exv10w3



 





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 specific policies (whether written or oral) of the Company relating to the
employment or termination of its employees, or (B) to any statements made to the Executive, whether
made orally or contained in any document, pertaining to the Executive’s relationship with the
Company. Nothing in this Section 4(d)(i) shall prevent the Company from exercising its right under
Section 4(c) to terminate the Executive’s employment for Cause, and such a termination shall not
give rise to damages under Section 6.




          (ii) Termination by the Executive Without Good Reason. Except in the case of Good
Reason (as defined below) as provided in Section 4(d)(iii) or Retirement as provided in Section
4(d)(iv), the Executive may, upon giving at least ten (10) business days’ notice to the Company,
terminate his employment, without liability, for any reason. If the Executive terminates his
employment pursuant to this Section 4(d)(ii), the Company shall pay the Executive the salary and
accrued vacation to which the Executive is entitled pursuant to Section 3(a) through the end of
the ten (10) business days notice period. In addition, the Executive’s vested and outstanding
stock options granted pursuant to Section 3(b)(iii)(B) shall 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. The
Executive shall not be entitled to any AIP and EIC Plan award pursuant to Section 3(b) for the
fiscal year in which he terminates his employment under this Section 4(d)(ii).




          (iii) Termination by the Executive For Good Reason. The Executive may terminate his
employment for Good Reason at any time. If the Executive terminates his employment for Good
Reason, the severance payment provisions of Section 6 shall apply and the Company shall have no
additional liability. Termination by the Executive shall be for Good Reason if:




               (A) the Executive is assigned any duties inconsistent in any respect with the Executive’s
position (including status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by Section 2(a) of this Agreement, or
the Company takes any other action which results in a diminution in such position, authority,
duties



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or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;




               (B) the Company fails to comply with any of the provisions of Section 3 of this Agreement,
other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the Executive;



               (C) the Company requires the Executive to be based at any office or location more than 40
miles outside the Oakland, California metropolitan area;



               (D) the Company purports to terminate the Executive’s employment other than as expressly
permitted by this Agreement; or



               (E) the Company fails to obtain from 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 the express assumption and agreement 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.


Notwithstanding the above, a failure by the Company’s stockholders to elect the Executive to the
Board shall not constitute Good Reason, but a failure by the Board to appoint the Executive to the
Board as of the Effective Date or to thereafter nominate the Executive to the Board at any time
shall constitute Good Reason.




          (iv) Termination Due to Executive’s Retirement. The Executive may terminate his
employment upon giving at least three (3) months’ notice to the Company, provided that he is vested
in his accrued benefit pursuant to the Company SERP upon the Date of Termination. Such a
termination constitutes “Retirement” for purposes of this Agreement. Upon the Executive’s
Retirement, the Company shall pay the Executive the salary and accrued vacation to which he is
entitled pursuant to Section 3(a) and 3(f) through the last day of his employment. The Executive
also shall receive any prior completed fiscal year’s earned and unpaid annual incentive bonus. In
addition, the Executive shall be entitled to receive a pro rata portion calculated upon the portion
of the fiscal year during which the Executive was employed of the Executive’s AIP and/or EIC Plan
award for the fiscal year of his Retirement. The award will be paid after the close of the fiscal
year at the same time that AIP and EIC Plan award payments are made to employed executives. The
award will be a percentage of the Executive’s AIP and/or EIC Plan Bonus Target award for that
fiscal year based upon the application of the overall corporate results factor and the division
and/or functional results factor, if applicable, of the AIP and/or EIC Plan award calculation
matrix. The award will not be based on any personal objectives factor; thus, the individual
modifier to be applied to the corporate and business and/or functional results, if any, will be
calculated at 100%.




          (v) Termination of Employment Following Notice of Non-Renewal. In the event the
Executive’s employment is terminated for any reason upon expiration of the Agreement or thereafter
following a notice of non-renewal by either party pursuant to Section 1(b), the




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Company shall pay
the Executive the salary and accrued vacation to which he is entitled pursuant to Section 3(a) and
Section 3(f) through the date of such termination of the Executive’s employment, and, except as
otherwise specifically provided under this Agreement, thereafter the Company’s obligations
hereunder shall terminate. In the event that the Executive’s employment is terminated by the
Company without Cause or by the Executive for Good Reason (during the term of this Agreement or
thereafter) at any time following the issuance by the Company to the Executive of a notice of
non-renewal pursuant to Section 1(b) that is effective on the third anniversary of the Effective
Date, 5,875 restricted stock units of the unvested portion of the restricted stock units granted
pursuant to 3(b)(iii)(A) and 15,250 unvested stock options of the unvested portion of the stock
options granted pursuant to Section 3(b)(iii)(B) shall immediately vest. In the event that the
Executive’s employment is terminated by the Company without Cause or by the Executive for Good
Reason (during the term of this Agreement or thereafter) at any time following the issuance by the
Company to the Executive of a notice of non-renewal pursuant to Section 1(b) that is effective at
any time provided thereunder, 61,000 vested stock options awarded pursuant to Section 3(b)(iii)(B)
will remain exercisable for three (3) years after the Date of Termination, subject to the earlier
expiration of the term of such stock options. The remaining vested portion of such stock option
grant will remain exercisable for one (1) year after the Date of Termination, subject to earlier
expiration of the term of such stock options. For the purposes of the preceding three sentences,
for the avoidance of doubt, a termination of the Executive’s employment by the Company on the Term
Date pursuant to a Company notice of non-renewal under Section 1(b) shall be a termination by the
Company without Cause. The Executive shall not be entitled to any AIP and EIC Plan award pursuant
to Section 3(b) for the fiscal year in which his employment terminates pursuant to this Section
4(d)(v).




     (e) Termination Obligations.



          (i) The Executive hereby acknowledges and agrees that all personal property and equipment
furnished to or prepared by the Executive in the course of or incident to his employment, belong to
the Company and shall, if physically returnable, be promptly returned to the Company upon
termination of his employment. “Personal property” includes, without limitation, all books,
manuals, records, reports, notes, contracts, lists, blueprints, and other documents, computer media
or materials, or copies thereof, and Proprietary Information (as defined below), but does not
include the Executive’s rolodex or address book. Following termination, the Executive will not
retain any written or other tangible material containing any Proprietary Information.




          (ii) Upon termination of his employment, the Executive shall be deemed to have resigned from
all offices and directorships then held with the Company or any Affiliated Company, and will
execute a letter of resignation if requested.




          (iii) The Executive’s obligations under Sections 4(e), 5, 7 and 14, and the Company’s
obligations under Sections 3(c), 3(d) (in accordance with the terms of the applicable plan), 3(e),
3(g), 3(j), 4, 6, 14, 16 and this Section 4(e)(iii), and the Executive’s entitlement to payment or
reimbursement of his business expenses incurred in accordance with Section 3(h)
through the Date of Termination, shall survive termination of the Executive’s employment and
the expiration of this Agreement.




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5. Post Termination Obligations.




     (a) Proprietary Information Defined. “Proprietary Information” is all information and
any idea in whatever form, tangible or intangible, pertaining in any manner to the business of the
Company or any Affiliated Company, or to its clients, consultants, or business associates, unless:
(i) the information is or becomes publicly known through lawful means; (ii) the information was
rightfully in the Executive’s possession or part of his general knowledge prior to his employment
by the Company; or (iii) the information is disclosed to the Executive without confidential or
proprietary restriction by a third party who rightfully possesses the information (without
confidential or proprietary restriction) and did not learn of it, directly or indirectly, from the
Company.



     (b) General Restrictions on Use of Proprietary Information. The Executive agrees to
hold all Proprietary Information in strict confidence and trust for the sole benefit of the Company
and not to, directly or indirectly, disclose, use, copy, publish, summarize, or remove from
Company’s premises any Proprietary Information (or remove from the premises any other property of
the Company), except (i) during his employment to the extent necessary to carry out the Executive’s
responsibilities under this Agreement, and (ii) after termination of his employment as specifically
authorized in writing by the Board or pursuant to a subpoena; provided, however, that prior to
responding to any subpoena, the Executive shall give notice to the Company and an opportunity for
the Company to object to such subpoena.



     (c) Non-Solicitation and Non-Raiding. To forestall the disclosure or use of
Proprietary Information in breach of Section 5(b), and in consideration of this Agreement, the
Executive agrees that for a period of two (2) years after termination of his employment, he shall
not, for himself or any third party, directly or indirectly (i) divert or attempt to divert from
the Company (or any Affiliated Company) any business of any kind in which it is engaged, including,
without limitation, the solicitation of its customers as to products which are directly competitive
with products sold by the Company at the time of the Executive’s termination, or interference with
any of its suppliers or customers, or (ii) solicit for employment any person employed by the
Company, or by any Affiliated Company, during the period of such person’s employment and for a
period of one year after the termination of such person’s employment with the Company.



     (d) Contacts with the Press. Following termination, the Executive will continue to
abide by the Company’s policy that prohibits discussing any aspect of Company business with
representatives of the press without first obtaining the permission of the Company’s Public
Relations Department.



     (e) Remedies. Nothing in this Section 5 is intended to limit any remedy of the
Company under the California Uniform Trade Secrets Act (California Civil Code Section 3426), or
otherwise available under law.



6. Severance Payments; Requirement of Mitigation; Release.



     (a) Severance Payments. The Company and the Executive acknowledge that it would be
impractical or extremely difficult to fix the Executive’s actual damages in the case of



11









 




termination
at will by the Company pursuant to Section 4(d)(i) or in the case of a termination by the
Executive for Good Reason pursuant to Section 4(d)(iii). Therefore, in the event of such a
termination and notwithstanding any other provision of this Agreement, in exchange for and in
consideration of the Executive’s execution and non-revocation of a General Release (“Release”) in a
form substantially equivalent to the attached Exhibit, and subject to the mitigation provisions of
Section 6(b), the Executive shall be entitled to severance payments made up of the following
components:




          (i) Salary Component.




          Payment, promptly after termination, of a lump sum amount equal to the product of (A) three
(3) and (B) the Executive’s Annual Base Salary on the Date of Termination.




          (ii) AIP and EIC Plan Components.




               (A) Payment, promptly after termination, of a lump sum amount equal to the product of (A)
three (3) and (B) 75% of his Average Annual Bonus.



               (B) A pro rata portion calculated upon the portion of the fiscal year during which the
Executive was employed of the Executive’s AIP and/or EIC Plan award for the fiscal year in which
the Executive’s employment terminated. The prorated award will be paid after the close of the
fiscal year at the same time that AIP and EIC Plan award payments are made to then employed
executives. The award will be a percentage of the Executive’s AIP and/or EIC Plan target award for
such fiscal year based upon the application of the overall corporate results factor and the
division and/or functional results factor, if applicable, of the AIP and/or EIC Plan award
calculation matrix. The award will not be based on any personal objectives factor; thus, the
individual modifier to be applied to the corporate and business and/or functional results, if any,
will be calculated at 100%.



          (iii) Medical/Dental Plans Component.




               (A) Continuation for a period of three (3) years on the same basis as an employee of the
Company of the right to participate in any Medical and/or Dental Benefit Plans as and if offered by
the Company to its salaried employees. The Executive shall not participate in any other Company
sponsored welfare benefit plans after the termination of employment.



               (B) In addition, if upon termination of employment the Executive has completed at least seven
(7) years of service with the Company, continuation of the right to participate in Medical and/or
Dental Plans as and if offered to former employees whose employment terminated at or after age 55
with ten (10) or more years of service on the same terms and conditions as for such former
employees including premium contributions from the Executive as in effect from time to time. Such
right to participate shall apply from the time such coverage would otherwise terminate pursuant to
Section 6(a)(iii)(A) and shall continue until the
Executive attains age 65; thereafter the Executive may participate in the Company’s Retiree
Health Plan as and if it may exist from time to time in the future (provided, not more than seven
(7) years of service shall be required for eligibility thereunder), if he would be eligible to
participate pursuant to the terms of that Plan; provided, however, that such coverage shall not be
provided to the extent the Executive is entitled to retiree benefits from The Coca-Cola Company,



12









 




on
a benefit-by-benefit and coverage-by-coverage basis, that duplicates the retiree benefits available
to the Executive by the Company.




          (iv) LTC Program Component.




               (A) If the Executive is vested in his accrued benefit pursuant to Section 3(e)(i) herein,
then for purposes of the LTC Program his termination of employment will be deemed to be a
Termination of Employment Due to Retirement if the Executive irrevocably elects prior to his
termination date to begin retirement benefits under the Company SERP. If the Executive does not so
elect or is not eligible to so elect, all LTC Program awards which remain at the Date of
Termination will be treated pursuant to subsection (B) below.



               (B) If the Executive does not elect or is not eligible to elect to commence benefits under the
Company SERP pursuant to (iv)(A) above, then for purposes of all LTC Program awards, he will be
deemed to have terminated employment on the day prior to his termination date. Whether any LTC
Program award is forfeited in such a case will be determined by the terms of the award and the plan
pursuant to which it was awarded.



               (C) Notwithstanding the foregoing, the Executive shall become immediately vested in unvested
restricted stock units granted pursuant to 3(b)(iii)(A) and unvested stock options granted
pursuant to Section 3(b)(iii)(B) as follows:




     (1) for the purpose of this Section 6(a)(iv)(C), (x) such restricted stock unit grant
shall be deemed to be two grants comprised of 60,000 restricted stock units and 23,500
restricted stock units; (y) each such deemed grant shall have become vested in one-fourth of
each such grant on each anniversary of the Effective Date through the Date of Termination;
and (z) the remaining unvested portion of the deemed grant of 23,500 restricted stock units
shall become immediately vested on the Date of Termination; and




     (2) for the purpose of this Section 6(a)(iv)(C), (x) such stock option grant shall be
deemed to be two grants comprised of 214,000 stock options and 61,000 stock options; (y)
each such deemed grant shall have become vested in one-fourth of each such grant on each
anniversary of the Effective Date through the Date of Termination; and (z) the remaining
unvested portion of the deemed grant of 61,000 stock options shall become immediately vested
on the Date of Termination and the 61,000 such vested stock options shall remain exercisable
for three (3) years after the Date of Termination, subject to the earlier expiration of the
term of such stock option. The vested portion of the deemed grant of 214,000 stock options
will be 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.



          (v)  Automobile Component.




          The Executive shall be entitled to purchase the Company-leased automobile, if any, being used
by the Executive prior to termination at the “buyout amount” specified by the vehicle’s lessor.




13









 








     The parties acknowledge that the amounts and benefits provided in (i) through (v) above
constitute a reasonable estimate of and compensation for any damages the Executive may suffer as
the result of his termination of employment under this Agreement.



     If the Executive does not execute, or having executed, effectively revokes the Release, the
Company will not be obligated to provide any benefits or payments of any kind to the Executive.



     (b) Coordination of Benefits. The Executive’s medical and dental benefit coverage
under Section 6(a)(iii)(A) and/or (B) shall be secondary to medical and/or dental coverage provided
to the Executive by a subsequent employer to the extent such benefits are available, and or are
duplicated by such benefits by a prior employer to the extent available on a benefit-by-benefit and
coverage-by-coverage basis, and the Executive will make every good faith effort to participate in
any such coverage. For any period during which the Executive does not make such a good faith
effort the Executive’s medical and dental plan coverage under Section 6(a)(iii)(A) and/or (B) shall
be completely suspended. If medical and dental benefit coverage ceases to be provided by the
subsequent or prior employer, as the case may be, the Executive may have his Section 6(a)(iii)(A)
and/or (B) coverage from the Company become his primary coverage again. The Executive’s right to
medical and dental continuation coverage under the Consolidated Omnibus Budget Reconciliation Act
of 1985 shall commence after the conclusion of coverage under Section 6(a)(iii)(A) and/or (B), as
the case may be.



     (c) Lack of Participation in Qualified Plans. Upon termination of employment the
Executive shall cease to actively participate in any qualified benefit plan maintained by the
Company, such as the Pension Plan and the 401(k) Plan, and the Executive shall also cease to
actively participate in any welfare benefit plan maintained by the Company, except as otherwise
provided in Section 6(a)(iii) above or under the terms of such plan. No employee or employer
contributions will be made to any qualified benefit plan based on any bonus paid after the
termination of the Executive’s employment.



7. Successors.




     (a) This Agreement is personal to the Executive and without the prior written consent of the
Company shall not be assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s
legal representatives.



     (b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.



     (c) 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 assume expressly 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. As
used in this Agreement, “Company” shall mean the Company as herein before defined and any successor
to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.



14









 





     8. Notices. All notices or other communications required or permitted hereunder shall be
made in writing and shall be deemed to have been duly given if delivered by hand upon receipt, or
if mailed, three (3) business days after having been mailed, postage prepaid, by certified or
registered mail, return receipt requested, and addressed to the Company at:



	 	 	 
	 

	 	If to the Company:
	 
	 	 
	 

	 	The Clorox Company
	 

	 	1221 Broadway
	 

	 	Oakland, CA 94612
	 

	 	Attn: General Counsel
	 
	 	 
	 

	 	If to the Executive:
	 
	 	 
	 

	 	To the residence address for the Executive last shown on the
	 

	 	Company’s payroll records.






     Notice of change of address shall be effective only when done in accordance with this Section.


9. Entire Agreement. Together with the Change in Control Agreement, effective 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, between the Executive and the Company, the terms of this
Agreement (and the restricted stock award agreement contemplated under Section 3(a)(ii)(A) and the
stock option award agreement contemplated under Section 3(a)(ii)(B)) are intended by the parties to
be the final expression of their agreement with respect to the employment of the Executive by the
Company and may not be contradicted by evidence of any prior or contemporaneous agreement. The
parties further intend that this Agreement (and such restricted stock award agreement and such
stock option award agreement) and said Change in Control Agreement shall constitute the complete
and exclusive statement of their terms and that no extrinsic evidence whatsoever may be introduced
in any judicial, administrative, or other legal proceeding involving either Agreement. The Change
in Control Agreement and this Agreement (and such restricted stock award agreement and such stock
option award agreement) supersede any prior agreements, written or oral, between the Company and
the Executive concerning the terms of his employment.



10. Amendments; Waivers. This Agreement may not be modified, amended, or terminated except
by an instrument in writing, signed by the Executive and by a duly authorized representative of the
Company other than the Executive. By an instrument in writing similarly
executed, either party may waive compliance by the other party with any provision of this Agreement
that such other party was or is obligated to comply with or perform, provided, however, that such
waiver shall not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy, or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy,
or power hereunder preclude any other or further exercise thereof or the exercise of any other
right, remedy, or power provided herein or by law or in equity.




15









 







11. Severability; Enforcement. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision of this Agreement.



12. Governing Law. This Agreement shall be governed by and construed in accordance with
the laws of the State of California, without reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions hereof and shall have no force or effect.



13. Executive Acknowledgment. The Executive acknowledges (a) that he has consulted with or
has had the opportunity to consult with independent counsel of his own choice concerning this
Agreement and has been advised to do so by the Company, and (b) that he has read and understands
the Agreement, is fully aware of its legal effect, and has entered into it freely based on his own
judgment.



14. Arbitration. Any controversy between the Executive, his heirs or estate and the
Company or any employee of the Company, including but not limited to, those involving the
construction or application of any of the terms, provisions or conditions of this Agreement or
otherwise arising out of or related to this Agreement, shall be settled by arbitration before a
single arbitrator in accordance with the then current commercial arbitration rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrator may be entered by any
court having jurisdiction thereof. The location of the arbitration shall be San Francisco,
California if the Executive’s current or most recent location of employment with the Company is or
was located in Alameda or Contra Costa County, California. If it is or was elsewhere, the
arbitration shall be held at the city nearest to the Executive’s last location of employment with
the Company that has an office of the American Arbitration Association. The arbitrator shall, to
the extent that the Executive prevails in the arbitration, award attorney’s fees to the Executive.



15. Representation. The Executive represents and warrants to the Company that he has the
legal right to enter into this Agreement and to perform all of the obligations on his part to be
performed hereunder in accordance with its terms and that he is not a party to any agreement or
understanding, written or oral, which could prevent him from entering into this Agreement or
performing all of his obligations hereunder.



16. Indemnification. The Company agrees to indemnify the Executive and hold him harmless
to the fullest extent permitted by the Company’s certificate of incorporation, bylaws and
applicable law against and in respect to any and all actions, suits, proceedings, claims, demands,
judgments, costs, expenses, losses, and damages resulting from the Executive’s good faith
performance of his duties and obligations with the Company. The Company shall insure
the Executive under any contract of directors and officers liability insurance, insuring members of
the Board, during his employment and tenure as a Board member and thereafter for so long as he may
be subject to liability for such acts or omissions in the performance of his duties and obligations
to the Company.



17. Withholdings. The Company may withhold from any amounts payable pursuant to this
Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant
to any applicable law or regulation.




16









 







18. Code Section 409A. To the extent applicable, it is intended that this Agreement and
any payment made hereunder shall comply with the requirements of Section 409A of the Internal
Revenue Code, and any related regulations or other effective guidance promulgated with respect to
such Section by the U.S. Department of the Treasury or the Internal Revenue Service (“Code Section
409A”). Any provision that would cause the Agreement or any payment hereof to fail to satisfy Code
Section 409A shall have no force or effect until amended to the minimum extent required to comply
with Code Section 409A, which amendment may be retroactive to the extent permitted by Code Section
409A.



19. No Mitigation. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement and, except as specifically provided in Section 6(b), such amounts
shall not be reduced if the Executive obtains other employment.



20. Inconsistency. In the event of any inconsistency between (a) this Agreement and (b)
any other plan, program, practice or agreement in which the Executive participates or is a party,
this Agreement shall control.




17









 







21. 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
instruments. One or more counterparts of this Agreement may be delivered by facsimile, with the
intention that delivery by such means shall have the same effect as delivery of an original
counterpart thereof.




     The parties have duly executed this Agreement as of the date that first appears at the
beginning of this Agreement.



	 	 	 	 	 
	 	 	The Company:

THE CLOROX COMPANY
	 
	 	 	 	 
	 	 	/s/ Robert W. Matschullat
	 

	 	By:	 	Robert W. Matschullat
	 

	 	 	 	 
	 

	 	Its:	 	Interim Chairman and Interim Chief
Executive Officer
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	The Executive:
	 
	 	/s/ Donald R. Knauss	 	 
	 	 	 






18









 








EXHIBIT




GENERAL RELEASE




     This document is an important one. You should review it carefully and, if you agree to it,
sign at the end on the line indicated.



     You have 21 days to sign this Release, during which time you are advised to consult with an
attorney regarding its terms.



     After signing this Release, you have seven days to revoke it. Revocation should be made in
writing and delivered so that it is received by the Corporate Secretary of The Clorox Company, 1221
Broadway, Oakland, CA 94612 no later than 4:30 p.m. on the seventh day after signing this Release.
If you do revoke this Release within that time frame, you will have no rights under it. This
Release shall not become effective or enforceable until the seven day revocation period has
expired.



     The agreement for payment of consideration in paragraph 2 will not become effective until the
seven day revocation period has passed.



     This GENERAL RELEASE is entered into between The Clorox Company (hereinafter referred to as
“Employer”) and                      (hereinafter referred to as “Employee”). Employer and Employee
agree as follows:



     1. Employee’s regular employment with Employer will terminate as of                     , 20___.
Employee is ineligible for reemployment or reinstatement with Employer.



     2. Upon Employee’s acceptance of the terms set forth herein, the Employer agrees to provide
the Employee with compensation and benefits set forth in Section 6 of the Employment Agreement
between Employee and the Employer effective as of                     , 2006 (“Employment Agreement”), a
copy of which is attached as the first Exhibit to this General Release. A complete description of
those benefits is attached as the second Exhibit to this General Release.



     3(a). In consideration of the Employer providing Employee this compensation, Employee and
Employee’s heirs, assignees and agents agree to release the Employer, all affiliated companies,
agents (solely in their capacity as agents and not as advisors) and employees and each of their
successors and assigns (hereinafter referred to as “Releasees”) fully and finally from any claims,
liabilities, demands or causes of action which Employee may have or claim to have against the
Releasees at present or in the future, except claims for vested benefits, if any; provided, this
release does not apply to (x) Employee’s rights under paragraph 2 hereof, (y) Employees rights to
indemnification under Section 16 of the Employment Agreement or otherwise or (z) Employee’s rights
to accrued and vested benefits under all employee benefit plans of the Employer (in accordance with
the terms thereof) in which he actively participated immediately prior to termination of his
employment. The claims released may include, but are not limited to, any tax obligations as a
result of the payment of consideration referred to in paragraph 2, and claims arising under
federal, state or local laws prohibiting discrimination in employment, including the Age
Discrimination in Employment Act (ADEA) or claims growing



 









 







out of any legal restrictions on the Employer’s right to terminate its employees. Claims of
discrimination, wrongful termination, age discrimination, and any other claims other than as
expressly excepted above are hereby released.



     (b). By signing this document, Employee agrees not to file a lawsuit to assert such claims.
Employee also agrees that if Employee breaches this provision, Employee will be liable for all
costs and attorneys’ fees incurred by any Releasee resulting from such action.



     4. By signing this document, Employee is also expressly waiving the provisions of California
Civil Code section 1542, which provides as follows:




“A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.”



     By signing this document, Employee agrees and understands that Employee is releasing unknown
as well as known claims related to Employee’s employment in exchange for the compensation set forth
above.



     5. Employee agrees to maintain in complete confidence the terms of this Release, except as it
may be necessary to comply with a legally compelled request for information. It is agreed since
confidentiality of this Release is of the essence, damages for violation being impossible to assess
with precision, that $10,000 is a fair estimate of the damage caused by each disclosure and is
agreed to as the measure of damages for each violation.



     6. Employee agrees to indemnify and hold Employer harmless from and against any tax
obligations for which Employee may become liable as a result of this Release and/or payments made
pursuant to the Employment Agreement, other than tax obligations of the Employer resulting from the
nondeductibility of any payments made pursuant to this Release or the Employment Agreement.



     7. Agreeing to this Release shall not be deemed or construed by either party as an admission
of liability or wrongdoing by either party.



     8. This Release, the Employment Agreement and the plan documents of plans of The Clorox
Company referred to in the Employment Agreement set forth the entire agreement between Employee and
the Employer. This Release and the Employment Agreement are not subject to modification except in
writing executed by both of the parties. The Clorox Company plans referred to in the Employment
Agreement may be amended in accordance with the provisions of those plans not inconsistent with the
Employment Agreement.



ii









 





     Employee acknowledges by signing below that Employee has not relied upon any representations,
written or oral, not set forth in this Release.



	 	 	 
	 

Employee

	 	 






Dated:




	 	 	 	 	 	 	 
	 	 	THE CLOROX COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Dated:
	 	 

	 	 







iii