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Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated
August 25, 2006, is between THE CLOROX COMPANY, a Delaware
corporation (the "Company"), and Donald R. Knauss (the
"Executive").
RECITAL
The Company and the Executive want
to enter into a written agreement concerning the terms of the
Executive’s employment with the Company and the terms of the
termination of that employment.
TERMS OF AGREEMENT
1. Term of Employment .
(a) Basic Term . The
term of this Agreement shall commence on the Executive’s
first day of employment with the Company, which date is to be
determined but which shall not be later than December 1, 2006
(the "Effective Date") and end upon the earliest of (such ending
date, the "Date of Termination") (i) the third anniversary
thereof, as and to the extent extended under Section 1(b) (the
"Term Date"), (ii) the date upon which the Executive’s
employment is terminated in accordance with Section 4, and
(iii) the first day of the month following the
Executive’s 65th birthday. In the event that the
Executive’s employment with the Company does not begin on or
before December 1, 2006, this Agreement shall be null and
void.
(b) Extension of Term
. Subject to Section 1(a)(iii) and to Section 4, the Term
Date will be automatically extended for one additional year on the
last day before such Term Date, and for one additional year on each
succeeding anniversary of the Term Date as so extended thereafter,
unless and until either party gives notice to the other party at
least one hundred eighty (180) days before any such extension of
the Term Date would become effective hereunder that the automatic
extension shall cease and that this Agreement shall terminate on
the Term Date occurring after such notice. The Company’s
right not to extend the Agreement shall be with or without Cause
(defined below), and the Company’s exercise of its right not
to extend the Agreement will not necessarily terminate the
Executive’s employment with the Company.
(c) Certain
Definitions .
(i) The
"Average Annual Bonus" shall mean the average annual incentive
bonus that the Executive received for the three (3) completed
fiscal years immediately preceding the Date of Termination, or the
average annual incentive bonus that the Executive received for the
actual number of completed fiscal years immediately preceding the
Date of Termination if less than three (3), under the
Company’s Annual Incentive Plan ("AIP Plan") and/or the
Company’s Executive Incentive Compensation Plan ("EIC Plan"),
provided that the First Year Bonus Target shall be used in the
event that the termination of the Executive’s employment
occurs prior to the date that the Executive receives (or is
entitled to receive, together with other senior executives if
earlier) his annual bonus, if any, for the fiscal year ending
June 30, 2007.
(ii)
"Bonus Target" means the annual bonus that the Executive would have
received in a fiscal year under the AIP Plan and/or the EIC Plan,
if the target goals had been achieved.
(iii)
"First Year Bonus Target" means the Executive’s Bonus Target
as of the Effective Date.
2. Position; Duties; Responsibilities .
(a) Position . The
Company agrees to employ the Executive, and the Executive agrees to
be employed by the Company subject to the terms and conditions of
this Agreement. The Executive shall serve as Chairman of the Board
of Directors of the Company (the "Board") and Chief Executive
Officer ("CEO"), reporting to the Board. As of the Effective Date,
the Board shall appoint the Executive as a member of the Board.
Thereafter, during the term of this Agreement, the Board shall
nominate the Executive for reelection as a member of the Board at
the expiration of each then-current Board term. The Executive shall
devote his best efforts and the equivalent of full time employment
to the performance of the services customarily incident to the
Executive’s current office and to such other services as may
be reasonably requested by the Board, consistent with his offices,
titles and positions. The Company shall retain full direction and
control of the means and methods by which the Executive performs
the above services and of the place(s) at which such services are
to be rendered; provided, the Executive’s principal place of
employment shall be at the Company’s headquarters in Oakland,
California unless he consents to another such place.
(b) Other Activities
. Excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote reasonable
attention and time during normal hours to the business and affairs
of the Company, and to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive’s reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of
this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, provided that with
respect to any corporate board, such service has been pre-approved
by the Presiding Director of the Company, (B) deliver lectures
or fulfill speaking engagements (other than lectures and
engagements pursuant to the discharge of his duties hereunder) or
teach at educational institutions on a part-time basis not to
exceed five hours per week in the aggregate and (C) manage
personal investments, so long as such activities do not
significantly interfere with the performance of the
Executive’s responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the
performance of the Executive’s responsibilities to the
Company.
3. Salary; Incentive Compensation; Benefits; Expenses
.
(a) Salary . In
consideration of the services to be rendered hereunder, including,
without limitation, services to any affiliate of the Company (an
"Affiliated Company"), the Executive shall be paid a base salary at
the annual rate of $950,000 ("Annual Base Salary"),
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payable at the times and pursuant to the procedures regularly
established, and as they may be amended, by the Company during the
course of this Agreement. The Annual Base Salary shall be reviewed
periodically for increase (or decrease to the extent permitted
hereunder) in accordance with the Company’s regular
administrative practice for adjusting salaries of the "Executive
Officers" ( i.e. , the Executive and the other members of
the Management Executive Committee). Thereafter, "Annual Base
Salary" shall mean such annual base salary rate as so increased (or
decreased) from time to time. The Company may reduce the
Executive’s Annual Base Salary only if the annual base
salaries of all other Executive Officers of the Company are at the
same time being similarly reduced and if the percentage of
reduction of the Executive’s Base Salary does not exceed that
of any other Executive Officer.
(b) Annual Incentive
Plan; Executive Incentive Compensation Plan; Long Term Compensation
Program .
(i) As
of the Effective Date, the Executive shall be entitled to
participate in the AIP Plan, the EIC Plan and Stock-Based Long-Term
Compensation Program (the "LTC Program"), or any successors
thereto, in accordance with the Company’s practice for
administering the AIP Plan, the EIC Plan and the LTC Program with
respect to Executive Officers; provided, the Executive shall be
first eligible for annual awards under the LTC Program at such time
as awards are granted to Executive Officers during calendar 2007.
For purposes of this Agreement, "LTC Program" encompasses
Stock-Based Awards made to the Executive under the 2005 Stock
Incentive Plan or any subsequent stock-based incentive compensation
plan.
(ii) The
Executive shall be eligible to receive an annual incentive bonus as
determined in accordance with the terms and conditions of the EIC
Plan and/or AIP Plan with a Bonus Target of 115% of the
Executive’s Annual Base Salary for the applicable year and a
maximum bonus equal to not less than 200% of his Bonus Target for
the applicable year. Notwithstanding the foregoing, the
Executive’s actual bonus for the fiscal year ending
June 30, 2007 shall not be less than the Bonus Target (the
"Guaranteed Bonus"); provided , however , that, if
the Effective Date is after November 1, 2006, the Guaranteed
Bonus shall be prorated based upon the portion of the fiscal year
ending June 30, 2007 during which the Executive was employed
by the Company.
(iii) On
the Effective Date, the Executive will be granted the following
equity awards:
(A) 83,500
restricted stock units subject to the terms and conditions of the
LTC Program and the form of award agreement provided to the
Executive (subject to the terms of this Agreement), with such grant
vesting over four (4) years with one-fourth (1/4) vesting on
each of the first, second, third and fourth anniversaries of the
date of grant, and payment of which shall be delayed until six
(6) months following the date of the Executive’s
termination of employment; and
(B)
a ten-year option to purchase 275,000 shares of the Company’s
common stock, subject to the terms and conditions of the LTC
Program and the form of award agreement provided to the Executive
(subject to the terms of this Agreement). The exercise price
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per share of the option will be the fair market value (as
defined in the LTC Program) of the common stock on the date of
grant, and the option will vest over four (4) years, with
one-fourth (1/4) of the shares underlying the option vesting on
each of the first, second, third and fourth anniversaries of the
date of grant. Except as otherwise provided in this Agreement, upon
termination of the Executive’s employment, vested options
shall remain exercisable for the lesser of one (1) year or the
remainder of the term of the option.
(c) Sign-On Bonus .
The Company shall pay to the Executive no later than ten
(10) days following the Effective Date a lump sum cash sign-on
bonus of $500,000.
(d) Benefits . As he
becomes eligible therefor, the Company shall provide the Executive,
his spouse and eligible dependents with the right to participate in
and to receive benefits from all present and future welfare benefit
plans, practices, policies and programs (including without
limitation, medical, prescription drugs, dental, disability, salary
continuance, severance pay, employee life, group life, accidental
death and travel accident insurance plans and programs), all
incentive savings and retirement plans, practices and programs and
all similar benefits, made available generally to Executive
Officers of the Company. The amount and extent of benefits to which
the Executive is entitled shall be governed by each specific
benefit plan, as it may be amended from time to time. The Company
may suspend or terminate any benefit plan described in this
Section 3(d). The Executive shall also be entitled to the
death and disability benefits described in Section 4 and the
benefits described in Sections 3(e), 3(f), 3(i) and 3(j).
(e) Supplemental
Executive Retirement Plan . The Executive shall be eligible to
receive supplemental executive retirement plan benefits equal to
the greater of the amount attributable to the Company SERP or the
Replacement SERP, as described below:
(i)
Company SERP . The Executive will be eligible to participate
immediately in the Company’s Supplemental Executive
Retirement Plan (the "Company SERP") in accordance with the terms
and conditions of the Company SERP as in effect from time to time;
provided, however, that the Executive shall be fully vested and
eligible for an Early Retirement Benefit (at Separation of
Employment) (each such term as defined under the Company SERP),
upon completion of seven (7) years of service with the
Company, and otherwise as provided in the Company SERP. The Company
expects to review the Company SERP as part of an overall review of
retirement benefits and the Company SERP may change as a result of
such review, in the Company’s discretion.
(ii)
Replacement SERP. The Company shall also establish a
supplemental executive retirement plan for the benefit of the
Executive (and his surviving spouse in the event of the
Executive’s death) that duplicates the rights and benefits
the Executive would have been entitled to under The Coca-Cola
Company Employee Retirement Plan and The Coca-Cola Company
Supplemental Benefit Plan – Pension, as in effect on the date
hereof, had his employment with The Coca-Cola Company continued
until the Executive’s retirement or other termination of
employment with the Company (the "Replacement SERP") and which
shall be subject to the following terms for purposes of attributing
the amount attributable to the Replacement SERP:
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(A) final
average compensation for purposes of the Replacement SERP shall
include the actual Annual Base Salary and bonuses paid by the
Company to the Executive and, to the extent needed to obtain five
years of consecutive annual compensation, the Executive’s
actual annual base salary and bonuses paid by The Coca-Cola Company
prior to the Executive’s retirement;
(B) the
Executive shall be fully vested at all times in the Replacement
SERP benefit;
(C) in
the event that the Executive’s employment with the Company
terminates prior to the third anniversary of the Effective Date,
the Executive shall be credited with a minimum of three
(3) years of benefit accruals under the Replacement SERP;
and
(D) the
Executive’s service with The Coca-Cola Company under such
plans shall be credited as service under the Replacement SERP and
any benefits to which the Executive becomes entitled under the
Replacement SERP shall be offset by benefits received by the
Executive under The Coca-Cola Company Employee Retirement Plan and
Supplemental Benefit Plan — Pension.
(f) Vacation . The
Executive will be entitled to five (5) paid weeks of vacation
per year during each year of the term of this Agreement in
accordance with the Company’s vacation policy generally
applicable to Executive Officers.
(g) Relocation and
Housing Expenses .
(i) The
Executive shall be entitled to relocation benefits in accordance
with the Company’s relocation policy and such additions
thereto as mutually agreed to by the Executive and the Company,
which shall include up to $50,000 in loss protection on the sale of
the Executive’s residence in Atlanta, Georgia. In addition,
the Company shall, if necessary, pay to the Executive tax gross-up
payments so that the net amount retained by the Executive after
payment of all applicable income and employment taxes attributable
to amounts paid is equal to the agreed amount to be reimbursed for
such relocation expenses under this Section 3(g)(i) and
Section 3(g)(ii) (other than for any gain on any sale of the
Executive’s Atlanta, Georgia residence), provided, however,
that a gross-up payment shall not be made with respect to any
reimbursement to the extent the related expense is deductible or is
otherwise excludable from the Executive’s taxable income. All
amounts payable under this Section 3(g)(i) shall be subject to the
Executive’s presentation of receipts and/or invoices as may
be reasonably required by the Company.
(ii) The
Executive shall be entitled to reimbursement for the cost of
temporary housing in an amount up to $10,000 per month and the cost
of commuting incurred by the Executive and the cost of house
hunting travel incurred by the Executive’s spouse, as part of
the Executive’s relocation to the Oakland, California
metropolitan area, for a period of up to one (1) year
following the Effective Date. All amounts payable under this
Section 3(g)(ii) shall be subject to the Executive’s
presentation of receipts and/or invoices as may be reasonably
required by the Company.
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(h) Business and Legal
Expenses . The Company shall reimburse the Executive for
reasonable travel and other business expenses incurred by the
Executive in the performance of his duties hereunder in accordance
with the Company’s general policies, as they may be amended
from time to time during the course of this Agreement. In addition,
the Company will pay all of the legal fees and other expenses
incurred by the Executive in connection with the negotiation and
drafting of this Agreement (and all related agreements hereunder)
in an amount not to exceed $40,000, subject to the
Executive’s presentation of receipts and/or invoices as may
be reasonably required by the Company, and, if necessary, the
Company shall pay to the Executive tax gross-up payments so that
the Executive incurs no net amount after payment of all applicable
income and employment taxes in excess of the amount so paid by the
Company for such legal fees and expenses.
(i) Automobile . The
Executive shall be provided with an automobile or a monthly
automobile allowance of $1,100 per month, plus parking and a
cellular phone.
(j) Retiree Benefits
. Upon completion of seven (7) years of continuous employment
with the Company, the Executive will be deemed retiree eligible
under all welfare benefit, equity and other incentive plans and
programs (other than tax-qualified pension and 401(k) plans)
applicable to senior executives of the Company under the terms and
conditions of such plans and programs as in effect from time to
time; provided, however, that such treatment shall not apply to the
extent the Executive is entitled to retiree benefits from The
Coca-Cola Company, on a benefit-by-benefit and coverage-by-coverage
basis, that duplicates retiree benefits available to the Executive
by the Company.
(k) Change in Control
. As of the Effective Date, the Company and the Executive will
enter into a Change in Control Agreement having such terms and
conditions as they have negotiated and agreed.
4. Termination of Employment .
(a) By Death . The
Executive’s employment shall terminate automatically upon his
death. The Company shall pay to the Executive’s beneficiaries
or estate, as appropriate, the salary to which he is entitled
pursuant to Section 3(a), any accrued vacation due the Executive,
through the end of the month in which death occurs and any prior
completed fiscal year’s earned and unpaid annual incentive
bonus. In addition, all restricted stock units and stock options
granted pursuant to Section 3(b) shall immediately vest upon the
Executive’s date of death, and such stock options will remain
exercisable for one (1) year after the Executive’s date
of death, subject to the earlier expiration of the term of such
stock option. The Company shall also pay the Executive’s
beneficiaries or estate, as appropriate, a pro rata portion
(through the date of death) of the Executive’s Bonus Target
for the fiscal year of his death. All other equity and other LTC
Program awards shall be governed by the applicable terms of award
under which they were granted. Except as otherwise specifically
provided under this Agreement, after the payments called for in
this Section 4(a) are made, the Company’s obligations
hereunder shall terminate. This Section 4(a) shall not affect
entitlement of the Executive’s estate or beneficiaries to
death benefits under any benefit plan of the Company.
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(b) By Disability .
Should the Executive begin to receive benefits under the
Company’s Long Term Disability Plan, the Executive’s
employment may terminate at the Company’s option. If the
Company so elects, the Company shall pay the salary to which the
Executive is entitled pursuant to Section 3(a) through the Date of
Termination, and in lieu of any AIP and EIC Plan award under
Section 3(b) for the fiscal year in which termination occurs, the
Company shall pay the Executive a pro rata portion (through the
Date of Termination) of the Executive’s Bonus Target for the
fiscal year of the termination. The Company shall also pay the
Executive any accrued vacation through the Date of Termination and
any prior completed fiscal year’s earned and unpaid annual
incentive bonus. In addition, all restricted stock units and stock
options granted pursuant to Section 3(b) shall immediately vest
upon the date of such termination of the Executive’s
employment, and such stock options will remain exercisable for one
(1) year after the date of such termination of the
Executive’s employment, subject to the earlier expiration of
the term of such stock option. All other equity and other LTC
Program awards shall be governed by the applicable terms of award
under which they were granted. Except as otherwise specifically
provided under this Agreement, thereafter the Company’s
obligations hereunder shall terminate.
(c) By Company For
Cause . The Company may terminate the Executive’s
employment for Cause (as defined below) at any time. The Company
shall pay the Executive the salary to which he is entitled pursuant
to Section 3(a) through the Date of Termination, and, except as
otherwise specifically provided under this Agreement, thereafter
the Company’s obligations hereunder shall terminate. The
Executive shall not be entitled to any unpaid AIP Plan and EIC Plan
award pursuant to Section 3(b) for the prior fiscal year or the
fiscal year in which termination occurs and outstanding options
granted pursuant to Section 3(b)(iii)(B) shall be immediately
forfeited. All other equity and other LTC Program awards shall be
governed by the applicable terms of award under which they were
granted. Termination shall be for "Cause" if:
(i) the
Executive willfully neglects significant duties he is required to
perform or willfully violates a material Company policy, and, after
being warned in writing, continues to willfully neglect such duties
or continues to willfully violate such specified Company
policy;
(ii) the
Executive commits a material act of dishonesty, fraud,
misrepresentation or other act of moral turpitude;
(iii) the
Executive acts (or omits to act) with gross negligence with regard
to material matters in the performance of the Executive’s
duties hereunder; or
(iv) the
Executive willfully disregards a lawful direction of the Board.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive’s action or
omission was in the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for
the Company shall be conclusively presumed to be done, or omitted
to be done, by the Executive in good faith and in the best
interests of the Company. The cessation of employment of the
Executive shall not be deemed to
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be for Cause unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board
(excluding the Executive) at a meeting of the Board called and held
for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i), (ii), (iii) or (iv) above,
and specifying the particulars thereof in detail.
(d) By the Executive or
the Company At Will .
(i)
Termination by the Company . The Company may, at any time,
terminate the Executive’s employment without Cause. If the
Company does so, the severance payment provisions of Section 6
shall apply and the Company shall have no additional liability. The
Executive hereby agrees that the Company may terminate his
employment under this Section 4(d)(i) without regard (A) to
any general or
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