commencing to receive annuity payments under Section 7.2(c)(ii)(A) or, if both the Participant and the joint annuitant die after benefits commence under Section 7.2(c)(ii)(B) or (C), and the sum of the annuity payments made is less than the total lump sum payment the Participant would have received on the benefit commencement date, an amount equal to the excess of the lump sum payment that would have been made on the Participant’s benefit commencement date over the sum of the monthly annuity payments made shall be paid to the Beneficiary in a lump sum.

Article 8

Miscellaneous

8.1 Distribution Date . Any distribution that is made in accordance with Article 6 pursuant to a Participant’s Separation from Service or death, prior to his or her benefit commencement date, shall be made upon the last day of the Plan Year quarter which contains the date of Separation from Service or death, based on the Valuation Date that coincides with such last day of the Plan Year quarter, except that any distribution to a Participant pursuant to Section 6.1(b) shall be made upon the day following the last day of the Plan Year quarter which contains the sixth month that begins after the date of Separation from Service, based on the Valuation Date that coincides with such last day of the Plan Year quarter. Any payment that is made pursuant to Article 6 upon a distribution date designated under Section 6.2(a) or (b) shall be based on the Valuation Date that coincides with that distribution date, except that any distribution subject to Section 6.1(b) shall not be made prior to the day following the last day of the Plan Year quarter which contains the sixth month that begins after the date of the Participant’s Separation from Service. Subject to Section 7.2(b), any payment to be made pursuant to Article 7 upon Separation from Service shall be made upon the first day of the month following Separation from Service. Any payment that is made pursuant to Article 7 upon death, shall be made on the first day of the second month following the date of death, except that any annuity payments to a joint annuitant pursuant to Section 7.2(c)(ii)(B) or (C), following the death of the Participant, shall begin on the date, following the date of death, on which the next annuity payment would have been made to the Participant if he or she had survived. Subject to Sections 6.1(b) and 7.2(b), there shall be no interest adjustment for a payment made subsequent to a distribution date.

8.2 Amendment or Termination . (a) Amendment . The Company, by action of the Committee, reserves the right to amend the Plan at any time, including but not limited to the right to amend the Plan to cease future contributions to the Plan, provided that, unless necessary to meet the requirements of applicable law, benefits that have already accrued on behalf of a Participant may not be eliminated or reduced upon amendment of the Plan.

(b) Termination of Account Balance Portion of Plan . Subject to Sections 6.4 and 6.5, the Company, by action of the Committee, reserves the right, at any time, to terminate the account balance portion of the Plan (Supplemental Employee Contribution Accounts and Supplemental Company Contribution Accounts) and to distribute all such Supplemental Employee Contribution Accounts and Supplemental Company Contribution Accounts in lump sum payments as soon as administratively practicable to Participants and Beneficiaries, provided the account balance portion of the Plan is terminated in the following circumstances:

(i) Within 30 days before or 12 months after a change in control of the Company, as defined in Code Section 409A and Treasury Regulation Section 1.409A-3(i)(5), provided that all

distributions are made no later than 12 months following the termination of the account balance portion of the Plan and further provided that all nonqualified deferred compensation arrangements of the same type (i.e., all nonqualified account balance plans subject to Code Section 409A) maintained by the Company and all members of the Controlled Group are terminated, so that all Participants and all participants in the other arrangements are required to receive all amounts of compensation deferred under the account balance portion of the Plan and the other arrangements no later than 12 months following the date on which the Committee takes action to terminate the account balance portion of the Plan and the Controlled Group takes action to terminate all such other arrangements;

(ii) Within 12 months of the dissolution of the Company under Internal Revenue Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1)(A), provided that all amounts credited to a Participant’s Accounts under the Plan are included in the Participant’s gross income in the latest of (A) the calendar year in which the account balance portion of the Plan is terminated; (B) the calendar year in which all amounts credited to the Participant’s Accounts are no longer subject to a substantial risk of forfeiture; or (C) the first calendar year in which the distribution of the Accounts is administratively practicable, provided that a Participant incurs income tax liability with respect to his or her Accounts under the Plan not later than the calendar year in which he or she receives an actual or constructive distribution from such Accounts; or

(iii) At the Committee’s discretion, provided that (A) the termination of the account balance portion of the Plan does not occur proximate to a deterioration of the financial health of the Controlled Group, (B) all nonqualified deferred compensation arrangements of the same type (i.e., all nonqualified account balance plans subject to Code Section 409A) maintained by the Company and all members of the Controlled Group are terminated with respect to all employees, (C) no payments are made within 12 months after the termination of the account balance portion of the Plan (other than payments that would have been payable under the terms of the Plan if the termination of the account balance portion of the Plan had not occurred), (D) all payments are made within 24 months after the termination of the account balance portion of the Plan, and (E) neither the Company nor any member of the Controlled Group adopts a nonqualified deferred compensation arrangement of the same type (i.e., a nonqualified account balance plan subject to Code Section 409A) for a period of three years, with respect to any employee, following the date of the termination of the account balance portion of the Plan.

(c) Termination of Nonaccount Balance Portion of Plan . The Company, by action of the Committee, reserves the right, at any time, to terminate the nonaccount balance portion of the Plan (Supplemental Retirement Plan Benefits) and to distribute all such Supplemental Retirement Plan Benefits in lump sum payments as soon as administratively practicable to Participants and Beneficiaries, provided the nonaccount balance portion of the Plan is terminated in the following circumstances:

(i) Within 30 days before or 12 months after a change in control of the Company, as defined in Code Section 409A and Treasury Regulation Section 1.409A-3(i)(5), the Company takes irrevocable action to terminate the nonaccount balance portion of the Plan and all nonqualified deferred compensation arrangements of the same type (i.e., all nonqualified nonaccount balance plans subject to Code Section 409A that are described in Treasury Regulation Section 1.409A-1(c)(2)(i)(C)) maintained by the Company and all members of the Controlled Group, so that each Participant in the Plan is required to receive the lump sum actuarial equivalent present value of his or her Supplemental Retirement Plan Benefit (as calculated by reference to the interest rate and mortality table described in the Retirement Plan as of April 16, 2002) and all participants in such other arrangements are required to receive the actuarial equivalent present value of their benefits under the other arrangements no later than 12 months following the date of such irrevocable action;

(ii) Within 12 months of the dissolution of the Company under Code Section 331, or with the approval of a bankruptcy court pursuant to 11 U.S.C. Section 503(b)(1)(A), the Company terminates the nonaccount balance portion of the Plan, provided that the actuarial equivalent present value of each Participant’s Supplemental Retirement Plan Benefit (as calculated by reference to the interest rate and mortality table described in the Retirement Plan as of April 16, 2002) is distributed in the calendar year in which the nonaccount balance portion of the Plan is terminated, or the first calendar year in which the distribution is administratively practicable (whichever is later).

(iii) At the Committee’s discretion, provided that (A) the termination does not occur proximate to a deterioration of the financial health of the Company or a member of the Controlled Group, (B) all nonqualified deferred compensation arrangements of the same type (i.e., all nonqualified nonaccount balance plans subject to Code Section 409A that are described in Treasury Regulation Section 1.409A-1(c)(2)(i)(C)) maintained by the Company and all members of the Controlled Group are terminated with respect to all employees, (C) no payments are made within 12 months after the termination of the nonaccount balance portion of the Plan (other than payments that would have been payable under the terms of the Plan if the nonaccount balance portion of the Plan had not terminated), (D) all payments are made within 24 months after the termination of the nonaccount balance portion of the Plan, and (E) neither the Company nor any member of the Controlled Group adopts a nonqualified deferred compensation arrangement of the same type (i.e., a nonqualified nonaccount balance plan subject to Code Section 409A that is described in Treasury Regulation Section 1.409A-1(c)(2)(i)(C)) for a period of three years, with respect to any employee, following the date of the termination of the nonaccount balance portion of the Plan. If the nonaccount balance portion of the Plan is terminated, the actuarial equivalent present value of each Participant’s Supplemental Retirement Plan Benefit (as calculated by reference to the interest rate and mortality table described in the Retirement Plan as of April 16, 2002) shall be paid to the Participant in a lump sum on the first day of the month coinciding with or next following the first anniversary of the termination of the nonaccount balance portion of the Plan.

8.3 Withholding . To the extent required by law, Stanley shall withhold taxes from any payment due under the Plan.

8.4 Administration of the Plan . The Plan shall be administered by the Committee. The Committee is vested with full authority (including full discretionary authority) to administer, interpret, and make rules regarding the Plan as it may deem advisable and to make determinations in its discretion that shall be final, binding, and conclusive upon all persons. No member of the Company’s Board of Directors or the Committee will be liable for any action or determination made in good faith with respect to the Plan.

8.5 Claims Procedure .

(a) Any individual who believes he or she is entitled to benefits under the Plan (a “Claimant”) shall file a written claim request with the Committee on such forms as the Committee may require. The Committee shall, upon written request of a Claimant, make available copies of any claim forms or instructions, or advise the Claimant where such forms or instructions may be obtained.

period of the special circumstances involved and the time by which it expects to render a decision. If the claim relates to Disability benefits, the Committee shall furnish to the Claimant a written or electronic notice of the decision within 45 days. If special circumstances require, the Committee may defer action on a claim for Disability benefits for an additional period of not to exceed 30 days, and, in that case, it shall notify the Claimant in a written or electronic notice prior to the close of the initial 45 day period of the special circumstances involved and the time by which it expects to render a decision. However, if prior to the end of the 30 day period, the Committee determines that, due to matters beyond its control, a decision cannot be rendered on a claim for Disability benefits, the period for making the Disability claim determination may be extended for up to an additional 30 day period, and, in that case, the Committee shall notify the Claimant in a written or electronic notice prior to the end of the first 30 day period of the circumstances involved and the time by which a decision is expected. The written or electronic notice of a denial of a claim shall contain the following information:

(i) The specific reason(s) for denial of the claim;

(ii) Specific references to pertinent provisions of the Plan upon which the denial is based;

(iii) A description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary;

(iv) An explanation of the claims review procedure under the Plan describing the steps to be taken by a Claimant who wishes to submit the claim for review; and the time limits applicable to such procedures, and the Claimant’s right to bring a civil action under Section 502(a) of ERISA within 180 days following an adverse determination on review;

(v) In the case of a claim for Disability benefits, a copy of any specific internal rule, guideline, protocol or other similar criterion that was relied upon in making the determination, or a statement that a copy of the rule, guideline, protocol or other similar criterion shall be provided to the Claimant free of charge upon request; and

(vi) In the case of a claim for Disability benefits that is denied based on a medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant’s circumstances, or a statement that an explanation shall be provided free of charge upon request.

(i) Request review upon written application filed within 60 days after receipt by the Claimant of written or electronic notice of the denial of the Claimant’s benefit claim, or if the claim is for a Disability benefit, request review upon written application filed within 180 days after receipt by the Claimant of written or electronic notice of the denial of the Claimant’s Disability benefit claim;

(ii) Review pertinent documents and submit any additional issues and comments in writing;

(iii) Submit documents, records and other information relating to the claim for benefits;

(iv) Have reasonable access to, upon request and free of charge, copies of all documents, records, and other information relevant to a benefit claim;

(v) Have a full and fair review by the Committee of the denial that takes into account all comments, documents, records, and other information relevant to the Claimant’s claim for benefits; and

(vi) If the claim is for Disability benefits, the following additional rules shall apply:

(A) The review shall not give deference to the initial adverse benefit determination;

(B) The review shall be conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the initial decision to deny the Disability benefit claim nor a subordinate of that individual.

(C) If the adverse determination that is the subject of the review was based on a medical judgment, the named fiduciary shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment;

(D) Any medical or vocational experts whose advice was obtained on behalf of the Plan in connection with the adverse benefit determination that is the subject of the review shall be identified, without regard to whether the advice was relied upon in making the benefit determination; and

(E) The health care professional engaged for purposes of a consultation shall be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

Any request or submission must be in writing and must be directed to the Committee or in the case of a review of a claim for Disability benefits, its designee. The Committee (or, in the case of a claim for Disability benefits, its designee) shall have the sole responsibility for the review of any denied claim and shall take all steps appropriate in light of its findings.

bring an action under Section 502(a) of ERISA within 180 days following receipt of written or electronic notice of denial of the claim for benefits upon review. The notice to the Claimant shall include the following statement: “You and the Plan may have other voluntary alternative dispute resolution options, such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency.” A final determination by the Committee shall be rendered within a reasonable period of time, not exceeding 60 days, after receipt of the Claimant’s notice of appeal. Under special circumstances, such determination may be delayed for an additional period not to exceed 60 days, in which case the Claimant shall be notified electronically or in writing of the delay prior to the close of the initial 60 day period. However, if the Committee holds regularly scheduled meetings at least quarterly, a final determination by the Committee shall be rendered no later than the date of the first meeting of the Committee after receipt of the Claimant’s notice of appeal, unless the receipt of the Claimant’s notice of appeal is within the 30 day period preceding the date of the next scheduled meeting of the Committee. In such case, a final determination by the Committee shall be rendered no later than the date of the second meeting of the Committee after receipt of the Claimant’s notice of appeal. Under special circumstances, such determination may be delayed to the date of the third meeting of the Committee after receipt of the Claimant’s notice of appeal, in which case the Claimant shall be notified electronically or in writing of the delay prior to the commencement of the extension period. If the claim relates to a Disability benefit, a final determination by the appropriate named fiduciary shall be rendered within a reasonable period of time, not exceeding 45 days, after receipt of the Claimant’s notice of appeal. Under special circumstances, such determination may be delayed for an additional period not to exceed 45 days, in which case the Claimant shall be notified electronically or in writing of the delay prior to the close of the initial 45 day period.

8.6 Governing Text . The Plan, including any amendments, shall constitute the entire agreement between Stanley and any Employee, Participant or Beneficiary regarding the subject matter of the Plan. The Plan, including any amendments, shall be binding on Stanley, Employees, Participants, Beneficiaries, and their respective heirs, administrators, trustees, successors and assigns.

8.7 Enforceability of Plan Provisions . If any provision of the Plan shall, to any extent, be invalid or unenforceable, the remainder of the Plan shall not be affected, and each other provision of the Plan shall be valid and enforced to the fullest extent permitted by law.

8.8 Rights of Persons Entitled to Benefits . Any person entitled to receive benefits under the Plan shall have the rights of an unsecured general creditor of Stanley.

8.9 Nonassignability .

(a) Except as provided in subsection (b), the right of any individual to a benefit under the Plan shall not be subject to attachment or other legal process for the debts of such individual and an individual’s benefit under the Plan shall not be subject to anticipation, alienation, sale, transfer, assignment or encumbrance.

(b) Notwithstanding anything herein to the contrary, there shall be assigned from a Participant’s Accounts, the amount that the Committee determines to have been lawfully assigned to the Participant’s former spouse (‘alternate payee’) under a judgment or order, including an approved divorce settlement agreement, that is implemented pursuant to a state domestic relations law in regard to a dissolution of marriage that was effective October 3, 2008, provided that such assignment does not alter the time or form of payment of any portion of the Participant’s vested Accounts that is not assigned to the alternate payee.

8.10 Special Distributions . Whenever, in the opinion of the Committee, a person entitled to receive a benefit under the Plan is unable to manage his or her financial affairs, the Committee may direct that payment be made to a legal representative or relative of such person for his or her benefit.

Alternatively, the Committee may direct that any payment for such person be applied for the benefit of such person in such manner as the Committee considers advisable. Any payment made in accordance with this Section shall be a complete discharge of any liability for the making of such payment under the provisions of the Plan.

8.11 Terms of Employment . Participation in the Plan shall not give an individual any right to remain in the service of Stanley, and an individual shall remain subject to discharge to the same extent as if the Plan had not been adopted.

8.12 Restricted Transactions . A Participant’s right under Section 4.3 to direct the investment of his or her Accounts, and a Participant’s right under Article 6 to receive a distribution, of all vested amounts credited to his or her Accounts shall be restricted to the extent necessary to comply with the securities laws.


THE STANLEY WORKS
By
	Title:
	Date:

APPENDIX A

SUPPLEMENTAL RETIREMENT AND ACCOUNT VALUE PLAN
FOR SALARIED EMPLOYEES OF THE STANLEY WORKS

Individuals employed in the following units become covered under the Plan pursuant to the second sentence in the definition of “Employee” in the Plan and, thus, are subject to the same eligibility rules that apply under the terms of the Plan when determining status as an Employee and eligibility for coverage of other individuals employed by Stanley.

Entity or Division

Stanley Security Solutions, Inc. at Chula Vista, California

Stanley Convergent Security Solutions, Inc.

Stanley Security Solutions, Inc. at Las Vegas, Nevada

APPENDIX B

SUPPLEMENTAL RETIREMENT AND ACCOUNT VALUE PLAN
FOR SALARIED EMPLOYEES OF THE STANLEY WORKS

Deferred Payments Described Under Section 7.2(b) of the Plan

Deferred payments under Section 7.2(b) shall be adjusted utilizing the interest rate prescribed in Code Section 417(e) that is in effect during October of the calendar year preceding the calendar year that includes the date of Separation from Service.

APPENDIX C

SUPPLEMENTAL RETIREMENT AND ACCOUNT VALUE PLAN
FOR SALARIED EMPLOYEES OF THE STANLEY WORKS

Assumptions for Determining Actuarial Equivalence under Section 7.2(c) of the Plan:


Interest:		5%
Mortality:		1994 Uninsured Pensioners Mortality Table (UP94)

Exhibit 10 (ix)


		Amended and Restated Effective January 1, 2009 Except As Otherwise Provided

THE STANLEY WORKS

Supplemental Executive Retirement Program

The Supplemental Executive Retirement Program (“SERP”) provides a supplemental retirement benefit to its Participants. In order for the SERP to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (“Code”), and the Regulations thereunder, The Stanley Works (“Stanley”) now desires to amend the SERP in the form of a restated plan, as follows, effective January 1, 2009, except as provided in Sections 1, 7(d) and 7(e) therein.

1. Participants . The employees eligible to participate in the SERP are Stanley’s chief executive officer on January 1, 2007, and such other executives, not to exceed 24, as were designated by the chief executive officer and whose names were filed prior to January 1, 2007 with the records of the Compensation and Organization Committee (“Committee”) of Stanley’s Board (“Eligible Employees”). An Eligible Employee becomes a Participant in the SERP upon reaching age 50 and completing five years of service with Stanley as an Eligible Employee (“Years of Pre-Participation Service”). Anything herein to the contrary notwithstanding, an employee who is not a Participant on January 1, 2007, shall not become a Participant unless he is Stanley’s executive vice president and chief financial officer on January 1, 2007 and, in 2008, meets the age 50 and five Years of Pre-Participation Service requirements specified above, or he is Stanley’s chief executive officer on January 1, 2007 and, in 2009, meets the age 50 and five Years of Pre-Participation Service requirements specified above.

2. Target Benefit .

(a) Target Benefit Formula. The “Target Benefit” for a Participant, expressed as a single life annuity, payable annually, equal to a percentage of Average Pay and subject to discount and to offset, will be based on years of service according to the following schedule.

3% for each of the first 5 years
2% for each of the next 15 years
1% for each of the 5 years thereafter

For example, if a Participant’s “Separation from Service”, as defined in Section 2(b), occurs at age 60 after 20 years of service, the Participant’s Target Benefit would be 45% of Average Pay, prior to offset. Average Pay will be one-third of the Participant’s highest “Compensation” under the Supplemental Retirement and Account Value Plan for Salaried Employees of The Stanley Works (“Supplemental Plan”), including any amount that is deferred pursuant to Stanley’s Deferred Compensation Plan for Participants in Stanley’s Management Incentive Plans, for any consecutive 36-month period.

(b) Separation from Service . For purposes of the SERP, a Participant’s Separation from Service will occur upon his or her separation from service, as defined in Treasury Regulation Section 1.409A-1(h), with Stanley’s controlled group, for a reason other than death. For this purpose, “controlled group” means the group of corporations or other entities of which Stanley is a member, determined under Section 414(b) and Section 414(c) of the Internal Revenue Code, applied by utilizing “at least 80 percent” each place it appears in Internal Revenue Code Section 1563(a)(1), (2) and (3) and in Treasury Regulation Section 1.414(c)-2. There is a Separation from Service as of a particular date, if Stanley and the Participant reasonably anticipated that, as of that date, the Participant would provide no further services to the controlled group as a common law employee or as an independent contractor or the Participant would provide services to the controlled group as a common law employee or as an independent contractor at an annual rate that is not more than 20% of the services rendered, on average, during the immediately preceding 36 consecutive months of service (or the full period of service, if less than 36 months). While a Participant is on a bona fide leave of absence, the Participant’s employment relationship shall be treated as continuing, provided that the Participant is expected to return to work for Stanley’s controlled group and the period of such leave of absence does not exceed six months, or if the period is longer, the Participant has a right to reemployment with Stanley’s controlled group either by statute or by contract. If the period of a leave of absence exceeds six months and there is no right to reemployment, a termination of employment shall be deemed to have occurred as of the first date immediately following the first six months of the leave. For purposes of this Section 2(b), service as a director of a member of the controlled group shall not be taken into account, except to the extent required under Treasury Regulation Section 1.409A-1(h)(5).

3. Separation from Service Before Age 60 .

(a) Separation from Service before Age 54 . No SERP benefit will be paid to or on behalf of any Participant whose Separation from Service, other than by reason of a Disability, occurs before the Participant’s attainment of age 54.

(b) Discount for Separation from Service before Age 60 . For each month that a Participant’s Separation from Service occurs prior to age 60, the Target Benefit will be reduced .167% (i.e., 2% per year). For example, a Participant whose Separation from Service occurs at age 55 after 20 years of service would have a benefit, before offset, equal to 90% of the Target Benefit, or 40.5% (45% x 90% = 40.5%) of Average Pay.

4. Disability .

(a) Separation from Service by Reason of Disability . SERP benefit payments will be made to a Participant whose Separation from Service occurs by reason of his or her “Disability”, as defined in Section 4(b), if payments would not otherwise be made under Section 3. In the event of such SERP payments prior to age 60, payments will be reduced in accordance with the formula set forth in Section 3(b).

(b) Disability . For purposes of the SERP, a Participant’s Separation from Service will be considered to have occurred by reason of a Disability if the Participant’s Separation from Service occurs as a result of his or her permanent inability, by reason of a medically determinable

physical or mental impairment, to perform any job for which the Participant is reasonably suited by education and experience.

5. Death .

(a) Death before SERP Payments Commence . The lump sum actuarial equivalent of the Target Benefit, subject to the offset described in Section 6 and subject to the reduction described in the third sentence of this Section 5(a), of a Participant who dies before commencement of his or her SERP benefit shall be paid or begin to be paid, upon the first day of the second month following the Participant’s death, to the Participant’s beneficiary. This benefit shall be paid as a life annuity, in equal monthly payments, unless a timely election was made by the Participant to receive a lump sum payment, in which case the death benefit will be such lump sum actuarial equivalent. The Target Benefit will be reduced 2% per year for each year (i.e., .167% per month) prior to age 60 that the Participant dies.

(b) Death after SERP Payments Commence . If a Participant dies after his benefit commencement date, the benefit, if any, payable following his death depends upon the form of benefit payment that is in effect. In the case of a Participant who dies after SERP benefit payments have commenced under a 100% joint and survivor annuity, benefit payments will continue in the same amount under that annuity to the joint annuitant for his or her life. Upon the death of both the Participant and his joint annuitant after benefits have commenced pursuant to a 100% joint and survivor annuity, if the total annuity payments made are less than the actuarial equivalent lump sum payment amount that would have been distributed to the Participant as of the benefit commencement date, a lump sum death benefit, equal to the excess of such lump sum amount over the total annuity payments that were made, will be paid to the beneficiary. Upon the death of a Participant after benefit payments have commenced pursuant to a single life annuity, if the total annuity payments that were made are less than the actuarial equivalent lump sum payment amount that would have been distributed to the Participant as of the benefit commencement date, a lump sum death benefit, equal to the excess of such lump sum payment amount over the total annuity payments that were made, will be paid to the beneficiary. Otherwise, no death benefit will be paid in the event of the death of a Participant who dies after payments have commenced.

(c) Death Beneficiary . Any benefit payable upon a Participant’s death that is not payable to the joint annuitant under a 100% joint and survivor annuity pursuant to Section 5(b) will be paid to the beneficiary designated in writing by the Participant, provided that, if no such designated beneficiary survives the Participant, the benefit shall be paid to the Participant’s surviving spouse or, if there is no surviving spouse, the benefit shall be paid to the Participant’s estate. Any benefit payable upon the death of the Participant ‘s joint annuitant, after beginning to receive payments under a 100% joint and survivor annuity, shall be paid to the beneficiary designated in writing by the joint annuitant, provided that, if no designated beneficiary survives the joint annuitant, the benefit shall be paid to the joint annuitant’s estate.

(d) Time of Payment . Any lump sum payment that is made pursuant to this Section 5 on account of the Participant’s death or the death of both the Participant and the joint annuitant shall be made on the first day of the second month that begins following the applicable date of death, any annuity payments pursuant to Section 5(a) shall begin on the first day of the second month following the date of death, and any annuity payments that are continued to the joint annuitant upon the death of the Participant pursuant to Section 5(b) shall begin to be distributed to

the joint annuitant at the date, following the date of the Participant’s death, on which the next annuity payment would have been made to the Participant had he or she survived.

6. Offset for Cornerstone Account Benefits . The benefit otherwise payable under the SERP, as described in Sections 2, 3, 4 and 5, will be reduced by the vested “cornerstone account benefits” (nonelective defined contribution benefits, exclusive of matching allocations) provided under the Stanley Account Value Plan and under the Supplemental Plan, as applied pursuant to Appendix B. Anything herein to the contrary notwithstanding, if the benefit payable under the SERP is not paid in a life annuity but, instead, is paid in a different optional form that is made available, the offset described in the first sentence in this Section 6 regarding cornerstone account benefits shall not be applied to the life annuity benefit (with respect to which an actuarially adjusted optional form of benefit payment is calculated). Instead, the actuarially adjusted optional form of benefit payment that is calculated under Section 7 (with respect to the life annuity benefit determined under Sections 2, 3, 4 or 5) shall be reduced, pursuant to Appendix B, by the cornerstone account benefits described in the first sentence in this Section 6.

7. Time and Form of Distribution of SERP Benefit .

(a) Time of Distribution . Subject to Section 7(b), any payment to a Participant pursuant to the SERP shall be made or commence pursuant to Separation from Service. Moreover, subject to Section 7(b), any payment that is made or commences to a Participant pursuant to his or her Separation from Service, shall be made or begin to be made upon the Participant’s Separation from Service.

(b) Delayed Distributions to Specified Employees . If a Participant is a specified employee as of the date of his or her Separation from Service, the SERP benefit to which the Participant is entitled upon Separation from Service shall be distributed or commence to be distributed on the first day of the seventh month that begins after the date of the Participant’s Separation from Service, provided that no distribution is required to be delayed pursuant to this Section 7(b) beyond the date of the Participant’s death. Any payment that otherwise would have been paid to a specified employee during the six months following his or her Separation from Service shall be accumulated and paid to the Participant on the first day of the seventh month that begins after the date of the Participant’s Separation from Service. Any such accumulated payment shall be actuarially increased, pursuant to Appendix C, to reflect the delay in payment imposed under this Section 7(b). If a Participant for whom payments are deferred under this Section 7(b) dies between the date of Separation from Service and the first day of the seventh month that begins after that date, payments shall not be made under this Section 7, but instead shall be made under Section 5(a). A Participant is a ‘specified employee’ if he or she is identified as a specified employee in accordance with Treasury Regulation Section 1.409A-1(i) pursuant to a written policy established and maintained by Stanley.

(c) Form of Distribution . The SERP benefit to which a Participant is entitled shall be paid in an annuity or an actuarially adjusted lump sum payment, as he or she elects, under Section 7(d) or 7(f). A Participant who is unmarried on the benefit commencement date and did not elect a lump sum payment or a 100% joint and survivor annuity with a former spouse as the joint annuitant under Section 7(d) or 7(f), shall receive payments in the form of a single life annuity payable in equal monthly payments. A Participant who is married on the benefit commencement

date and did not elect a lump sum payment under Section 7(d) or 7(f), may select a single life annuity or an actuarially adjusted 100% joint and survivor annuity with his or her spouse as the joint annuitant pursuant to which equal monthly payments are made to the Participant for life, and, upon the Participant’s death, monthly payments equal to the Participant’s monthly payment, are made to the surviving spouse for life, provided that there is no change in the benefit commencement date and such annuities are, at all times, actuarially equivalent to each other. If a Participant is married on his or her benefit commencement date, did not elect a lump sum payment under Section 7(d) or 7(f), and fails to select the single life annuity form of payment before his or her benefit commencement date, there will be no change in the benefit commencement date, and payments will be made in the form of a 100% joint and survivor annuity with the Participant’s spouse as the joint annuitant. If a Participant elected a 100% joint and survivor annuity with his or her spouse as the joint annuitant as the form of payment pursuant to Section 7(d) or 7(f), but the Participant is not married on the benefit commencement date, the benefit shall be paid in a single life annuity, unless the Participant elects that the benefit be paid, beginning on the same benefit commencement date, in an actuarial equivalent 100% joint and survivor annuity with another joint annuitant designated, upon the benefit commencement date, by the Participant. Any actuarial adjustment to reflect the form of distribution in a lump sum or a 100% joint and survivor annuity shall be determined in accordance with Appendix A with respect to the life annuity described in Section 2, 3, 4 or 5 (if the designated joint annuitant under a 100% joint and survivor annuity is an individual other than the spouse, the actuarial adjustments shall be applied under Appendix A in the same manner as if the designated joint annuitant were the spouse), and, after such actuarially adjusted lump sum or 100% joint and survivor annuity is determined, any offset described in Section 6 shall be applied pursuant to the pertinent rules set forth in Appendix B. All annuities permitted under this Section 7(c) with respect to a Participant’s benefit shall require equal monthly payments, shall utilize the same benefit commencement date, and shall, at all times, be actuarially equivalent to each other.

(d) Election of Form of Distribution . Subject to Sections 7(b), 7(e) and 7(f), an Eligible Employee may make a written election by December 31, 2008, to have a SERP benefit to which he or she becomes entitled distributed in a lump sum, a single life annuity, or an actuarial equivalent 100% joint and survivor annuity with the spouse as the joint annuitant. If an Eligible Employee fails to make an election by December 31, 2008, with respect to the form of distribution of a SERP benefit to which he or she becomes entitled, the Eligible Employee shall be deemed to have elected that any such SERP benefit be distributed in an annuity, pursuant to Section 7(c). Notwithstanding the foregoing, a Participant may elect to change his or her election or deemed election pursuant to the provisions of Section 7(f). Moreover, without regard to Section 7(f), a Participant may change a prior election of a life annuity form of payment to another actuarially equivalent life annuity form of payment, that is available under Section 7(c), at any time up to the benefit commencement date, provided that each annuity provides equal monthly payments, there is no change in the date on which annuity payments begin, and the annuities are, at all times, actuarially equivalent to each other.

(e) Elections Made in 2007 or 2008 as to Form of Distribution . If a Participant makes an election in 2007 to change the form of distribution of a SERP benefit to which he or she becomes entitled, such new election may not defer to a later year the payment of any amount that would otherwise be payable in 2007 and may not require a payment to be made in 2007 that would otherwise be payable in a later year. Moreover, if a Participant makes an election in 2008 to change the form of distribution of a SERP benefit to which he or she becomes entitled, such new election may not defer to a later year the payment of any amount that would otherwise be

payable in 2008 and may not require a payment to be made in 2008 that would otherwise be payable in a later year.

(f) Subsequent Elections as to Form of Distribution . A Participant shall be permitted to make a written election, at any time after December 31, 2008, that changes the form of distribution that would otherwise apply, provided that any such election must satisfy all of the following requirements:

(i) the election must be made at least twelve months prior to the date on which the distribution would otherwise have been made (or in the case of an annuity, twelve months before the date on which the first payment was scheduled to be made);

(ii) the election may not become effective until at least twelve months after the date on which the election is made; and

(iii) except in the case of an election relating to a distribution to be made upon a Participant’s death, the distribution must be deferred for at least 5 years from the date on which the distribution would otherwise have been made (or in the case of an annuity, for at least 5 years from the date on which the first payment was scheduled to be made).

Anything herein to the contrary notwithstanding, a Participant may change a prior election of a life annuity form of payment to another actuarially equivalent life annuity form of payment, that is available under Section 7(c), at any time up to the benefit commencement date, provided that there is no change in the date on which annuity payments begin, each annuity provides equal monthly payments, and the annuities are, at all times, actuarially equivalent to each other. An election by the Participant to change the identity of a beneficiary shall not be treated as a change in the time or form of distribution, provided that the time and form of the distribution are not otherwise changed. Also, an election to change the beneficiary under a life annuity does not constitute a change in the time and form of payment if the change in the time of payments results solely from the different life expectancy of the new beneficiary.

(g) Chief Executive Officer . Anything herein to the contrary notwithstanding, in the case of the Participant who was Stanley’s chief executive officer on January 1, 2007, the provisions of Section 5, regarding the time and form of payment of death benefits, shall not apply, and the preceding provisions of this Section 7 regarding the time and form of payment shall not apply. Instead, the time and form of payment of the SERP benefit payable to or on behalf of such Participant shall be determined exclusively pursuant to the provisions of the Participant’s employment agreement with Stanley that pertain to his “Pension Make-Whole” benefit under that agreement, and the payment of any death benefit on his behalf under the SERP shall be made at the time and in the form provided under those provisions in such employment agreement to the beneficiary determined under such provisions.

8. Claims Procedure .

(a) Any Participant or beneficiary (each a “Claimant”) who believes he or she is entitled to benefits under the SERP shall file a written claim request with the Committee on such forms as the Committee may require. The Committee shall, upon written request of a Claimant,

make available copies of any claim forms or instructions, or advise the Claimant where such forms or instructions may be obtained.

(b) If a claim is wholly or partially denied, the Committee shall furnish to the Claimant a written or electronic notice of the decision within 90 days. The notice shall be set forth in a manner calculated to be understood by the Claimant. If special circumstances require, the Committee may defer action on a claim for benefits for an additional period of not to exceed 90 days, and, in that case, it shall notify the Claimant in a written or electronic notice prior to the close of the initial 90 day period of the special circumstances involved and the time by which it expects to render a decision. If the claim relates to Disability benefits, the Committee shall furnish to the Claimant a written or electronic notice of the decision within 45 days. If special circumstances require, the Committee may defer action on a claim for Disability benefits for an additional period of not to exceed 30 days, and, in that case, it shall notify the Claimant in a written or electronic notice prior to the close of the initial 45 day period of the special circumstances involved and the time by which it expects to render a decision. However, if prior to the end of the 30 day period, the Committee determines that, due to matters beyond its control, a decision cannot be rendered on a claim for Disability benefits, the period for making the Disability claim determination may be extended for up to an additional 30 day period, and, in that case, the Committee shall notify the Claimant in a written or electronic notice prior to the end of the first 30 day period of the circumstances involved and the time by which a decision is expected. The written or electronic notice of a denial of a claim shall contain the following information:

(i) The specific reason(s) for denial of the claim;

(ii) Specific references to pertinent provisions of the SERP upon which the denial is based;

(iii) A description of any additional material or information necessary for the Claimant to perfect the claim and an explanation of why such material or information is necessary;

(iv) An explanation of the claims review procedure under the SERP describing the steps to be taken by a Claimant who wishes to submit the claim for review; and the time limits applicable to such procedures, and the Claimant’s right to bring a civil action under Section 502(a) of ERISA within 180 days following an adverse determination on review;

(v) In the case of a claim for Disability benefits, a copy of any specific internal rule, guideline, protocol or other similar criterion that was relied upon in making the determination, or a statement that a copy of the rule, guideline, protocol or other similar criterion will be provided to the Claimant free of charge upon request; and

(vi) In the case of a claim for Disability benefits that is denied based on a medical necessity or experimental treatment or similar exclusion or limit, an explanation of the scientific or clinical judgment for the determination, applying the terms of the SERP to the Claimant’s circumstances, or a statement that an explanation will be provided free of charge upon request.

(ii) Review pertinent documents and submit any additional issues and comments in writing;

(iii) Submit documents, records and other information relating to the claim for benefits;

(iv) Have reasonable access to, upon request and free of charge, copies of all documents, records, and other information relevant to a benefit claim;

(v) Have a full and fair review by the Committee of the denial that takes into account all comments, documents, records, and other information relevant to the Claimant’s claim for benefits; and

(vi) If the claim is for Disability benefits, the following additional rules will apply:

(A) The review will not give deference to the initial adverse benefit determination;

(B) The review will be conducted by an appropriate named fiduciary of the SERP who is neither the individual who made the initial decision to deny the Disability benefit claim nor a subordinate of that individual.

(C) If the adverse determination that is the subject of the review was based on a medical judgment, the named fiduciary will consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment;

(D) Any medical or vocational experts whose advice was obtained on behalf of the SERP in connection with the adverse benefit determination that is the subject of the review will be identified, without regard to whether the advice was relied upon in making the benefit determination; and

(E) The health care professional engaged for purposes of a consultation will be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual.

Any request or submission must be in writing and must be directed to the Committee or in the case of a review of a claim for Disability benefits, its designee. The Committee (or, in the case of a

claim for Disability benefits, its designee) shall have the sole responsibility for the review of any denied claim and shall take all steps appropriate in light of its findings.

(d) The Committee (or, in the case of a claim for Disability benefits, its designee) shall render a decision upon review. If it is determined that any benefits claimed should be denied upon review, written or electronic notice of the same shall be provided to the Claimant. The written or electronic notice of the final decision shall set forth: the specific reason or reasons for the adverse determination; references to the specific SERP provisions on which the benefit determination was based; a statement that advises the Claimant that he or she is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits; and in the case of the review of a claim for a Disability benefit that was denied as a result of an internal rule, guideline, protocol or other similar criterion, either the specific rule, guideline, protocol, or other similar criterion relied upon in making the adverse determination, or a statement that such rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of the rule, guideline, protocol, or other similar criterion will be provided to the Claimant free of charge upon request. Also, if the adverse determination upon review of a claim for Disability benefits is based on a medical necessity or experimental treatment or similar exclusion or limit, the Claimant shall be provided free of charge either an explanation of the scientific or clinical judgment for the determination, applying the terms of the SERP to the Claimant’s medical circumstances, or a statement that such explanation will be provided free of charge upon request. In addition, the written or electronic notice to Claimant shall describe any voluntary appeal procedures offered under the SERP and the Claimant’s right to obtain information about such procedures and a statement of the Claimant’s right to bring an action under Section 502(a) of ERISA within 180 days following receipt of written or electronic notice of denial of the claim for benefits upon review. The notice to the Claimant shall include the following statement: “You and the SERP may have other voluntary alternative dispute resolution options, such as mediation. One way to find out what may be available is to contact your local U.S. Department of Labor Office and your State insurance regulatory agency.” A final determination by the Committee shall be rendered within a reasonable period of time, not exceeding 60 days, after receipt of the Claimant’s notice of appeal. Under special circumstances, such determination may be delayed for an additional period not to exceed 60 days, in which case the Claimant shall be notified electronically or in writing of the delay prior to the close of the initial 60 day period. However, if the Committee holds regularly scheduled meetings at least quarterly, a final determination by the Committee shall be rendered no later than the date of the first meeting of the Committee after receipt of the Claimant’s notice of appeal, unless the receipt of the Claimant’s notice of appeal is within the 30 day period preceding the date of the next scheduled meeting of the Committee. In such case, a final determination by the Committee shall be rendered no later than the date of the second meeting of the Committee after receipt of the Claimant’s notice of appeal. Under special circumstances, such determination may be delayed to the date of the third meeting of the Committee after receipt of the Claimant’s notice of appeal, in which case the Claimant shall be notified electronically or in writing of the delay prior to the commencement of the extension period. If the claim relates to a Disability benefit, a final determination by the appropriate named fiduciary shall be rendered within a reasonable period of time, not exceeding 45 days, after receipt of the Claimant’s notice of appeal. Under special circumstances, such determination may be delayed for an additional period not to exceed 45 days, in which case the Claimant shall be notified electronically or in writing of the delay prior to the close of the initial 45 day period.

9. Miscellaneous .

(a) Amendment . The Committee may at any time amend the SERP so long as the benefits of anyone who is then an Eligible Employee are not diminished as a result.

(b) Administration of the SERP . The SERP will be administered by the Committee. The Committee is vested with full authority (including full discretionary authority) to administer, interpret, and make rules regarding the SERP as it may deem advisable and to make determinations in its discretion that shall be final, binding, and conclusive upon all persons. No member of Stanley’s Board of Directors or the Committee will be liable for any action or determination made in good faith with respect to the SERP.

(c) Governing Text . The SERP, including any amendments, will constitute the entire agreement between Stanley and any Participant or beneficiary regarding the subject matter of the SERP. The SERP, including any amendments, will be binding on Stanley, Participants, beneficiaries, and their respective heirs, administrators, trustees, successors, and assigns.

(d) Rights of Persons Entitled to Benefits. Any person entitled to receive benefits under the SERP shall have the rights of an unsecured general creditor of Stanley.

(e) Nonassignability . The right of any individual to a benefit under the SERP shall not be subject to attachment or other legal process for the debts of such individual. In no event may an individual’s benefit under the SERP be subject to anticipation, alienation, sale, transfer, assignment or encumbrance.

(f) Special Distributions . Whenever, in the opinion of the Committee, a person entitled to receive a benefit under the SERP is unable to manage his or her financial affairs, the Committee may direct that payment be made to a legal representative or relative of such person for his or her benefit. Any payment made in accordance with this Section 9(f) shall be a complete discharge of any liability for the making of such payment under the provisions of the SERP.

(g) Terms of Employment . Participation in the SERP shall not give an individual any right to remain in the service of Stanley, and an individual shall remain subject to discharge to the same extent as if the SERP had not been adopted.


	THE STANLEY WORKS
	By
		Title:
		Date:

THE STANLEY WORKS

Supplemental Executive Retirement Plan

APPENDIX A


Form of Payment		Actuarial Adjustment Factors

Lump Sum		The lump sum of the Target Benefit is determined by multiplying the annual benefit, expressed as a single life annuity, by a factor of 9.45.

Joint and Survivor (100%)		Factors are as set forth in the attached table, which shows no reduction if the spouse is older than the Participant or if the spouse is no more than two years younger than the Participant (in either case, the factor is 1.000). For each year over two that the spouse is younger than the Participant, the Target Benefit (or early retirement benefit) will be reduced by 0.7%.

		Example 1: For a Participant whose age on the benefit commencement date is 60 and whose spouse’s age on the benefit commencement date is 56, the factor to convert the single life annuity to a 100% joint and survivor annuity is .986.

		Example 2: For a Participant whose age on the benefit commencement date is 54 and whose spouse’s age on the benefit commencement date is 40, the factor to convert the single life annuity to a 100% joint and survivor annuity is .916.

THE STANLEY WORKS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN 100% Joint & Survivor Factors

APPENDIX A (continued)


Spouse’s
Age
(nearest	Participant’s Age (nearest birthday)
birthday)	54		55		56		57		58		59		60		61		62		63		64		65

65		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000
64		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000
63		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000
62		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		0.993
61		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		0.993		0.986
60		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		0.993		0.986		0.979
59		1.000		1.000		1.000		1.000		1.000		1.000		1.000		1.000		0.993		0.986		0.979		0.972
58		1.000		1.000		1.000		1.000		1.000		1.000		1.000		0.993		0.986		0.979		0.972		0.965
57		1.000		1.000		1.000		1.000		1.000		1.000		0.993		0.986		0.979		0.972		0.965		0.958
56		1.000		1.000		1.000		1.000		1.000		0.993		0.986		0.979		0.972		0.965		0.958		0.951
55		1.000		1.000		1.000		1.000		0.993		0.986		0.979		0.972		0.965		0.958		0.951		0.944
54		1.000		1.000		1.000		0.993		0.986		0.979		0.972		0.965		0.958		0.951		0.944		0.937
53		1.000		1.000		0.993		0.986		0.979		0.972		0.965		0.958		0.951		0.944		0.937		0.930
52		1.000		0.993		0.986		0.979		0.972		0.965		0.958		0.951		0.944		0.937		0.930		0.923
51		0.993		0.986		0.979		0.972		0.965		0.958		0.951		0.944		0.937		0.930		0.923		0.916
50		0.986		0.979		0.972		0.965		0.958		0.951		0.944		0.937		0.930		0.923		0.916		0.909
49		0.979		0.972		0.965		0.958		0.951		0.944		0.937		0.930		0.923		0.916		0.909		0.902
48		0.972		0.965		0.958		0.951		0.944		0.937		0.930		0.923		0.916		0.909		0.902		0.895
47		0.965		0.958		0.951		0.944		0.937		0.930		0.923		0.916		0.909		0.902		0.895		0.888
46		0.958		0.951		0.944		0.937		0.930		0.923		0.916		0.909		0.902		0.895		0.888		0.881
45		0.951		0.944		0.937		0.930		0.923		0.916		0.909		0.902		0.895		0.888		0.881		0.874
44		0.944		0.937		0.930		0.923		0.916		0.909		0.902		0.895		0.888		0.881		0.874		0.867
43		0.937		0.930		0.923		0.916		0.909		0.902		0.895		0.888		0.881		0.874		0.867		0.860
42		0.930		0.923		0.916		0.909		0.902		0.895		0.888		0.881		0.874		0.867		0.860		0.853
41		0.923		0.916		0.909		0.902		0.895		0.888		0.881		0.874		0.867		0.860		0.853		0.846
40		0.916		0.909		0.902		0.895		0.888		0.881		0.874		0.867		0.860		0.853		0.846		0.839

THE STANLEY WORKS

Supplemental Executive Retirement Plan

APPENDIX B

Cornerstone Offset Described in Section 6 of the SERP

(a) Subject to paragraph (b), the offset of a SERP benefit attributable to a Participant’s “vested cornerstone account” benefits (vested, nonelective defined contribution benefits, exclusive of matching allocations) under the Stanley Account Value Plan and the Supplemental Plan shall be determined by converting the value of such cornerstone account benefits, including the amount of any prior distribution from said vested cornerstone account benefits under the Stanley Account Value Plan, that has not been recontributed to that plan, to an actuarially equivalent single life annuity benefit. The value of such vested cornerstone account benefits under the Stanley Account Value Plan and the Supplemental Plan shall be determined as of the first day of the month in which Separation from Service occurs or, if distributions are deferred beyond the distribution date prescribed in Section 7(b), as of the first day of the month that contains the distribution date. The value of such vested cornerstone account benefits payable upon death pursuant to Section 5(a) shall be determined as of the first day of the month that contains the date of death. This actuarial equivalent monthly single life annuity shall be determined by utilizing the following factors, calculated as of the pertinent date set forth above:


Interest Rate:		Composite Corporate Bond Rate (CCBR), published by the Internal Revenue Service, minus 200 basis points

Mortality Table:		RP-2000 table (male and female rates) projected 25 years with scale AA

(b) In the case of a SERP benefit that is paid in an optional form of annuity payment other than a single life annuity, the offset of the SERP benefit attributable to a Participant’s vested cornerstone account benefits under the Stanley Account Value Plan and the Supplemental Plan shall be determined by offsetting the actuarially adjusted optional form of payment (calculated with respect to the single life annuity) by the same form of annuity payment calculated by converting such cornerstone account benefits to the optional form of annuity pursuant to the interest and mortality factors in (a) above. In the case of a SERP benefit that is not paid in an annuity, the offset of the SERP benefit attributable to a Participant’s vested cornerstone account benefits under the Stanley Account Value Plan and the Supplemental Plan shall be determined by offsetting each payment under the actuarially adjusted optional form of payment (calculated with respect to the single life annuity) by the portion of the pertinent cornerstone benefits, valued as of the date set forth in (a) above, that corresponds to the portion of the total SERP benefit being distributed pursuant to such payment.

(c) For purposes of paragraphs (a) and (b) above, the value of particular, vested cornerstone account benefits as of the first day of a month, shall be determined on the basis of the last valuation applicable to such benefits under the terms of the pertinent plan on or before such first day of the month.

THE STANLEY WORKS

Supplemental Executive Retirement Plan

APPENDIX C

Deferred Payments Described Under Section 7(b) of the SERP

Deferred payments under Section 7(b) shall be adjusted utilizing the interest rate prescribed in Code Section 417(e) that is in effect during October of the calendar year preceding the calendar year that includes the date of the Separation from Service.

Exhibit 10(x)

As amended October 17, 2008

THE STANLEY WORKS
1997 LONG-TERM INCENTIVE PLAN

Section 1. Purpose

The purposes of this Long-Term Incentive Plan (the “Plan”) are to encourage selected salaried employees of The Stanley Works (together with any successor thereto, the “Company”) and selected salaried employees and non-employee directors of its Affiliates (as defined below) to acquire a proprietary interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company’s future success and prosperity, thus enhancing the value of the Company for the benefit of its shareholders, and to enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom, in large measure, the sustained progress, growth and profitability of the Company depend.

Section 2. Definitions

As used in the Plan, the following terms shall have the meanings set forth below:

	(a)		“Affiliate” shall mean (i) any entity that, directly or through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, as determined by the Committee.

	(b)		“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, or Other Stock-Based Award granted under the Plan.

	(c)		“Award Agreement” shall mean any written agreement, contract, or other instrument or document evidencing any Award granted under the Plan.

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

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

	(f)		“Committee” shall mean the Compensation and Organization Committee of the Board.

	(g)		“Dividend Equivalent” shall mean any right granted under Section 6(e) of the Plan.

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

	(i)		“Fair Market Value” shall mean, with respect to any property other than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee, and with respect to Shares, shall mean the mean average of the high and the low price of a Share as quoted on the New York Stock Exchange Composite Tape on the date as of which fair market value is to be determined or, if there is no trading of Shares on such date, such mean average of the high and the low price on the next preceding date on which there was such trading.

	(j)		“Immediate family members” of a Participant shall mean the Participant’s children, grandchildren and spouse.

	(k)		“Incentive Stock Option” shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto.

	(l)		“1990 Plan” shall mean the Company’s 1990 Stock Option Plan.

	(m)		“Non-Employee Director” shall mean any non-employee director of an Affiliate.

	(n)		“Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.

	(o)		“Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

	(p)		“Other Stock-Based Award” shall mean any right granted under Section 6(f) of the Plan.

	(q)		“Participant” shall mean a Salaried Employee designated to be granted an Award under the Plan.

	(r)		“Performance Award” shall mean any Award granted under Section 6(d) of the Plan.

	(s)		“Person” shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, or government or political subdivision thereof.

	(t)		“Released Securities” shall mean securities that were Restricted Securities with respect to which all applicable restrictions have expired, lapsed, or been waived.

	(u)		“Restricted Securities” shall mean securities covered by Awards of Restricted Stock or other Awards under which issued and outstanding Shares are held subject to certain restrictions.

	(v)		“Restricted Stock” shall mean any Share granted under Section 6(c) of the Plan.

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	(w)		“Restricted Stock Unit” shall mean any right granted under Section 6(c) of the Plan that is denominated in Shares.

	(x)		“Salaried Employee” shall mean any salaried Employee of the Company or of any Affiliate.

	(y)		“Shares” shall mean shares of the common stock of the Company, par value $2.50 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 4(b) of the Plan.

	(z)		“Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Plan.

Section 3. Administration

Except as otherwise provided herein, the Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by (or with respect to which payments, rights, or other matters are to be calculated in connection with) Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards, or other property, or canceled, forfeited, or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine in accordance with the requirements of Section 409A of the Code whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time, and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, any shareholder, and any employee of the Company or of any Affiliate. All elective deferrals permitted pursuant to this Section 3 shall be accomplished by the delivery of a written, irrevocable election by the Participant on a form provided by the Company. All deferrals shall be made in accordance with administrative guidelines established by the Committee to ensure that such deferrals comply with all applicable requirements of Section 409A of the Code. The Committee may credit interest, at such rates to be determined by the Committee, on cash payments that are deferred and credit dividends or dividend equivalents on deferred payments denominated in the form of Shares. The Committee may, in its discretion, require deferral of payment of any Award (other than an Option or Stock Appreciation Right) or portion thereof if the deduction with

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respect to such payment would, or could in the reasonable anticipation of the Committee, not be permitted due to the application of Section 162(m) of the Code.

Section 4. Shares Available for Awards

(a)

Shares Available. Subject to adjustment as provided in Section 4(b):

	(i)		Calculation of Number of Shares Available. The number of Shares authorized to be issued in connection with the granting of Awards under the Plan is four million (4,000,000), and the number of Shares available for granting Awards under the Plan in each fiscal year or, in the case of the years 1997 and 2007, part thereof shall be two percent (2%) of the issued Shares (including, without limitation, treasury Shares) as of the first day of such year; provided, however, that the number of Shares available for granting Awards in any year shall be increased in any such year by the number of Shares available under the Plan in previous years but not covered by Awards granted under the Plan in such years. Further, if any Shares covered by an Award granted under the Plan or by an award granted under the 1990 Plan, or to which such an Award or award relates, are forfeited, or if an Award or award otherwise terminates without the delivery of Shares or of other consideration, or if upon the termination of the 1990 Plan there are Shares remaining that were authorized for issuance under that Plan but with respect to which no awards have been granted, then the Shares covered by such Awards or award, or to which such Award or award relates, or the number of Shares otherwise counted against the aggregate number of Shares available under the Plan with respect to such Award or award, to the extent of any such forfeiture or termination, or which were authorized for issuance under the 1990 Plan but with respect to which no awards were granted as of the termination of the 1990 Plan shall again be, or shall become available for granting Awards under the Plan. Notwithstanding the foregoing but subject to adjustment as provided in Section 4(b), no more than one million (1,000,000) Shares shall be cumulatively available for delivery pursuant to the exercise of Incentive Stock Options.

	(ii)		Accounting for Awards. For purposes of this Section 4,

(A)

if an Award (other than a Dividend Equivalent) is denominated in Shares, the number of Shares covered by such Award, or to which such Award relates, shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan; and

(B)

Dividend Equivalents and Awards not denominated in Shares shall be counted against the aggregate number of Shares available for granting Awards under the Plan, if at all, only in such amount and at such time as the Committee shall determine under procedures adopted by the Committee consistent with the purposes of the Plan;

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provided, however, that Awards that operate in tandem with (whether granted simultaneously with or at a different time from), or that are substituted for, other Awards or awards granted under the 1990 Plan may be counted or not counted under procedures adopted by the Committee in order to avoid double counting. Any Shares that are delivered by the Company, and any Awards that are granted by, or become obligations of, the Company through the assumption by the Company or an Affiliate of, or in substitution for, outstanding awards previously granted by an acquired company, shall not be counted against the Shares available for granting Awards under the Plan.

(iii)

Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares.

(b)

Adjustments. In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation split-up, spin-off, combination repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, (iii) the number and type of Shares (or other securities or property) specified as the annual per-participant limitation under Section 6(g)(vi), and (iv) the grant, purchase, or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, however, in each case, that with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto; and provided further, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number.

Section 5. Eligibility

Any Salaried Employee, including any officer or employee-director of the Company or of any Affiliate, and any Non-Employee Director, who is not a member of the Committee shall be eligible to be designated a Participant.

Section 6. Awards

(a)

Options. The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:

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	(i)		Exercise Price. The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than the Fair Market Value of a Share on the date of grant of such Option (or, if the Committee so determines, in the case of any Option retroactively granted in tandem with or in substitution for another Award or any outstanding award granted under any other plan of the Company, on the date of grant of such other Award or award).

	(ii)		Option Term. The term of each Option shall be fixed by the Committee.

	(iii)		Time and Method of Exercise. The Committee shall determine the time or times at which an Option may be exercised in whole or in part, and the method or methods by which, and the form or forms, including, without limitation, cash, Shares, other Awards, or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price, in which, payment of the exercise price with respect thereto may be made or deemed to have been made.

	(iv)		Incentive Stock Options. The terms of any Incentive Stock Option granted under the plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. No Incentive Stock Option shall be granted to any Non-Employee Director who is not otherwise an employee of the Company or any of its Affiliates.

	(v)		Transferability. An Option shall not be transferable other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined in the Code, and, during the Participant’s lifetime, shall be exercisable only by the Participant, except that the Committee may:

	(A)		permit exercise, during the Participant’s lifetime, by the Participant’s guardian or legal representative; and

	(B)		permit transfer, upon the Participant’s death, to beneficiaries designated by the Participant in a manner authorized by the Committee, provided that the Committee determines that such exercise and such transfer are consonant with requirements for exemption from Section 16(b) of the Exchange Act and, with respect to an Incentive Stock Option, the requirements of Section 422(b)(5) of the Code; and

	(C)		grant Non-Qualified Stock Options that are transferable, or amend outstanding Non-Qualified Stock Options to make them so transferable, without payment of consideration, to immediate family members of the Participant or to trusts or partnerships for such family members.

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	(b)		Stock Appreciation Rights. The Committee is hereby authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan and any applicable Award Agreement, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the right as specified by the Committee, which shall not be less than the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right (or, if the Committee so determines, in the case of any Stock Appreciation Right retroactively granted in tandem with or in substitution for another Award or any outstanding award granted under any other plan of the Company, on the date of grant of such other Award or award). Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, methods of settlement, and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.

	(c)		Restricted Stock and Restricted Stock Units.

	(i)		Issuance. The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants.

	(ii)		Restrictions. Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate.

	(iii)		Registration. Any Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Shares of Restricted Stock granted under the Plan, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.

	(iv)		Forfeiture. Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) for any reason during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units still, in either case, subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interests of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. Unrestricted Shares, evidenced in such manner as

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the Committee shall deem appropriate, shall be delivered to the holder of Restricted Stock promptly after such Restricted Stock shall become Released Securities.

(v)

Restricted Stock Units. Notwithstanding anything to the contrary in the Plan or in any Award Agreement, Restricted Stock Units shall be subject to the following requirements. Unless previously forfeited, and subject to Section 10(b), Restricted Stock Units shall be settled on the 30 ^th day following the earliest of (I) the applicable vesting date set forth in the Award Agreement, (II) the Participant’s death, and (III) the Participant’s separation from service within the meaning of Section 409A of the Code after attaining the age of 55 and completing 10 years of service or as a result of a disability within the meaning of Section 22(e)(3) of the Code. If the Committee reasonably anticipates that making a payment in respect of Restricted Stock Units may violate Federal securities laws or other applicable law, such payment may be delayed and made in accordance with Section 409A of the Code and Section 1.409A-2(b)(7)(ii) of the Treasury Regulations thereunder.

	(d)		Performance Awards. The Committee is hereby authorized to grant Performance Awards to Participants. Subject to the terms of the Plan and any applicable Award Agreement, a Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including without limitation, Restricted Stock), other securities, other Awards, or other property and (ii) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish.

			Performance goals shall be 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

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			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 Stanley or a parent or subsidiary of Stanley, or a division or strategic business unit of Stanley, all as determined by the Compensation and Organization Committee (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).

			Subject to the terms of the Plan and any applicable Awards Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee.

	(e)		Dividend Equivalents. The Committee is hereby authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Any such amounts will be paid in cash or reinvested at the time that dividends are otherwise paid, but in no event later than March 15 of the year following the year in which the dividends are paid. Subject to the terms of the Plan and any applicable Awards Agreement, such Awards may have such terms and conditions as the Committee shall determine.

	(f)		Other Stock-Based Awards. The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purposes of the Plan, provided, however, that such grants must comply with applicable law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less

-9-

than the Fair Market Value of such Shares or other securities as of the date such purchase right is granted (or, if the Committee so determines, in the case of any such purchase right retroactively granted in tandem with or in substitution for another Award or any outstanding award granted under any other plan of the Company, on the date of grant of such other Award or award).

(g)

General.

	(i)		No Cash Consideration for Awards. Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.

	(ii)		Awards May Be Granted Separately or Together. Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for any other Award or any awards granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards, or in addition to or in tandem with awards granted under any other plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.

	(iii)		Forms of Payment Under Awards. Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments.

	(iv)		Limits on Transfer of Awards. Except as provided in Section 6(a) above regarding Options, no Award (other than Released Securities), and no right under any such Award, shall be assignable, alienable, saleable, or transferable by a Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined in the Code (or, in the case of an Award of Restricted Securities, to the Company); provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant, and to receive any property distributable, with respect to any Award upon the demand of the Participant. Each Award, and each right under any Award, shall be exercisable, during the Participant’s lifetime, only by the Participant or, if permissible under applicable law, by the Participant’s

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guardian or legal representative. No Award (other than Released Securities), and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge, alienation, attachment, or encumbrance thereof shall be void and unenforceable against the Company or any Affiliate. Except as permitted under Section 409A of the Code, any deferred compensation (within the meaning of Section 409A of the Code) payable to Participant or for a Participant’s benefit under this Plan and Awards hereunder may not be reduced by, or offset against, any amount owing by a Participant to the Company or any Affiliate.

	(v)		Terms of Awards. The Term of each Award shall be for such period as may be determined by the Committee; provided, however, that in no event shall the term of any Incentive Stock Option exceed a period of ten years from the date of its grant.

	(vi)		Per-Person Limitation on Options and SARs. The number of Shares with respect to which Options and SARs may be granted under the Plan to an individual Participant in any three-year period from September 17, 1997 through the end of the term shall not exceed 3,000,000 Shares, subject to adjustment as provided in Section 4(b).

	(vii)		Share Certificates. All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed, and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

	(viii)		Maximum Payment Amount. The maximum fair market value of payments to any executive officer made in connection with any long-term performance awards (except for payments made in connection with Options or Stock Appreciation Rights) granted under the 1997 Plan shall not, during any three-year period, exceed two percent of Stanley’s shareholders’ equity as of the end of the year immediately preceding the commencement of such three-year period.

Section 7. Amendment and Termination

Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:

(a)

Amendments to the Plan. The Board of Directors of the Company may amend, alter, suspend, discontinue, or terminate the Plan, including, without limitation, any amendment, alteration, suspension, discontinuation, or termination that would

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impair the rights of any Participant, or any other holder or beneficiary of any Award theretofore granted, without the consent of any shareholder, Participant, other holder or beneficiary of an Award, or other Person; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the shareholders of the Company no such amendment, alteration, suspension, discontinuation, or termination shall be made that would:

	(i)		increase the total number of Shares available for Awards under the Plan, except as provided in Section 4 hereof; or

	(ii)		permit Options, Stock Appreciation Rights, or other Stock-Based Awards encompassing rights to purchase Shares to be granted with per Share grant, purchase, or exercise prices of less than the Fair Market Value of a Share on the date of grant thereof, except to the extent permitted under Sections 6(a), 6(b), or 6(f) hereof.

	(b)		Adjustments of Awards Upon Certain Acquisitions. In the event the Company or any Affiliate shall assume outstanding employee awards or the right or obligation to make future such awards in connection with the acquisition of another business or another corporation or business entity, the Committee may make such adjustments, not inconsistent with the terms of the Plan, in the terms of Awards as it shall deem appropriate in order to achieve reasonable comparability or other equitable relationship between the assumed awards and the Awards granted under the Plan as so adjusted.

	(c)		Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(b) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan.

	(d)		Correction of Defects, Omissions and Inconsistencies. The Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect.

Section 8. General Provisions

(a)

No Rights to Awards. No Salaried Employee, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Salaried Employees, Participants, or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each recipient.

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	(b)		Delegation. The Committee may delegate to one or more officers or managers of the Company or any Affiliate, or a committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify, waive rights with respect to, alter, discontinue, suspend or terminate Awards held by, Salaried Employees who are not officers of the Company for purposes of Section 16 of the Exchange Act.

	(c)		Withholding. The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards, or other property) of withholding taxes due in respect of an Award, its exercise, or any payment or transfer under such Awards or under the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes.

	(d)		No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

	(e)		No Right to Employment. The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.

	(f)		Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Connecticut and applicable Federal law.

	(g)		Severability. If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person, or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.

	(h)		No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

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	(i)		No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.

	(j)		Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

Section 9. Change in Control

(a)

Upon the occurrence of a Change in Control (as hereinafter defined), unless otherwise determined by the Committee and set forth in an Award Agreement,

	(i)		all Options and Stock Appreciation Rights, whether granted as performance awards or otherwise, shall become immediately exercisable in full for the remainder of their terms, and Grantees shall have the right to have the Company purchase all or any number of such Options or Stock Appreciation Rights for cash for a period of thirty (30) days following a Change in Control at the Option Acceleration Price (as hereinafter defined); and

	(ii)		all restrictions applicable to all Restricted stock and Restricted Stock Units, whether such Restricted Stock and Restricted Stock Units were granted as performance awards or otherwise, shall immediately lapse and have no effect, and Grantees shall have the right to have the Company purchase all or any number of such Restricted Stock Units and shares of Restricted Stock for cash for a period of thirty (30) days following a Change in Control at the Restricted Stock Acceleration Price (as hereinafter defined).

(b)

(i) The “Restricted Stock Acceleration Price” is the highest of the following on the date of a Change in Control:

	(A)		the highest reported sales price of a share of the Common Stock within the sixty (60) days preceding the date of a Change in Control, as reported on any securities exchange upon which the Common Stock is listed,

	(B)		the highest price of a share of the Common Stock reported in a Schedule 13D or an amendment thereto as paid within the sixty (60) days preceding the date of the Change in Control,

	(C)		the highest tender offer price paid for a share of the Common Stock, and

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(D)

any cash merger or similar price paid for a share of the Common Stock.

(ii)

The “Option Acceleration Price” is the excess of the price received by shareholders of the Company for one Share pursuant to the Change in Control over the exercise price or the grant price of the award; provided, however that Option Acceleration Price is limited to the spread between the Fair Market Value (which shall be based on the per Share price received by the shareholders of the Company pursuant to such Change in Control) and the exercise price or grant price. In the event the Change in Control is effected pursuant to a stock-for-stock transaction, the price received by shareholders of the Company for one Share pursuant to the Change in Control shall be calculated using the exchange ratio applied in the transaction.

(c)

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, as hereinafter defined, is or becomes the Beneficial Owner, as hereinafter defined, directly or indirectly, of securities of the Company, as hereinafter defined, (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 shareholders 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 December 17, 2003 or whose appointment, election or nomination for election was previously so approved or recommended;

	(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

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			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 shareholders 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 shareholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale.

	(V)		Notwithstanding any provision of this Plan to the contrary, to the extent an award shall be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of a Change in Control and such Change in Control is not described by Section 409A(a)(2)(A)(v) of the Code, then any resulting payment permitted by Section 9 that would be considered deferred compensation under Section 409A of the Code will instead be made to the Participant on the 30 ^th day following the earliest of (A) the Participant’s “separation from service” with the Company (determined in accordance with Section 409A of the Code); (B) the date payment otherwise would have been made in the absence of any provisions in this Plan to the contrary (provided such date is permissible under Section 409A of the Code), or (C) the Participant’s death.

(d)

Solely for purposes of Section 9(c) and (d), and notwithstanding anything to the contrary in any other provision of this Plan, the following terms shall have the meanings indicated below:

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

	2.		“Company” shall mean The Stanley Works.

	3.		“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 shareholders of the

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Company in substantially the same proportions as their ownership of stock of the Company.

Section 10. Compliance with Section 409A of the Code.

	(a)		To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to Participants. This Plan and any Awards granted hereunder shall be administered in a manner consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

	(b)		If at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest, on the first business day of the seventh month after such six-month period or, if earlier, on the Participant’s death.

	(c)		Notwithstanding any provision of this Plan or of any Award Agreement to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and any Award Agreements as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and any Award Agreements (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.

Section 11. Effective Date of the Plan

The Plan shall be effective as of September 17, 1997.

Section 12. Term of the Plan

No Award shall be granted under the Plan after September 16, 2007. However, unless otherwise expressly provided in the plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to amend,

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alter, or adjust any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond such date.

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Exhibit 10(xi)

As amended October 17, 2008

THE STANLEY WORKS
2001 LONG-TERM INCENTIVE PLAN

Section 1. Purpose

The purposes of this Long-Term Incentive Plan (the “Plan”) are to encourage selected salaried employees of The Stanley Works (together with any successor thereto, the “Company”) and selected salaried employees and non-employee directors of its Affiliates (as defined below) to acquire a proprietary interest in the growth and performance of the Company, to generate an increased incentive to contribute to the Company’’s future success and prosperity, thus enhancing the value of the Company for the benefit of its shareowners, and to enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom, in large measure, the sustained progress, growth and profitability of the Company depend.

Section 2. Definitions

			As used in the Plan, the following terms shall have the meanings set forth below:

	(a)		“Affiliate” shall mean (i) any entity that, directly or through one or more intermediaries, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, as determined by the Committee.

	(b)		“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, Dividend Equivalent, or Other Stock-Based Award granted under the Plan.

	(c)		“Award Agreement” shall mean any written agreement, contract, or other instrument or document evidencing any Award granted under the Plan.

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

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

	(f)		“Committee” shall mean the Compensation and Organization Committee of the Board.

	(g)		“Dividend Equivalent” shall mean any right granted under Section 6(e) of the Plan.

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

	(i)		“Fair Market Value” shall mean, with respect to any property other than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee, and with respect to Shares, shall mean the mean average of the high and the low price of a Share as quoted on the New York Stock Exchange Composite Tape on the date as of which fair market value is to be determined or, if there is no trading of Shares on such date, such mean average of the high and the low price on the next preceding date on which there was such trading.

	(j)		“Immediate family members” of a Participant shall mean the Participant’s children, grandchildren and spouse.

	(k)		“Incentive Stock Option” shall mean an option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto.

	(l)		“1997 Plan” shall mean the Company’s 1997 Long-Term Incentive Plan.

	(m)		“Non-Employee Director” shall mean any non-employee director of an Affiliate.

	(n)		“Non-Qualified Stock Option” shall mean an option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.

	(o)		“Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

	(p)		“Other Stock-Based Award” shall mean any right granted under Section 6(f) of the Plan.

	(q)		“Participant” shall mean a Salaried Employee or non-employee director designated to be granted an Award under the Plan.

	(r)		“Performance Award” shall mean any Award granted under Section 6(d) of the Plan.

	(s)		“Person” shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, or government or political subdivision thereof.

	(t)		“Released Securities” shall mean securities that were Restricted Securities with respect to which all applicable restrictions have expired, lapsed, or been waived.

	(u)		“Restricted Securities” shall mean securities covered by Awards of Restricted Stock or other Awards under which issued and outstanding Shares are held subject to certain restrictions.

	(v)		“Restricted Stock” shall mean any Share granted under Section 6(c) of the Plan.

	(w)		“Restricted Stock Unit” shall mean any right granted under Section 6(c) of the Plan that is denominated in Shares.

	(x)		“Salaried Employee” shall mean any salaried employee of the Company or of any Affiliate.

	(y)		“Shares” shall mean shares of the common stock of the Company, par value $2.50 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 4(b) of the Plan.

	(z)		“Stock Appreciation Right” shall mean any right granted under Section 6(b) of the Plan.

Section 3. Administration

Except as otherwise provided herein, the Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, the Committee shall have full power and authority to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of Shares to be covered by or with respect to which payments, rights, or other matters are to be calculated in connection with Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards, or other property, or canceled, forfeited, or suspended, and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine in accordance with the requirements of Section 409A of the Code whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award under the Plan shall be deferred either automatically or at the election of the holder thereof or of the Committee; (vii) interpret and administer the Plan and any instrument or agreement relating to, or Award made under, the Plan; (viii) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (ix) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award shall be within the sole discretion of the Committee, may be made at any time, and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, any shareowner, and any employee of the Company or of any Affiliate. All elective deferrals permitted pursuant to this Section 3 shall be accomplished by the delivery of a written, irrevocable election by the Participant on a form provided by the Company. All deferrals shall be made in accordance with administrative guidelines established by the Committee to ensure that such deferrals comply with all applicable requirements of Section 409A of the Code. The Committee may credit interest, at such rates to be determined by the Committee, on cash payments that are deferred and credit dividends or dividend equivalents on deferred payments denominated in the form of Shares. The Committee may, in its discretion, require deferral of payment of any Award (other than an Option or Stock Appreciation Right) or portion thereof if the deduction with respect to such payment would, or could in the reasonable

anticipation of the Committee, not be permitted due to the application of Section 162(m) of the Code.

Section 4. Shares Available for Awards

(a)

Shares Available . Subject to adjustment as provided in Section 4(b):

	(i)		Calculation of Number of Shares Available . The number of Shares authorized to be issued in connection with the granting of Awards under the Plan is ten million (10,000,000). If any Shares covered by an Award granted under the Plan or by an award granted under the 1997 Plan, or to which such an Award or award relates, are forfeited, or if an Award or award otherwise terminates without the delivery of Shares or of other consideration, or if upon the termination of the 1997 Plan there are Shares remaining that were authorized for issuance under that Plan but with respect to which no awards have been granted, then the Shares covered by such Awards or award, or to which such Award or award relates, or the number of Shares otherwise counted against the aggregate number of Shares available under the Plan with respect to such Award or award, to the extent of any such forfeiture or termination, or which were authorized for issuance under the 1997 Plan but with respect to which no awards were granted as of the termination of the 1997 Plan shall again be, or shall become available for granting Awards under the Plan. Notwithstanding the foregoing but subject to adjustment as provided in Section 4(b), (A) no more than one million (1,000,000) Shares shall be cumulatively available for delivery pursuant to the exercise of Incentive Stock Options and (B) no more than one million (1,000,000) Shares shall be cumulatively available for granting as Restricted Stock or Restricted Stock Units.

	(ii)		Accounting for Awards . For purposes of this Section 4,

	(A)		if an Award (other than a Dividend Equivalent) is denominated in Shares, the number of Shares covered by such Award, or to which such Award relates, shall be counted on the date of grant of such Award against the aggregate number of Shares available for granting Awards under the Plan; and

	(B)		Dividend Equivalents and Awards not denominated in Shares shall be counted against the aggregate number of Shares available for granting Awards under the Plan, if at all, only in such amount and at such time as the Committee shall determine under procedures adopted by the Committee consistent with the purposes of the Plan; provided, however, that Awards that operate in tandem with (whether granted simultaneously with or at a different time from), or that are substituted for, other Awards or awards granted under the 1997 Plan may be counted or not counted under procedures adopted by the Committee in order to avoid double counting. Any Shares

that are delivered by the Company, and any Awards that are granted by, or become obligations of, the Company through the assumption by the Company or an Affiliate of, or in substitution for, outstanding awards previously granted by an acquired company, shall not be counted against the Shares available for granting Awards under the Plan.

(iii)

Sources of Shares Deliverable Under Awards . Any Shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued Shares or of treasury Shares.

(b)

Adjustments . In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation split-up, spin-off, combination repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards, (ii) the number and type of Shares (or other securities or property) subject to outstanding Awards, (iii) the number and type of Shares (or other securities or property) specified as the annual per-participant limitation under Section 6(g)(vi), and (iv) the grant, purchase, or exercise price with respect to any Award, or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Award; provided, however, in each case, that with respect to Awards of Incentive Stock Options no such adjustment shall be authorized to the extent that such authority would cause the Plan to violate Section 422(b)(1) of the Code or any successor provision thereto; and provided further, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number.

Section 5. Eligibility

Section 6. Awards

(a)

Options . The Committee is hereby authorized to grant Options to Participants with the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:

	(i)		Exercise Price . The purchase price per Share purchasable under an Option shall be determined by the Committee; provided, however, that such purchase price shall not be less than the Fair Market Value of a Share on the date of grant of such Option (or, if the Committee so determines, in the case of any Option retroactively granted in tandem with or in substitution for another Award or any outstanding award granted under any other plan of the Company, on the date of grant of such other Award or award).

	(ii)		Option Term . The term of each Option shall be fixed by the Committee.

	(iii)		Time and Method of Exercise . The Committee shall determine the time or times at which an Option may be exercised in whole or in part, and the method or methods by which, and the form or forms, including, without limitation, cash, Shares, other Awards, or other property, or any combination thereof, having a Fair Market Value on the exercise date equal to the relevant exercise price, in which, payment of the exercise price with respect thereto may be made or deemed to have been made.

	(iv)		Incentive Stock Options . The terms of any Incentive Stock Option granted under the plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. No Incentive Stock Option shall be granted to any Non-Employee Director who is not otherwise an employee of the Company or any of its Affiliates.

	(v)		Transferability . An Option shall not be transferable other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined in the Code, and, during the Participant’s lifetime, shall be exercisable only by the Participant, except that the Committee may:

	(A)		permit exercise, during the Participant’s lifetime, by the Participant’s guardian or legal representative; and

	(B)		permit transfer, upon the Participant’s death, to beneficiaries designated by the Participant in a manner authorized by the Committee, provided that the Committee determines that such exercise and such transfer are consonant with requirements for exemption from Section 16(b) of the Exchange Act and, with respect to an Incentive Stock Option, the requirements of Section 422(b)(5) of the Code; and

	(C)		grant Non-Qualified Stock Options that are transferable, or amend outstanding Non-Qualified Stock Options to make them so transferable, without payment of consideration, to immediate family members of the Participant or to trusts or partnerships for such family members.

	(b)		Stock Appreciation Rights . The Committee is hereby authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan and any applicable Award Agreement, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one Share on the date of exercise over (ii) the grant price of the right as specified by the Committee, which shall not be less than the Fair Market Value of one Share on the date of grant of the Stock Appreciation Right (or, if the Committee so determines, in the case of any Stock Appreciation Right retroactively granted in tandem with or in substitution for another Award or any outstanding award granted under any other plan of the Company, on the date of grant of such other Award or award). Subject to the terms of the Plan and any applicable Award Agreement, the grant price, term, methods of exercise, methods of settlement, and any other terms and conditions of any Stock Appreciation Right shall be as determined by the Committee. The Committee may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.

	(c)		Restricted Stock and Restricted Stock Units .

	(i)		Issuance . The Committee is hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units to Participants.

	(ii)		Restrictions . Shares of Restricted Stock and Restricted Stock Units shall be subject to such restrictions as the Committee may impose (including, without limitation, any limitation on the right to vote a Share of Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee may deem appropriate.

	(iii)		Registration . Any Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of Shares of Restricted Stock granted under the Plan, such certificate shall be registered in the name of the Participant and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock.

	(iv)		Forfeiture . Except as otherwise determined by the Committee, upon termination of employment (as determined under criteria established by the Committee) for any reason during the applicable restriction period, all Shares of Restricted Stock and all Restricted Stock Units still, in either case, subject to restriction shall be forfeited and reacquired by the Company; provided, however, that the Committee may, when it finds that a waiver would be in the best interests of the Company, waive in whole or in part any or all remaining restrictions with respect to Shares of Restricted Stock or Restricted Stock Units. Unrestricted Shares, evidenced in such manner as

			the Committee shall deem appropriate, shall be delivered to the holder of Restricted Stock promptly after such Restricted Stock shall become Released Securities.

	(v)		Restricted Stock Units . Notwithstanding anything to the contrary in the Plan or in any Award Agreement, Restricted Stock Units shall be subject to the following requirements. Unless previously forfeited, and subject to Section 10(b), Restricted Stock Units shall be settled on the 30th day following the earliest of (I) the applicable vesting date set forth in the Award Agreement, (II) the Participant’s death, and (III) the Participant’s separation from service within the meaning of Section 409A of the Code after attaining the age of 55 and completing 10 years of service or as a result of a disability within the meaning of Section 22(e)(3) of the Code. If the Committee reasonably anticipates that making a payment in respect of Restricted Stock Units may violate Federal securities laws or other applicable law, such payment may be delayed and made in accordance with Section 409A of the Code and Section 1.409A 2(b)(7)(ii) of the Treasury Regulations thereunder.

(d)

Performance Awards . The Committee is hereby authorized to grant Performance Awards to Participants. Subject to the terms of the Plan and any applicable Award Agreement, a Performance Award granted under the Plan (i) may be denominated or payable in cash, Shares (including without limitation, Restricted Stock), other securities, other Awards, or other property and (ii) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish.

Performance goals shall be 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 Stanley or a parent or subsidiary of Stanley, or a division or strategic business unit of Stanley, all as determined by the Compensation and Organization Committee (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).

Subject to the terms of the Plan and any applicable Awards Agreement, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted, and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee.

	(e)		Dividend Equivalents . The Committee is hereby authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Any such amounts will be paid in cash or reinvested at the time that dividends are otherwise paid, but in no event later than March 15 of the year following the year in which the dividends are paid. Subject to the terms of the Plan and any applicable Awards Agreement, such Awards may have such terms and conditions as the Committee shall determine.

	(f)		Other Stock-Based Awards . The Committee is hereby authorized to grant to Participants such other Awards that are denominated or payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares (including, without limitation, securities convertible into Shares), as are deemed by the Committee to be consistent with the purposes of the Plan, provided, however, that such grants must comply with applicable law. Subject to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the terms and conditions of such Awards. Shares or other securities delivered pursuant to a purchase right granted under this Section 6(f) shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, as the Committee shall determine, the value of which consideration, as established by the Committee, shall not be less

(g)

General .

	(i)		No Cash Consideration for Awards . Awards shall be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.

	(ii)		Awards May Be Granted Separately or Together . Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with, or in substitution for any other Award or any awards granted under any other plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards, or in addition to or in tandem with awards granted under any other plan of the Company or any Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.

	(iii)		Forms of Payment Under Awards . Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments.

	(iv)		Limits on Transfer of Awards . Except as provided in Section 6(a) above regarding Options, no Award (other than Released Securities), and no right under any such Award, shall be assignable, alienable, saleable, or transferable by a Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order, as defined in the Code (or, in the case of an Award of Restricted Securities, to the Company); provided, however, that, if so determined by the Committee, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the rights of the Participant, and to receive any property distributable, with respect to any Award upon the death of the Participant. Each Award, and each right under any Award, shall be exercisable, during the Participant’’s lifetime, only by the Participant or, if permissible under applicable law, by the Participant’’s

	(v)		Terms of Awards . The Term of each Award shall be for such period as may be determined by the Committee; provided, however, that in no event shall the term of any Incentive Stock Option exceed a period of ten years from the date of its grant.

	(vi)		Per-Person Limitation on Options and SARs . The number of Shares with respect to which Options and SARs may be granted under the Plan to an individual Participant in any three-year period from January 24, 2001 through the end of the term shall not exceed 4,000,000 Shares, subject to adjustment as provided in Section 4(b).

	(vii)		Share Certificates . All certificates for Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed, and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

	(viii)		Maximum Payment Amount . The maximum fair market value of payments to any executive officer made in connection with any long-term performance awards (except for payments made in connection with Options or Stock Appreciation Rights) granted under the Plan shall not, during any three-year period, exceed two percent of Stanley’s shareowners’ equity as of the end of the year immediately preceding the commencement of such three-year period.

Section 7. Amendment and Termination

Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:

(a)

Amendments to the Plan . The Board of Directors of the Company may amend, alter, suspend, discontinue, or terminate the Plan, including, without limitation, any

amendment, alteration, suspension, discontinuation, or termination that would impair the rights of any Participant, or any other holder or beneficiary of any Award theretofore granted, without the consent of any shareowner, Participant, other holder or beneficiary of an Award, or other Person; provided, however, that, notwithstanding any other provision of the Plan or any Award Agreement, without the approval of the shareowners of the Company no such amendment, alteration, suspension, discontinuation, or termination shall be made that would:

	(i)		increase the total number of Shares available for Awards under the Plan, except as provided in Section 4 hereof; or

	(ii)		permit Options, Stock Appreciation Rights, or other Stock-Based Awards encompassing rights to purchase Shares to be granted with per Share grant, purchase, or exercise prices of less than the Fair Market Value of a Share on the date of grant thereof, except to the extent permitted under Sections 6(a), 6(b), or 6(f) hereof.

	(b)		Adjustments of Awards Upon Certain Acquisitions . In the event the Company or any Affiliate shall assume outstanding employee awards or the right or obligation to make future such awards in connection with the acquisition of another business or another corporation or business entity, the Committee may make such adjustments, not inconsistent with the terms of the Plan, in the terms of Awards as it shall deem appropriate in order to achieve reasonable comparability or other equitable relationship between the assumed awards and the Awards granted under the Plan as so adjusted.

	(c)		Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events . The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(b) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan.

	(d)		Correction of Defects, Omissions and Inconsistencies . The Committee may correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry the Plan into effect.

Section 8. General Provisions

(a)

No Rights to Awards . No Salaried Employee, Participant or other Person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Salaried Employees, Participants, or holders or

beneficiaries of Awards under the Plan. The terms and conditions of Awards need not be the same with respect to each recipient.

	(b)		Delegation . The Committee may delegate to one or more officers or managers of the Company or any Affiliate, or a committee of such officers or managers, the authority, subject to such terms and limitations as the Committee shall determine, to grant Awards to, or to cancel, modify, waive rights with respect to, alter, discontinue, suspend or terminate Awards held by, Salaried Employees who are not officers of the Company for purposes of Section 16 of the Exchange Act.

	(c)		Withholding . The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards, or other property) of withholding taxes due in respect of an Award, its exercise, or any payment or transfer under such Awards or under the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes.

	(d)		No Limit on Other Compensation Arrangements . Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, and such arrangements may be either generally applicable or applicable only in specific cases.

	(e)		No Right to Employment . The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.

	(f)		Governing Law . The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Connecticut and applicable Federal law.

	(g)		Severability . If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as to any Person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person, or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.

	(h)		No Trust or Fund Created . Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or

any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

	(i)		No Fractional Shares . No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.

	(j)		Headings . Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

Section 9. Change in Control

(a)

Upon the occurrence of a Change in Control (as hereinafter defined), unless otherwise determined by the Committee and set forth in an Award Agreement:

	(i)		all Options and Stock Appreciation Rights, whether granted as performance awards or otherwise, shall become immediately exercisable in full for the remainder of their terms, and Grantees shall have the right to have the Company purchase all or any number of such Options or Stock Appreciation Rights for cash for a period of thirty (30) days following a Change in Control at the Option Acceleration Price (as hereinafter defined); and

	(ii)		all restrictions applicable to all Restricted Stock and Restricted Stock Units, whether such Restricted Stock and Restricted Stock Units were granted as performance awards or otherwise, shall immediately lapse and have no effect, and Grantees shall have the right to have the Company purchase all or any number of such Restricted Stock Units and shares of Restricted Stock for cash for a period of thirty (30) days following a Change in Control at the Restricted Stock Acceleration Price (as hereinafter defined).

(b)

(i) The “Restricted Stock Acceleration Price” is the highest of the following on the date of a Change in Control:

	(A)		the highest reported sales price of a share of the Common Stock within the sixty (60) days preceding the date of a Change in Control, as reported on any securities exchange upon which the Common Stock is listed,

	(B)		the highest price of a share of the Common Stock reported in a Schedule 13D or an amendment thereto as paid within the sixty (60) days preceding the date of the Change in Control,

	(C)		the highest tender offer price paid for a share of the Common Stock, and

	(D)		any cash merger or similar price paid for a share of the Common Stock.

(ii)

The “Option Acceleration Price” is the excess of the price received by shareowners of the Company for one Share pursuant to the Change in Control over the exercise price or the grant price of the award; provided, however, that the Option Acceleration Price is limited to the spread between the Fair Market Value (which shall be based on the per Share price received by the shareowners of the Company pursuant to such Change in Control) and the exercise price or grant price. In the event the Change in Control is effected pursuant to a stock-for-stock transaction, the price received by shareowners of the Company for one Share pursuant to the Change in Control shall be calculated using the exchange ratio applied in the transaction.

(c)

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, as hereinafter defined, is or becomes the Beneficial Owner, as hereinafter defined, directly or indirectly, of securities of the Company, as hereinafter defined, (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 December 17, 2003 or whose appointment, election or nomination for election was previously so approved or recommended; or

	(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.

	(V)		Notwithstanding any provision of this Plan to the contrary, to the extent an award shall be deemed to be vested or restrictions lapse, expire or terminate upon the occurrence of a Change in Control and such Change in Control is not described by Section 409A(a)(2)(A)(v) of the Code, then any resulting payment permitted by Section 9 that would be considered deferred compensation under Section 409A of the Code will instead be made to the Participant on the 30th day following the earliest of (A) the Participant’s “separation from service” with the Company (determined in accordance with Section 409A of the Code); (B) the date payment otherwise would have been made in the absence of any provisions in this Plan to the contrary (provided such date is permissible under Section 409A of the Code), or (C) the Participant’s death.

(d)

Solely for purposes of Section 9(c) and (d), and notwithstanding anything to the contrary in any other provision of this Plan, the following terms shall have the meanings indicated below:

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

	2.		“Company” shall mean The Stanley Works.

	3.		“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.

Section 10. Compliance with Section 409A of the Code.

	(a)		To the extent applicable, it is intended that this Plan and any grants made hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to Participants. This Plan and any Awards granted hereunder shall be administered in a manner consistent with this intent. Any reference in this Plan to Section 409A of the Code will also include any regulations or any other formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

	(b)		If at the time of a Participant’s separation from service (within the meaning of Section 409A of the Code), (i) the Participant shall be a specified employee (within the meaning of Section 409A of the Code and using the identification methodology selected by the Company from time to time) and (ii) the Company shall make a good faith determination that an amount payable hereunder constitutes deferred compensation (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to avoid taxes or penalties under Section 409A of the Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it, without interest, on the first business day of the seventh month after such six-month period or, if earlier, on the Participant’s death.

	(c)		Notwithstanding any provision of this Plan or of any Award Agreement to the contrary, in light of the uncertainty with respect to the proper application of Section 409A of the Code, the Company reserves the right to make amendments to this Plan and any Award Agreements as the Company deems necessary or desirable to avoid the imposition of taxes or penalties under Section 409A of the Code. [In any case, a Participant shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on a Participant or for a Participant’s account in connection with this Plan and any Award Agreements (including any taxes and penalties under Section 409A of the Code), and neither the Company nor any of its affiliates shall have any obligation to indemnify or otherwise hold a Participant harmless from any or all of such taxes or penalties.]

Section 11. Effective Date of the Plan

The Plan shall be effective as of January 25, 2001.

Section 12. Term of the Plan

No Award shall be granted under the Plan after January 24, 2011. However, unless otherwise expressly provided in the plan or in an applicable Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to amend, alter, or adjust any such Award, or to waive any conditions or rights under any such Award, and the authority of the Board of Directors of the Company to amend the Plan, shall extend beyond such date.

Exhibit 10(xi)(c)

Terms and Conditions Applicable to
Long Term Performance Awards
issued pursuant to The Stanley Works 1997 and 2001 Long Term Incentive Plans

This document sets forth the Terms and Conditions applicable to long term performance awards (“Performance Awards”) issued to eligible Employees pursuant to either The Stanley Works 1997 Long-Term Incentive Plan or The Stanley Works 2001 Long-Term Incentive Plan (the “Plan”) as described in the Award Document.

Each Performance Award represents the right of the Participant to receive a number of Shares to be issued if the Company achieves Performance Goals for the Measurement Period as set forth in the Award Document.

Time and Manner of Settlement. As soon as practicable following completion of the applicable Measurement Period, but in no event later than March 15 of the year following the end of such period, and assuming that the Threshold Performance Goals are achieved and employment requirements are satisfied, the Company shall issue a number of Shares to the Participant, in settlement of the Participant’s Performance Award, equal to (i) the number of Shares specified in the Award Document to be issued based upon the Performance Goals achieved plus (ii) in the event performance falls between the Threshold and Target or Target and Maximum Goals as specified in the Award Document, a pro rata number of Shares calculated as follows (rounded to the closest whole number):

S = ((A-L)/(N-L))x(SN-SL)

where:

S = the additional number of Shares to be issued

A = the actual EPS or ROCE achieved

L = the EPS or ROCE Goal reached

N = the next highest EPS or ROCE Goal

SN = the number of Shares designated for issuance at the next highest EPS or ROCE Goal; and

SL = the number of Shares designated for issuance at the EPS or ROCE Goal reached.

If, at the time of settlement, the Participant meets or exceeds applicable Minimum Ownership Guidelines set forth in the Award Document provided to that Participant, Shares shall be issued in the form of Unrestricted Stock. If the Participant does not meet the applicable Minimum Ownership Guidelines at the time of settlement, the Shares shall be issued in the form of Restricted Stock to the extent necessary for such Participant to meet such Minimum Ownership Guidelines at the time of settlement. Any additional Shares shall be issued in the form of Unrestricted Stock.

	2.		Rights of a Shareholder. The Participant shall not have any rights of a shareholder with respect to the Performance Awards or any Shares issued in settlement thereof prior to the date of settlement.

	3.		Transferability. Transferability shall be as set forth in the Plan.

	4.		Adjustments. Notwithstanding any other provision hereof, the Committee shall have authority to make adjustments in the terms and conditions of, and the criteria included in, Performance Awards granted hereunder, as set forth in the Plan.

	5.		Miscellaneous. The Committee shall have full authority to administer the Performance Awards and to interpret the terms of the Award Document and this document, which authority includes the authority to waive certain conditions in appropriate circumstances. All decisions or interpretations of the Committee with respect to any question arising in respect of the Performance Awards shall be binding, conclusive and final. The waiver by Stanley of any provision of this document or an Award Document shall not operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision of this document or any Award Document. The validity and construction of the terms of this document and any Award Document shall be governed by the laws of the State of Connecticut. The terms and conditions set forth in this document and any Award Document are subject in all respects to the terms and conditions of the Plan, which shall be controlling. The Participant agrees to execute such other agreements, documents or assignments as may be necessary or desirable to effect the purposes hereof.

	6.		Unfunded Arrangement. The Performance Awards represented in any Award Document constitute an unfunded unsecured promise of Stanley and the rights of the Participant in respect of the Performance Awards are no greater than the rights of an unsecured creditor of Stanley.

	7.		Change in Control. Notwithstanding any provision in the Award documents to the contrary, upon a Change in Control, unless otherwise determined by the Committee with respect to a Performance Award at the time of its grant, each outstanding Performance Award shall be cancelled and in respect of his or her cancelled Performance Award a Participant shall receive a pro rata portion of the Performance 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 Performance Award shall be issued in accordance with the terms of the Plan not later than 15 days following such Change in Control. In addition, if any Performance Award which a Participant earned under

			the Plan during any Performance Period which ended prior to the Change in Control has neither been issued 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 Performance Award shall be settled in accordance with the Plan as soon as practicable and in no event later than the later of (i) March 1 ^st following the year in respect of which the Performance Award was earned or (ii) the fifteenth day following the Change in Control, provided, however, that in no event shall such settlement occur later than March 15 of the year following the year in respect of which the Performance Award was earned. After a Change in Control, the Committee may not exercise its discretion pursuant to Section 5 hereof to decrease the amount of stock issuable in respect of any Performance Award which is outstanding immediately prior to the occurrence of the Change in Control.

	8.		Capitalized Terms. The following capitalized terms shall have the meaning set forth below for purposes of any Award Document. All other capitalized terms used in this document shall have the meanings set forth in the Plan.

			Award Document. A letter or combination of letters to a Participant that advises the Participant that he or she has been selected to Participate in the program and sets forth the EPS Performance Goals, ROCE Performance Goals and Shares at the Threshold, Target and Maximum Levels, signed by the Chairman of the Committee, in the case of an Award Document to the Chief Executive Officer, and by the Chief Executive Officer, in the case of an Award Document to any other Participant.

			EPS Performance Goals. Threshold, Target and Maximum earnings per share (“EPS”) performance to be achieved over the Measurement Period as set forth in the Award Document.

			Measurement Period. The period during which financial performance is measured against the applicable Performance Goals as set forth in the Award Document.

			Minimum Ownership Guidelines. Minimum levels of stock ownership Participants are expected to reach over time, as set forth in the Award Document.

			Performance Goals. EPS Performance Goals and ROCE Performance Goals as defined herein.

			Restricted Stock. Common Stock of the Company that confers on holders the right to vote and receive dividends, but that is subject to certain restrictions on sale and transfer. All restrictions on sale and transfer of such stock shall lapse on the date the Participant’s employment

			with the Company or any Affiliate terminates, regardless of the reason for termination, provided, however, that a transfer of employment from the Company to any Affiliate or from any Affiliate to another Affiliate or to the Company shall not be deemed a termination of employment hereunder. In addition, if through the acquisition of additional Shares or otherwise, the total market value of shares owned by a Participant (restricted and unrestricted) exceeds any applicable Minimum Ownership Guidelines, the restrictions on the sale and transfer of that number of Shares of Restricted Stock in excess of the number required to meet the applicable Minimum Ownership Guidelines shall lapse.

			ROCE Performance Goals. Threshold, Target and Maximum return on capital employed (“ROCE”) performance to be achieved over the Measurement Period as set forth in the Award Document.

			Shares. Shares of Restricted Stock or Unrestricted Stock to be issued if Performance Goals are achieved, as specified in an Award Document, with 50% of Shares allocated to EPS Performance Goals and 50% of Shares allocated to ROCE Performance Goals.

			Unrestricted Stock. Common Stock of the Company that may be sold at any time.

Exhibit 10(xi)(d)

[Date]

Dear • :

It is my pleasure to congratulate you for being selected to participate in the Long Term Performance Award Program (the “Program”) under The Stanley Works 2001 Long-Term Incentive Plan. This Program is intended to provide substantial, equity-based rewards for specified full-time members of our senior executive team, provided specific Corporate goals are achieved during the Program’s three year measurement period (fiscal years • - • ).

In conjunction with our short-term variable compensation program (MICP) and our stock option/restricted stock unit program, the Program is an important addition to your total compensation package, and provides a strong additional incentive to continue increasing shareholder value.

Bonus Opportunity

Each participant will have an opportunity to earn a number of Performance Shares (PS) based upon achievement of corporate financial goals, and may earn additional performance shares if the corporate financial goals are exceeded. Each PS unit represents one share of Stanley Common Stock and, accordingly, the potential value of a participant’s performance award under the Program may change as our stock price changes.

Each participant is allocated a threshold, target and maximum number of PS units based upon assigned percentages of his or her annual base salary at the rate in effect as of January 1, • [year in which award is made]. The initial value of each PS unit is $ • , the average of the high and low price of Stanley stock on • [date on which award is approved].

Your performance award covers the following number of PS units:


	Threshold	Target	Max
% of Pay	•	•	•
# PS	•	•	•

Vesting and Settlement

Performance awards will become vested at the time of settlement to the extent that the applicable performance metrics have been achieved and provided that the participant is continuously employed by Stanley until such time. Performance awards will be settled in shares of Stanley stock as soon as practicable following the end of the measurement

period. The shares will be distributed in the form of restricted stock to the extent the participant does not hold the number of shares specified in the minimum stock ownership guidelines for executives at the time of settlement. Participants will be entitled to vote and receive dividends on restricted stock following the date of distribution.

The Minimum Ownership Guidelines are as follows:


Position		Multiple of Base Salary
CEO		3X
Level 1		2X
Levels 2 and 3		1X

If a participant’s employment with Stanley terminates due to his or her retirement, death or disability prior to the date the performance awards are settled, the participant’s performance award will be pro-rated based on the number of days in the measurement period that the participant was employed by Stanley. The participant’s pro-rated performance award will be settled at the same time as performance awards for active participants are settled, to the extent the applicable performance metrics have been achieved. Pro-rated performance awards will be settled in the form of unrestricted shares of Stanley common stock. A participant whose employment with Stanley terminates prior to the date of settlement for any other reason will forfeit all rights in respect of his or her performance award and will not be entitled to receive any shares of Stanley stock or other payment under the Program.

Financial Measurements

The Corporate financial goals for this Program will consist of two equally weighted metrics, one based on EPS and one based on ROCE, as set forth in the attached document entitled LTIP Corporate Goals.

Although this summary includes the key aspects of the Program, it is not intended to represent a full accounting of the rules and regulations applicable to the Program and is subject to the terms described in the enclosed Terms and Conditions Applicable to Long Term Performance Awards and The Stanley Works 2001 Long-Term Incentive Plan, which together with this document govern the Program. Please note that the Terms and Conditions enclosed here apply to all outstanding Performance Awards.

If you have any questions, please call me, Jim Loree or Mark Mathieu. Once again, thank you for your continued support and congratulations on being selected to participate in this important Program.

Best regards,

Exhibit 10(xii)

January 9, 2009

Donald McIlnay

Re: Agreement and General Release

Dear Don:

The Stanley Works and its subsidiaries and their respective employees, officers, directors and agents (collectively, “Stanley”) and you agree that:

1.		Your last day of employment with Stanley was December 31, 2008 (“last day worked”).

2.		Provided (i) Stanley receives this Agreement and General Release (this “Agreement”) executed by you no later than 21 days after your last day worked, (ii) Stanley receives the letter from you in the form attached hereto as Exhibit A after the Revocation Period (as hereinafter defined) has expired, and (iii) Stanley receives back from you any of Stanley’s property you may have in your possession or control, then, in consideration of your execution of the Agreement, Stanley agrees to pay and/or provide you with the following:

	(a)		Stanley will pay you at the monthly rate of $35,833.33, less lawful deductions, paid from January 1, 2009, through December 31, 2009, on the regular payday applicable to salaried employees beginning on the first payroll period after the end of the Revocation Period but in no event earlier than January 15, 2009, and ending in December 2009. These payments include all entitlements you may have under any Stanley policy, including those covering vacation and or severance pay.

	(b)		You will continue to participate in the Stanley Account Value Plan through your last day worked, in accordance with the terms of the plans, subject to any amendments that are made to the plans including termination of the plans, or replacement of the plans with another plan.

	(c)		You will continue to participate in Stanley’s Accidental Death and Dismemberment Plan at your current level of basic coverage through the end of the month in which the payments outlined in section 2(a) are made, provided you continue to make the required contributions.

	(d)		You will remain a participant in the Executive Life Insurance Plan through March 31, 2009, and will then have the same rights under such plan commonly provided retiring employees. Stanley will make a final funding payment in April 2009 to fund your retiree life insurance benefit as per the policy provisions.

	(e)		You will continue to receive medical and dental coverage through the end of the month in which the payments outlined in section 2(a) are made, provided you continue to make the required contributions. At that time you will be eligible for retiree coverage, or you may exercise your COBRA rights. Regardless of which option you choose, you will pay 100% of the cost of any selected coverage.

	(f)		Your group short and long term disability coverage will cease on your last day worked. There are no conversion privileges for either of these plans. You may, however, choose to continue the individual component of your Supplemental Individual Executive LTD policy, under the terms of the policy. A representative from Wealth Management will contact you directly to discuss your payment options.

	(g)		You will be eligible for a full payment, if any such payment is due to you under the 2008 Management Incentive Compensation Plan, payable in 2009. Such payment, if any, shall be made in accordance with the terms of the 2008 Management Incentive Compensation Plan. You shall not be a participant in such plan beyond your last day worked.

	(h)		You will be a participant in the Restricted Share Unit Plan (“RSU”), Stock Option Plan (“SOP”), and LTIP Plan (“LTIP”) through your last day worked, and Stanley will grant you additional service credit so you will be considered a retiree for purposes of the SOP, RSU, and LTIP plans on your last day worked for all options or RSU’s, including LTIP awards, granted to you. As a retiree, as provided in the grant documents, your LTIP awards will be pro-rated based on the number of days in the measurement period that you were employed by Stanley for each of the 2006-2008, 2007-2009 and 2008-2010 performance award periods. In each case, your award will be settled, in the form of unrestricted shares of Stanley stock, when awards for active participants under each LTIP are settled. As a retiree under the SOP, you shall have until ten years after the grant of any stock options to exercise such options, under the terms of the plan.

	(i)		You will remain eligible to participate in the Stanley Employee Stock Purchase Plan through your last day worked. You may continue to sell any stock in your employee account through the transfer agent, even after your last day worked.

	(j)		You may continue to use your Stanley-provided automobile through July 31, 2009. At that point, you may either purchase the vehicle for $21,785 plus tax, registration and a $175.00 processing fee or you may instead return it to Stanley by the close of business on July 31, 2009.

	(k)		You will continue to participate in the existing Executive Financial Planning program up through and including the 2009 income tax year. You must make any requests for reimbursement under this plan must on or before May 6,

			2010. All reimbursements shall be made in accordance with the Reimbursement Rules (as hereinafter defined).

	(l)		Stanley will not contest your receipt of unemployment compensation benefits.

3.		You understand and agree that you would not receive any of the payments and benefits specified in sections 2(a) through (l) above except for your execution of this Agreement and your fulfillment of the promises contained herein.

4.		You understand that you may revoke this Agreement for a period of seven business days following the day you execute it (the “Revocation Period”) and that this Agreement will not become effective or enforceable until such Revocation Period has expired. Any revocation within this period must be submitted, in writing, to the Corporate Director, Employee Relations, The Stanley Works, 1000 Stanley Drive, New Britain, CT 06053, and state, “I hereby revoke my acceptance of the Agreement and General Release.” Such revocation must be personally delivered, or mailed by certified mail, within seven business days of execution of this Agreement to the Corporate Director, Employee Relations.

5.		You hereby release and discharge Stanley of and from any and all debts, obligations, claims, demands, judgments or causes of action of any kind whatsoever, known or unknown, in tort, contract, by statute or on any other basis, for equitable relief, compensatory, punitive or other damages, expenses (including attorneys’ fees), reimbursements of costs of any kind, including but not limited to, any and all claims, demands, rights and/or causes of action, including those which might arise out of allegations relating to a claimed breach of an alleged oral or written employment contract, or relating to purported employment discrimination or civil rights violations, such as, but not limited to, those arising under Title VII of the Civil Rights Act of 1964 (42 U.S.C. §§2000e et seq .), the Civil Rights Acts of 1866 and 1871 (42 U.S.C. §§1981 and 1983), Executive Order 11246, as amended, the Age Discrimination in Employment Act (29 U.S.C. §621 et seq .), the Employee Retirement Income Security Act of 1974, the Equal Pay Act of 1963 (29 U.S.C. §206(d)(1)), the Civil Rights Act of 1991, the Americans with Disabilities Act, all statutory provisions of the Connecticut General Statutes over which the Connecticut Commission on Human Rights and Opportunities is authorized to exercise jurisdiction, or any other applicable federal, state, or local employment discrimination statute or ordinance, which you, your executors, administrators, successors, and assigns might have or assert against Stanley (a) by reason of any event which occurred on or before the time of execution of this Agreement, in connection your employment by Stanley, or the termination of such employment, and all circumstances related thereto, or (b) by reason of any matter, cause or thing whatsoever which may have occurred on or before the to the time of execution of this Agreement. However, it is expressly agreed and understood by the parties that this Agreement does not release any ERISA or pension benefits, which are governed by the plan documents and applicable law, or those benefits and privileges set out in paragraphs 2(a) through 2(k) of this Agreement, and that you do not waive or release any right to pension benefits or other benefits governed by ERISA or to those benefits and privileges set out in paragraphs 2(a) through 2(k) of

		this Agreement. Nothing in this Agreement prevents you from enforcing the terms and conditions of this Agreement.

6.		You waive your right to file any charge or complaint, except as such waiver is prohibited by law, and agree that you will not accept any relief or recovery from any charge or complaint against Stanley before any federal, state, or local administrative agency. You further waive all rights to file any action before any federal, state, or local court against Stanley. You confirm that no charge, complaint, or action exists in any forum or form. Except as prohibited by law, in the event that any such claim is filed, it shall be dismissed with prejudice upon presentation hereof and you shall reimburse Stanley for the costs, including attorney’s fees, of defending any such action.

7.		You agree not only to release Stanley from any and all claims as stated above which you could make on your own behalf, but also those which may be made by any other person or organization on your behalf. You specifically waive any right to become, and promise not to become, a member of any class in a case in which a claim against Stanley is made involving any events up to and including the date of this Agreement, except where such waiver is prohibited by law. You further agree not to in any way voluntarily assist or cooperate with any individual or entity in commencing or prosecuting any action or proceeding against Stanley including, but not limited to, any charges, complaints, or administrative agency claims, except as prohibited by law.

8.		You further agree to the following confidentiality and non-disclosure provisions:

	(a)		With respect to any secret or confidential information obtained by you during your employment at Stanley, you will not disclose or use for any purpose any such secret or confidential information. For purposes hereof, secret or confidential information includes any process, technique, formula, recipe, drawing, apparatus, method for or result of cost calculation, result of any investigation or experiment made by or on behalf of Stanley, and any sales, production or other competitive information, acquired by you during the course of your employment by Stanley and all other information that Stanley itself does not disclose to the public.

	(b)		You further agree that any work, design, discovery, invention or improvement conceived, made, developed or received by you during the period of your employment with Stanley, which relates to the actual or anticipated (as of the date hereof) business, operations or research of Stanley, including but not limited to any process, art, machine, manufacture, materials or composition of matter, which could be manufactured or used by Stanley, whether patentable or not, is the sole property of Stanley. The terms invention and improvement as used herein, in addition to their customary meaning, shall mean creative concepts and ideas relating to advertising, marketing, promotional and sales activities.

	(c)		You further agree that you have assigned or hereby do assign to Stanley or its designee all right, title and interest in any or to any idea, work, design, discovery, invention or improvement made or created during your employment at Stanley and to any application for letters patent or for trademark registration made thereon, and to any common law or statutory copyright therein, and that you will cooperate with Stanley in order to enable it to secure any patent, trademark, copyright, or other property right therefor in the United States or any foreign country, and any division, renewal, continuation or continuation-in-part thereof, or for any reissue of any patent issued thereon.

	(d)		You also agree that Stanley has all rights to, possession of, and all title in and to, all electronic files, papers, documents and drawings, including copies thereof, which you may have originated or which came into your possession during your employment with Stanley and which related to the business of Stanley, regardless of whether such electronic files, papers, documents and drawings are kept at your office, at your home or somewhere else, without retaining any copies thereof, except for any personnel, benefit or compensation information of a personal nature and any general business reference materials or documents which do not contain any confidential or proprietary information.

	(e)		You also agree that, unless Stanley otherwise consents in writing, during the period you receive any payment outlined in section 2(a) above you will not work in any capacity for any company, or as a consultant or independent contractor for any company, engaged in the sale or manufacture of consumer or industrial hand tools that compete with consumer or industrial hand tools being offered by Stanley as of December 31, 2008. Further, you agree that, unless Stanley otherwise consents in writing, you will not directly engage in the sale or manufacture of consumer or industrial hand tools that compete with consumer or industrial hand tools being offered by Stanley as of December 31, 2008 during such period.

	(f)		In addition, you agree that you will not solicit any Stanley employees for any employment purpose for a period of two years following your execution of this Agreement.

9.		You agree that you will not make any disparaging remarks or demeaning comment, of any kind or nature, regarding Stanley or any of its officers, directors, agents or employees.

10.		You understand and agree that Stanley’s policies and Business Conduct Guidelines prohibit disclosing, even casually, confidential information and also prohibit defaming directors, officers and employees of Stanley. You represent and warrant that, except for copies of postings attached hereto, if any, you have not posted any message on an internet message board or chat room that refers to Stanley or that reveals any Stanley confidence or defames or disparages Stanley or any of its officers,

		directors, agents or employees. You agree that if the foregoing representation is not true in every respect or if you subsequently make any such posting, this Agreement will have been materially breached by you and Stanley will have no further obligation to provide any of the payments or benefits referred to in paragraph 2 and you will be liable for damages (both compensatory and punitive) as a result of the injury incurred by Stanley as a result any such posting.

11.		All disputes and controversies of every kind and nature between the parties to this Agreement arising out of or in connection with this Agreement as to the existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation, breach, continuance, or termination of this Agreement shall be submitted to and determined by arbitration pursuant to the procedure set forth in this Agreement.

		Either party may demand such arbitration by notice (“notice procedure”: if to Stanley, sent to the attention of the Corporate Director, Employee Relations, by fax (860-827-3532) and confirmed by UPS overnight express or a comparable service sent to Corporate Director, Employee Relations, 1000 Stanley Drive, New Britain, CT 06053; and if to you, sent to you at your address set forth at the beginning of this Agreement by UPS overnight express or a comparable service) in writing sent within 90 days after the time the demanding party becomes aware, or should have become aware, that a controversy exists. Within 30 days after such demand has been sent, the demanding party will request in writing (with a copy to the other party sent in accordance with the “notice procedure”) the Arbitration Committee of the American Arbitration Association to name an arbitrator to hear the dispute in the New Britain, CT area.

		An award rendered by the arbitrator appointed under this section shall be final and binding on all parties to the proceeding, and judgment on such award may be entered by either party in the highest court, state or federal, having jurisdiction. Nothing contained in this Agreement shall be deemed to give the arbitrator any authority, power, or right to alter, change, amend, modify, add to, or subtract from any of the provisions of this Agreement.

		The arbitration costs and expenses (including legal fees) of each party will be borne by the losing party.

12.		You will not apply in the future for any employment with Stanley.

13.		This Agreement is made in the State of Connecticut and shall be interpreted under the laws of such State. If any portion of this Agreement is declared illegal or unenforceable and cannot be modified to be enforceable, including the general release language, such portion shall immediately become void, leaving the remainder of this Agreement in full force and effect. However, if in any proceeding it is asserted by you or anyone else on your behalf and with your approval that any portion of the general release language of paragraphs 5, 6, or 7 is unenforceable and any portion of

		such language is, in fact, ruled to be unenforceable in such proceeding for any reason, you will return the consideration paid hereunder to Stanley.

14.		You agree that neither this Agreement nor the furnishing of the consideration for this Agreement will be deemed or construed at anytime for any purpose as an admission by Stanley of any liability or unlawful conduct of any kind.

15.		This Agreement may not be modified, altered or changed except by you and Stanley in a writing that specifically references this Agreement. This Agreement sets forth the entire agreement between you and Stanley, and fully supersedes any prior agreements or understandings between us.

16.		Notwithstanding any provisions of this Agreement to the contrary, if you are a “ specified employee ” (within the meaning of Section 409A of the Internal Revenue Code (“the Code”) and determined pursuant to procedures adopted by Stanley) at the time of your separation from service and if any portion of the payments or benefits to be received by you upon separation from service would be considered deferred compensation under Section 409A of the Code, amounts that would otherwise be payable pursuant to this Agreement during the six-month period immediately following your 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 your 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 your separation from service or (ii) your death (the applicable date, the “Permissible Payment Date”).

		With respect to any amount of expenses eligible for reimbursement under this Agreement, including the preceding paragraph, such expenses shall be reimbursed by Stanley within thirty (30) calendar days following the date on which Stanley receives the applicable invoice from you but in no event later than December 31 of the year following the year in which you incur the related expenses (the “Reimbursement Rules”); provided , however , 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 Stanley in one taxable year affect the amount of reimbursements or in-kind benefits to be provided in any other taxable year, nor shall your right to reimbursement or in-kind benefits be subject to liquidation or exchange for another benefit.

		To the extent applicable, it is intended that this Agreement and any payments made and benefits provided hereunder comply with the provisions of Section 409A of the Code, so that the income inclusion provisions of Section 409A(a)(1) of the Code do not apply to you. This Agreement and any payments and benefits granted hereunder shall be administered in a manner consistent with this intent. Any reference in this Agreement to Section 409A of the Code will also include any regulations or any other

		formal guidance promulgated with respect to such Section by the U.S. Department of the Treasury or the Internal Revenue Service.

		You shall be solely responsible and liable for the satisfaction of all taxes and penalties that may be imposed on you or for your account in connection with this Agreement and any payments or benefits provided hereunder (including any taxes and penalties under Section 409A of the Code), and neither Stanley nor any of its affiliates shall have any obligation to indemnify or otherwise hold you harmless from any or all of such taxes or penalties.

		Each payment under this Plan shall be considered a “separate payment” and not of a series of payments for purposes of Section 409A of the Code.

THE PARTIES HAVE READ AND FULLY CONSIDERED THIS AGREEMENT AND GENERAL RELEASE AND ARE MUTUALLY DESIROUS OF ENTERING TO THIS AGREEMENT AND GENERAL RELEASE. THE TERMS OF THIS AGREEMENT AND GENERAL RELEASE ARE THE PRODUCT OF MUTUAL NEGOTIATION AND COMPROMISE BETWEEN STANLEY AND YOU; YOU UNDERSTAND THAT THIS AGREEMENT AND GENERAL RELEASE SETTLES, BARS, AND WAIVES ANY AND ALL CLAIMS THAT YOU HAVE OR COULD POSSIBLY HAVE AGAINST STANLEY, OTHER THAN THOSE SPECIFICALLY RESERVED IN PARAGRAPH 5 OF THIS AGREEMENT. YOU HAVE BEEN AFFORDED AT LEAST 21 DAYS TO CONSIDER THIS AGREEMENT AND GENERAL RELEASE AND HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY. HAVING SUBSEQUENTLY ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES SET FORTH HEREIN, AND TO RECEIVE THEREBY THE SUMS AND BENEFITS SET FORTH IN PARAGRAPHS 2(a) THROUGH 2(l) ABOVE, YOU FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTER INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS YOU HAVE OR MIGHT HAVE AGAINST STANLEY, OTHER THAN THOSE SPECIFICALLY RESERVED IN PARAGRAPH 5 OF THIS AGREEMENT.

You and Stanley now voluntarily and knowingly execute this Agreement.




	Donald McIlnay

Signed and sworn before me this ____ day of ________, 2009.

(Notary Public/Commissioner of the Superior Court)


	THE STANLEY WORKS:
	By:
		Mark Mathieu
		Vice President, Human Resources

Signed and sworn before me this _______ day of ___________, 2009.

(Notary Public/Commissioner of the Superior Court)

EXHIBIT A



		Date

Mona Zdun
The Stanley Works
1000 Stanley Drive
New Britain, CT 06053

RE: Agreement and General Release

Dear Mona:

On _______________ 2009, I executed an Agreement and General Release (the “Agreement”) between The Stanley Works and me. Stanley advised me, in writing, to consult with an attorney of my choosing prior to executing the Release.

More than 7 days have elapsed since I executed the Agreement. I have never revoked my acceptance or execution of the Agreement and hereby reaffirm my acceptance of the Agreement. Therefore, in accordance with the terms of the Agreement, I hereby request payment or provision, as applicable, of the benefits described in paragraphs 2(a) through 2(l) of the Agreement.

Very truly yours,

Donald McIlnay

EXHIBIT B



		Date

Mark Mathieu
Vice President, Human Resources
The Stanley Works
1000 Stanley Drive
New Britain. CT 06053

RE: Resignation

Dear Mark:

I hereby confirm that I resigned my office of President Tools & Emerging Markets, effective December 31, 2008.

Further, effective December 31, 2008, I resigned all offices and directorships that I hold with The Stanley Works, and any and all of its subsidiaries and divisions.

Very truly yours,

Donald McIlnay

Exhibit 10(xiv)

Form A

AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT

++++++++++++

AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT

THIS AMENDED AND RESTATED AGREEMENT (the “Agreement”), dated __________________, 2008 is made by and between The Stanley Works, a Connecticut corporation (the “Company”), and __________________ (the “Executive”).

WHEREAS, the Company is currently a party to a Change in Control Severance Agreement with the Executive dated [ __________________ ] (the “Prior Agreement”);

WHEREAS, the parties wish to amend 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 shall commence on the date hereof and shall continue in effect through the second anniversary hereof; provided, however, that commencing on __________________and each __________________ thereafter, the Term shall automatically be extended for one additional year unless, not later than ninety (90) calendar days prior to such __________________, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.

Agreement unless there shall have been (or, under the terms of the second sentence of Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive’s employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.

4. The Executive’s Covenants . The Executive agrees that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control during the Term, the Executive will remain in the employ of the Company until the earliest of (i) a date which is six (6) months from the date of such Potential Change in Control, (ii) the date of a Change in Control, (iii) the date of termination by the Executive of the Executive’s employment for Good Reason or by reason of death, Disability or Retirement, or (iv) the termination by the Company of the Executive’s employment for any reason.

5. Compensation Other Than Severance Payments .

5.1 Following a Change in Control and during the Term, during any period that the Executive fails to perform the Executive’s full-time duties with the Company as a result of incapacity due to physical or mental illness, the Company shall pay the Executive’s full salary to the Executive at the rate in effect at the commencement of any such period, together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by the Company during such period (other than any disability plan), until the Executive’s employment is terminated by the Company for Disability.

5.2 If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay the Executive’s full salary to the Executive through the Date of Termination at the rate in effect immediately prior to the Date of Termination or, if higher, the rate in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, together with all compensation and benefits payable to the Executive through the Date of Termination under the terms of the Company’s compensation and benefit plans, programs or arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason.

5.3 If the Executive’s employment shall be terminated for any reason following a Change in Control and during the Term, the Company shall pay to the Executive the Executive’s normal post-termination compensation and benefits as such payments become due. Such post-termination compensation and benefits shall be determined under, and paid in accordance with, the Company’s retirement, insurance and other compensation or benefit plans, programs and arrangements as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the occurrence of the first event or circumstance constituting Good Reason.

6. 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, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to three times the sum of (i) the Executive’s base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the average annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by the Company in respect of the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason.

(B) For the thirty-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 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. 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.

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.

(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 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 immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason (including, without limitation, automobile, financial planning, annual physical and executive whole life insurance).

Payment, being hereinafter referred to as the “Total Payments”) will be subject to the Excise Tax, the Company shall pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out, if any, of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments. The Company’s obligation to make the Gross-Up Payment under this Section 6.2 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, the Executive’s estimated actual blended marginal rate of federal, state and local income taxation in the calendar year in which the Date of Termination occurs shall be utilized (or if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of this Section 6.2). Such marginal rate shall be determined by taking into account (i) the estimated actual net effect on the marginal rate attributable to the deduction of state and local income taxes, (ii) the phase out, if any, of itemized deductions, (iii) the estimated actual net tax rate attributable to any employment taxes, and (iv) any other tax provision that in the judgment of the Auditor will actually affect Executive’s estimated actual blended marginal tax rate.

hereunder in calculating the Gross-Up Payment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined, but in no event later than December 31 of the year following the year in which the applicable taxes are remitted. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

6.3 Subject to Section 6.4, the payments provided in subsections (A), (C) and (D) of Section 6.1 hereof and in Section 6.2 hereof shall be made not later than the fifth (5 ^th ) business day following the Date of Termination (or, with respect to the payment to be made pursuant to Section 6.2, if there is no Date of Termination, then the date on which the Gross-Up Payment is calculated for purposes of Section 6.2 hereof but in no event later than December 31 of the year following the year in which the applicable taxes are remitted); provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to the Executive on such day an estimate, as determined in good faith by the Company or, in the case of payments under Section 6.2 hereof, in accordance with Section 6.2 hereof, of the minimum amount of such payments to which the Executive is clearly entitled and shall pay the remainder of such payments (together with interest on the unpaid remainder (or on all such payments to the extent the Company fails to make such payments when due) at 120% of the rate provided in section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth (30th) calendar day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall be payable by the Executive to the Company on the fifth (5th) business day after demand by the Company (together with interest at 120% of the rate provided in section 1274(b)(2)(B) of the Code). At the time that payments are made under this Agreement, the Company shall provide the Executive with a written statement setting forth the manner in which such payments were calculated and the basis for such calculations including, without limitation, any opinions or other advice the Company has received from Tax Counsel, the Auditor or other advisors or consultants (and any such opinions or advice which are in writing shall be attached to the statement). Notwithstanding any other provision of this Section 6, the Company may, in its sole discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing authority, for the benefit of Executive, all or any portion of any Gross-Up Payment, and Executive hereby consents to such withholding.

the “Delay Period”) shall instead be paid or made available on the earlier of (i) the first (1 ^st ) business day of the seventh month following the date of the Executive’s separation from service or (ii) Executive’s death (the applicable date, the “Permissible Payment Date”). The Company shall also reimburse the Executive for the after-tax cost incurred by the Executive in independently obtaining any Delayed Benefits (the “Additional Delayed Payments”).

(B) With respect to any amount of expenses eligible for reimbursement under Sections 6.1 (B), (E) and (G), such expenses shall be reimbursed by the Company within thirty (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 (5 ^th ) business day following the occurrence of a Potential Change in Control. The Company shall deposit additional amounts into the Grantor Trust on a 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 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 is required to include a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board which was called and held for the purpose of considering such termination (after reasonable notice to the Executive and an opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive was guilty of conduct set forth in clause (i) or (ii) of the definition of Cause herein, and specifying the particulars thereof in detail.

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 thirtieth (30 ^th ) calendar day after the Notice of Termination is given (except in the case of a termination for Cause) 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 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) While the Executive is in the employment of the Company and, if the Executive is entitled to benefits under Section 6.1 hereof upon termination of employment, for a period of twenty-four (24) months after such termination of employment (the “Non-Competition Period”), the Executive shall not, without the express written consent of the Company, in the United States of America, directly or indirectly (i) enter into the employ of or render any services to any person, firm or corporation engaged in any Competitive Business; (ii) engage in any Competitive Business for his own account or (iii) become interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, consultant, advisor or in any other relationship or capacity; provided, however, that nothing contained in this Section shall be deemed to prohibit the Executive from acquiring, solely as an investment through market purchases, securities of any corporation which are registered under Section 12 of the Exchange Act and which are publicly traded so long as he is not part of any group in control of such corporation.

(B) The Executive agrees that during the Non-Competition Period or in connection with any termination of employment pursuant to which the Executive is entitled to benefits under Section 6.1, the Executive will not, either directly or through any agent or employee, Solicit any employee of the Company or any of its Subsidiaries to terminate his or her relationship with the Company or any of its Subsidiaries or to apply for or accept employment with any enterprise competitive with the business of the Company, or Solicit any customer, supplier, licensee or vendor of the Company or any of its Subsidiaries to terminate or materially modify its relationship with them, or, in the case of a customer, to conduct with any person any business or activity which such customer conducts or could conduct with the Company or any of its Subsidiaries.

documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its Subsidiaries and any copies, in whole or in part, thereof (the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company and its Subsidiaries. The Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in the Executive’s possession or control.

(D) 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 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 inserted below the Executive’s signature on the final page hereof 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: Corporate Secretary

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 supersedes the agreement by and between the Company and the Executive dated __________________ and any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that (1) this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive’s employment with the Company only in the event that the Executive’s employment with the Company is terminated on or following a Change in Control (or deemed to have been so terminated), by the Company other than for Cause or by the Executive for Good Reason and (2) to extent this Agreement does not supersede any agreement referred to in clause (1), 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 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.

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

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

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

(G) “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, monetarily or otherwise. 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.

(H) 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;

(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.

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

(J) “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.

(K) “Competitive Business” shall mean any line of business that is substantially the same as any line of any operating business engaged in by the Company during the term of this Agreement and which at the termination of the Executive’s employment the Company was engaged in or conducting and which during the fiscal year of the Company next preceding the date as of which the determination of competitive status is to be made constituted at least 5% of the gross sales of the Company and its Subsidiaries. The Executive may, without being deemed in violation of this section, become a partner or employee of, or otherwise acquire an interest in, a stock or business brokerage firm, consulting or advisory firm, investment banking firm or similar organization which, as part of its business, trades or invests in securities of Competitive Businesses or which represents or acts as agent or advisor for Competitive Businesses, but only on condition that the Executive shall not personally render any services in connection with such Competitive Business either directly to such Competitive Business or other persons or to his firm in connection therewith.

(L) “Confidential Information” means any and all information of the Company and its Subsidiaries that is not generally known by others with whom they compete or do business, or with whom they plan to compete or do business and any and all information not readily available to the public, which, if disclosed by the Company or its Subsidiaries could reasonably be of benefit to such person or business in competing with or doing business with the Company. Confidential Information includes without limitation such information relating to (1) the development, research, testing, manufacturing, store operational processes, marketing and financial activities, including costs, profits and sales, of the Company and its Subsidiaries, (2) the products and all formulas therefor, (3) the costs, sources of supply, financial performance and strategic plans of the Company and its Subsidiaries, (4) the identity and special needs of the customers and suppliers of the Company and its Subsidiaries and (5) the people and organizations with whom the Company and its Subsidiaries have business relationships and those relationships. Confidential Information also includes comparable information that the Company or any of its Subsidiaries have received belonging to others or which was received by the Company or any of its Subsidiaries with an agreement by the Company that it would not be disclosed. Confidential Information does not include information which (i) is or becomes available to the public generally (other than as a result of a disclosure by the Executive), (ii) was within the Executive’s possession prior to the date hereof or prior to its being furnished to the Executive by or on behalf of the Company, provided that the source of such information was not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or any other party with respect to such information, (iii) becomes available to the Executive on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with or other contractual, legal or fiduciary obligation of confidentiality to the Company or

any other party with respect to such information, or (iv) was independently developed the Executive without reference to the Confidential Information.

(M) “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 or agreement 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.

(N) “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.

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

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

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

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

(S) “Disability” shall be deemed the reason for the termination by the Company of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness, the Executive shall have been absent from the full-time performance of the Executive’s duties with the Company for a period of six (6) consecutive months, the Company shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) calendar days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive’s duties.

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

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

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

(W) “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 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;

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; or

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

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.

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

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

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

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

(BB) “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.

(CC) “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.

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

(EE) “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.

(FF) “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.

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

(HH) “Solicit” means any direct or indirect communication of any kind whatsoever (other than non-targeted general advertisements), regardless of by whom initiated, inviting, advising, encouraging or requesting any person or entity, in any manner, with respect to any action.

(II) “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.

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

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

(LL) “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:
		Title:



	EXECUTIVE

	Address:

Exhibit 10(xv)

Form B

AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT

++++++++++++

AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT

WHEREAS, the Company is currently a party to a Change in Control Severance Agreement with the Executive dated [ __________________ ] (the “Prior Agreement”);

WHEREAS, the parties wish to amend the Prior Agreement for purposes of compliance with the requirements of section 409A;

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Company and the Executive hereby agree as follows:

1. Defined Terms . The definitions of capitalized terms used in this Agreement are provided in the last Section hereof.

2. Term of Agreement . The Term of this Agreement shall commence on the date hereof and shall continue in effect through the second anniversary hereof; provided, however, that commencing on __________________ and each __________________ thereafter, the Term shall automatically be extended for one additional year unless, not later than ninety (90) calendar days prior to such __________________, the Company or the Executive shall have given notice not to extend the Term; and further provided, however, that if a Change in Control shall have occurred during the Term, the Term shall expire no earlier than twenty-four (24) months beyond the month in which such Change in Control occurred.

Section 6.1 hereof, there shall be deemed to have been) a termination of the Executive’s employment with the Company following a Change in Control and during the Term. This Agreement shall not be construed as creating an express or implied contract of employment and, except as otherwise agreed in writing between the Executive and the Company, the Executive shall not have any right to be retained in the employ of the Company.

5. Compensation Other Than Severance Payments .

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 Section 5 and 6 of this Agreement (other than the last sentence of Section 6.2(A)), no payment that would otherwise be made and no benefit that would otherwise be provided upon a termination of employment will be made or provided unless and until such termination of employment is also a “separation from service,” as determined in accordance with section 409A.

(A) In lieu of any further salary payments to the Executive for periods subsequent to the Date of Termination and in lieu of any severance benefit otherwise payable to the Executive, the Company shall pay to the Executive a lump sum severance payment, in cash, equal to two and one-half times the sum of (i) the Executive’s base salary as in effect immediately prior to the Date of Termination or, if higher, in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (ii) the average annual bonus earned by the Executive pursuant to any annual bonus or incentive plan maintained by the Company in respect of the three fiscal years ending immediately prior to the fiscal year in which occurs the Date of Termination or, if higher, immediately prior to the fiscal year in which occurs the first event or circumstance constituting Good Reason.

pursuant to this Section 6.1(B) shall be reduced to the extent benefits of the same type are received by or made available to the Executive during the thirty (30) month period following the Executive’s termination of employment (and any such benefits received by or made available to the Executive shall be reported to the Company by the Executive); provided, however, that the Company shall promptly reimburse the Executive for the excess, if any, of the after tax cost of such benefits to the Executive over such cost immediately prior to the Date of Termination or, if more favorable to the Executive, the first occurrence of an event or circumstance constituting Good Reason.

(C) In addition to the retirement benefits, if any, to which the Executive is entitled under each DB Pension Plan or any successor plan thereto, the Company shall pay the Executive a lump sum amount, in cash, equal to the excess of (i) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than two and one-half (2.5) years following the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive would have accrued under the terms of all DB Pension Plans (without regard to any amendment to any DB Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of retirement benefits thereunder), determined as if the Executive were fully vested thereunder and had accumulated (after the Date of Termination) thirty (30) additional months of age and service credit thereunder and had been credited under each DB Pension Plan during such period with compensation equal to the Executive’s compensation (as defined in such DB Pension Plan) during the twelve (12) months immediately preceding Date of Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, over (ii) the actuarial equivalent of the aggregate retirement pension (taking into account any early retirement subsidies associated therewith and determined as a straight life annuity commencing at the date (but in no event earlier than the Date of Termination) as of which the actuarial equivalent of such annuity is greatest) which the Executive had accrued pursuant to the provisions of the DB Pension Plans as of the Date of Termination. For purposes of this Section 6.1(C), “actuarial equivalent” shall be determined using the same assumptions utilized under The Stanley Works Retirement Plan immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason. The payments provided in this Section 6.1(C) are in addition to any payment the Executive would otherwise receive under the applicable DB Plan and are not intended to offset or reduce any payment under such DB Plan.

Termination or, if higher, during the twelve months immediately prior to the first occurrence of an event or circumstance constituting Good Reason, and (z) without regard to any amendment to the DC Pension Plan made subsequent to a Change in Control and on or prior to the Date of Termination, which amendment adversely affects in any manner the computation of benefits thereunder, and (ii) the excess, if any, of (x) the Executive’s account balance under the DC Pension Plan as of the Date of Termination over (y) the portion of such account balance that is nonforfeitable under the terms of the DC Pension Plan. The payments provided in this Section 6.1(D) are in addition to any payment the Executive would otherwise receive under the applicable DC Plan and are not intended to offset or reduce any payment under such DC Plan.

(E) If the Executive would have become entitled to benefits under the Company’s post-retirement health care or life insurance plans, as in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as in effect immediately prior to the first occurrence of an event or circumstance constituting Good Reason, had the Executive’s employment terminated at any time during the period of thirty (30) months after the Date of Termination, the Company shall provide such post-retirement health care and/or life insurance benefits to the Executive and the Executive’s dependents commencing on the later of (i) the date on which such coverage would have first become available and (ii) the date on which benefits described in subsection (B) of this Section 6.1 terminate.

(F) The Company shall provide the Executive with third-party outplacement services suitable to the Executive’s position for the period following the Executive’s Date of Termination and ending on December 31 of the second calendar year following such Date of Termination or, if earlier, until the first acceptance by the Executive of an offer of employment, provided , however , that in no case shall the Company be required to pay in excess of $50,000 over such period in providing outplacement services and that all reimbursements hereunder shall be paid to the Executive within thirty (30) calendar days following the date on which the Executive submits the invoice but no later than December 31 of the third year following the year of the Executive’s Date of Termination.

(G) For the thirty (30) month period immediately following the Date of Termination or until the Executive becomes eligible for substantially similar benefits from a new employer, whichever occurs earlier, the Company shall continue to provide the Executive with all perquisites provided by the Company immediately prior to the Date of Termination or, if more favorable to the Executive, immediately prior to the first occurrence of an event or circumstance constituting Good Reason (including, without limitation, automobile, financial planning, annual physical and executive whole life insurance).

Tax, the Company shall pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income and employment taxes and Excise Tax upon the Gross-Up Payment, and after taking into account the phase out, if any, of itemized deductions and personal exemptions attributable to the Gross-Up Payment, shall be equal to the Total Payments. The Company’s obligation to make the Gross-Up Payment under this Section 6.2(A) shall not be conditioned upon Executive’s termination of employment.

existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional Gross-Up Payment in respect of such excess (plus any interest, penalties or additions payable by the Executive with respect to such excess) within five (5) business days following the time that the amount of such excess is finally determined, but in no event later than December 31 of the year following the year in which the applicable taxes are remitted. The Executive and the Company shall each reasonably cooperate with the other in connection with any administrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Total Payments.

6.4 (A) Notwithstanding any provisions of this Agreement to the contrary, if the Executive is a “specified employee” (within the meaning of section 409A and determined pursuant to procedures adopted by the Company) at the time of his separation from service and if any portion of the payments or benefits to be received by the Executive upon separation from service would be considered deferred compensation under section 409A, amounts that would otherwise be payable pursuant to this Agreement during the six-month period immediately following the Executive’s separation from service (the “Delayed Payments”) and benefits that would otherwise be provided pursuant to this Agreement (the “Delayed Benefits”) during the six-month period immediately following the Executive’s separation from service (such period, the “Delay Period”) shall instead be paid or made available on the earlier of (i) the first (1 ^st )

business day of the seventh month following the date of the Executive’s separation from service or (ii) Executive’s death (the applicable date, the “Permissible Payment Date”). The Company shall also reimburse the Executive for the after-tax cost incurred by the Executive in independently obtaining any Delayed Benefits (the “Additional Delayed Payments”).

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 .

7.2 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 thirtieth (30 ^th ) calendar day after Notice of Termination is given (except in the case of a termination for Cause) 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).

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:

(C) The Executive acknowledges that the Company and its Subsidiaries continually develop Confidential Information, that the Executive may develop Confidential Information for the Company or its Subsidiaries and that the Executive may learn of Confidential Information during the course of his employment under this Agreement. The Executive will comply with the policies and procedures of the Company and its Subsidiaries for protecting Confidential Information and shall never disclose to any person (except as required by applicable law or legal process or for the proper performance of his duties and responsibilities to the Company and its Subsidiaries, or in connection with any litigation between the Company and the Executive (provided that the Company shall be afforded a reasonable opportunity in each case to obtain a protective order)), or use for his own benefit or gain, any Confidential Information obtained by the Executive incident to his employment or other association with the Company or any of its Subsidiaries. The Executive understands that this restriction shall continue to apply after his employment terminates, regardless of the reason for such termination. All documents, records, tapes and other media of every kind and description relating to the business, present or otherwise, of the Company or its Subsidiaries and any copies, in whole or in part, thereof (the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company and its Subsidiaries. The

Executive shall safeguard all Documents and shall surrender to the Company at the time his employment terminates, or at such earlier time or times as the Board or its designee may specify, all Documents then in the Executive’s possession or control.

10. Successors; Binding Agreement .

To the Company:

The Stanley Works
1000 Stanley Drive
New Britain, Connecticut 06053
Attention: Corporate Secretary

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 supersedes the agreement by and between the Company and the Executive dated __________________ and any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party; provided, however, that (1) this Agreement shall supersede any agreement setting forth the terms and conditions of the Executive’s employment with the Company only in the event that the Executive’s employment with the Company is terminated on or following a Change in Control (or deemed to have been so terminated), by the Company other than for Cause or by the Executive for Good Reason and (2) to extent this Agreement does not supersede any agreement referred to in clause (1), 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 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.

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.

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.

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

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

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

(H) 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:

becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (III) below; or

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

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 (30) 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.

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

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

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

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

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

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

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

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:

(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 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;

(VIII) breach by the Company of Section 10.1 hereof.