This excerpt taken from the CLX DEF 14A filed Oct 4, 2006.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
Employment Agreements. The Company has entered into employment agreements with each of the Named Officers other than Mr. Matschullat. The terms of the employment agreements are evergreen in that they renew daily to maintain a three-year term (Mr. Johnston) or a two-year term (all others), unless the Company gives notice of non-renewal. The employment agreements are also terminable at any time by the Company for Cause, as that term is defined in the employment agreements, or at will by either the officer or the Company. In the case of an at will termination by the Company, an officer is entitled to receive a lump sum amount equal to the officers then current base salary plus 75% of the officers average annual EIC Plan awards for the preceding three years, divided by 12 and then multiplied by the number of months in the remaining term of his or her employment agreement. The employee agreements provide that the officer is entitled to continue to participate in the Companys medical and dental insurance programs for the same period. In addition, the officer would receive pro-rated EIC Plan awards for the year in which termination occurs.
On August 2, 2006, the Company entered into a Termination of Change in Control Agreement with Mr. Johnston. Under the agreement, Mr. Johnstons employment with the Company will terminate effective March 1, 2007. Mr. Johnstons employment agreement permits the Company to terminate his employment if he begins to receive benefits under the Companys long-term disability plan. Mr. Johnston executed a release and agreed to terminate his change in control agreement effective September 1, 2006; thus, he is no longer entitled to receive benefits to which he would have been entitled under that agreement. On March 2, 2007, the 75,000 restricted stock units granted to Mr. Johnston during fiscal year 2004 will vest in accordance with their terms and all other previously-granted equity awards to Mr. Johnston will also vest in accordance with their terms.
On May 16, 2006, the Management Development and Compensation Committee approved a retention and recognition plan that provides enhanced severance and short-term incentive bonus opportunities to members of the Clorox Executive Committee (the Executive Committee). The plan was adopted in recognition of the additional responsibilities taken on by members of the Executive Committee following the medical leave and subsequent retirement as chairman and chief executive officer of Mr. Johnston, and to encourage the continued service of Executive Committee members during the search for Mr. Johnstons successor and transition to the new chief executive officer.
The retention and recognition plan provides for enhanced severance to Executive Committee members during a limited period through amendments to their existing employment agreements. Pursuant to the retention and recognition plan, the employment agreements were amended to provide a lump sum payment in an amount equal to the executives highest monthly base salary rate in effect during the twelve month period preceding a termination without cause by the Company during the period commencing May 16, 2006 and ending 18 months after the date a new CEO commences employment with the Company times the sum of the number of months in the remaining term of the executives employment agreement plus 12; plus 75% of his or her average annual bonus, multiplied by the sum of the number of months in the remaining term of the executives employment agreement plus 12 and then divided by 12.
The retention and recognition plan also provides Executive Committee members a one-time increased incentive target bonus opportunity of an additional 30% of base salary under the EIC Plan for fiscal year 2007 (subject to the overall limits provided in the plans). Actual bonus targets (which will reflect this increase) will be determined after the beginning of the Companys 2007 fiscal year, in accordance with the terms and conditions of the plans and applicable tax law.
Change in Control Agreements. The Company has entered into change in control agreements with each of the Named Officers. As noted above, Mr. Johnstons change in control agreement is no longer in effect. Within a two-year period after a change in control, business combination, or complete dissolution or liquidation of the Company, the officers may terminate their employment in the event of a reduction or elimination in rank, responsibilities, compensation or benefits. A change in control generally will be deemed to occur if any person or entity becomes the beneficial owner, directly or indirectly, of 30% of the then outstanding shares of Common Stock or has, directly or indirectly, 30% of the combined voting power of the then outstanding securities entitled to vote for directors. A business combination generally will be deemed to occur in the event of a reorganization, merger or sale of substantially all of the assets of the Company, subject to certain exceptions. In the event of such termination, or a termination without cause by the Company, the officer will receive a lump sum amount equal to three times his or her then current base salary plus 100% of his or her average annual EIC Plan award for the preceding three years. If payments received under the change in control agreements are subject to tax under Section 4999 of the Internal Revenue Code of 1986, as amended (which deals with certain payments contingent on a change in control), the Company will make an additional payment to the officer in respect of such tax.
Accelerated Vesting Provisions. In the event of a change in control, business combination, or complete liquidation or dissolution of the Company (a corporate transaction), all stock options granted before September 15, 2004, will become vested and exercisable on an accelerated basis and all restricted stock and restricted stock unit awards granted before September 15, 2004 will become vested on an accelerated basis.
Stock options, shares of restricted stock and restricted stock units awarded on or after September 15, 2004 that are assumed by the successor company in a corporate transaction will not become vested (and for stock options exercisable) on an accelerated basis at the time of the corporate transaction; however, such stock options, restricted stock and restricted stock units will become vested (and for stock options exercisable) on an accelerated basis if the holder is terminated without cause or resigns for good reason within 24 months following the corporate transaction. Stock options, shares of restricted stock and restricted stock units granted on or after September 15, 2004, that are not assumed by the successor company in a corporate transaction will become vested (and for stock options exercisable) immediately prior to the effective date of the corporate transaction.
Performance units or performance shares granted on or after September 15, 2004, will vest pro-rata on an accelerated basis immediately prior to the effective date of the corporate transaction in the same proportion as the time since the beginning of the vesting period bears to the shortest time remaining in the vesting period until such awards could otherwise completely vest. The level of vesting of the award will be based on the level of performance achieved as of the accelerated vesting date.
Disability Plan. All Clorox employees participate in a disability plan that provides benefits that vary by employee status and benefit options elected. Executive officers, including Mr. Johnston, are entitled to benefits including medical benefits while receiving disability benefits, four weeks of full pay, short-term disability at 60% of pay for an additional 22 weeks, and long-term disability at 60% of pay until recovery, death or reaching age 65. The executive plan that covers Mr. Johnston differs from the regular Clorox disability plan because regular employees receive a 50% long-term disability (LTD) benefit unless they buy-up to a 60% LTD benefit plan. The Companys executives receive the premium 60% LTD plan at no cost to them. In connection with Mr. Johnstons health-related retirement from his positions as chairman and chief executive officer in May 2006, the Company expects to make cash payments to Mr. Johnston of approximately $6 million over a six-year period in accordance with the terms of the Companys LTD plan.
Employment Arrangements with New Chief Executive Officer. On August 30, 2006, the Company entered into an employment agreement with Mr. Knauss, which became effective on October 2, 2006, when Mr. Knauss began his employment as chairman and chief executive officer of the Company. Under the terms of the agreement, Mr. Knauss will receive, among other things, an annual base salary of $950,000, subject to certain adjustments, and a sign-on cash bonus of $500,000. On his first day of employment, he received a ten-year option to purchase 275,000 shares of Common Stock and 83,500 restricted stock units which will vest over four years. Mr. Knauss will be eligible to receive an annual incentive bonus with a bonus target of 115% of his annual base salary and a maximum bonus equal to 200% of his bonus target for the applicable year. Under the terms of the agreement, Mr. Knauss annual incentive bonus for the fiscal year ending June 30, 2007, is guaranteed to equal at least his bonus target of 115% of his annual base salary.
Mr. Knauss will be eligible to receive supplemental executive retirement plan benefits equal to the greater of the amount attributable to the Company Supplemental Executive Retirement Plan or the benefits to which he would have been entitled if he had stayed at his previous employer, The Coca-Cola Company.
The employment agreement provides for severance benefits in the event of Mr. Knauss involuntary termination without cause or voluntary termination with good reason in an amount equal to three times his annual base salary on the date of his termination and three times 75% of his average annual bonus (as all of the terms are defined in the agreement), the vesting of certain of the unvested, equity-based awards that he received on his first day of employment to replace benefits he forfeited upon termination of his prior employment (23,500 restricted stock units and 61,000 options) and an extended period of time to exercise the stock options, and certain other benefits specified in the employment agreement.
Mr. Knauss is entitled to relocation benefits, including up to $50,000 in loss protection on the sale of his residence in Atlanta, Georgia, and up to $10,000 per month for temporary housing, plus certain commuting and house hunting travel costs, for a period of up to one year. Additionally, the Company agreed to pay up to $40,000 for legal fees and other expenses Mr. Knauss incurred in connection with the negotiation and drafting of the employment agreement.
Mr. Knauss employment agreement has a three-year term that is subject to automatic one year extensions unless either the Company or Mr. Knauss gives notice to the other party at least 180 days before such extension becomes effective.
The Company entered into a change in control agreement with Mr. Knauss, which, among other things, provides that if, within 24 months (or, if earlier, prior to the first day of the month following Mr. Knauss 65th birthday) after a change in control (as defined in the agreement), Mr. Knauss is terminated by the Company, other than for cause or disability (as defined in the agreement), or if Mr. Knauss terminates his employment for good reason (as defined in the agreement), the Company will pay Mr. Knauss a lump sum amount equal to: (1) accrued amounts; (2) three times the sum of his annual base salary and his average annual bonus; and (3) certain benefit plan payments calculated as if his employment had continued for another three years. In the event of Mr. Knauss termination of employment within 24 months following a change in control, all unvested stock options and restricted stock units granted to him under the Companys 2005 Stock Incentive Plan (or any successor plan) will immediately vest and any stock options will remain exercisable for the lesser of three years or the expiration date of the applicable award (one year in the case of termination due to death, disability, cause or without good reason). If Mr. Knauss termination occurs more than 24 months after the change in control, any unvested restricted stock units and stock options granted under the employment agreement will vest in the same manner as under Mr. Knauss employment agreement. If payments received under the change in control agreement are subject to taxation under Section 4999 of the Internal Revenue Code of 1986, as amended (which addresses certain payments contingent on a change in control), the Company will make an additional payment to Mr. Knauss in respect of such tax, subject to certain limitations.