<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE CLOROX COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
THE CLOROX COMPANY
---------
NOTICE OF ANNUAL MEETING
AND
PROXY STATEMENT
-------------
ANNUAL MEETING OF
STOCKHOLDERS
NOVEMBER 20, 1996
<PAGE>
[CLOROX LOGO]
THE CLOROX COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 20, 1996
The Annual Meeting of Stockholders of The Clorox Company, a Delaware
corporation (the "Company"), will be held at 9:00 A.M. on Wednesday, November
20, 1996, at the offices of the Company, 1221 Broadway, Oakland, California, for
the following purposes:
1. To elect a board of thirteen directors to hold office until the next
annual election of directors;
2. To consider and vote upon The Clorox Company 1996 Stock Incentive Plan;
3. To consider and vote upon The Clorox Company 1996 Executive Incentive
Compensation Plan;
4. To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the fiscal year ending June 30, 1997; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The board of directors has fixed the close of business on September 23, 1996
as the record date for determining the stockholders entitled to notice of, and
to vote at, the meeting and any adjournment thereof. A list of such stockholders
will be available at the time and place of the meeting and, during the ten days
prior to the meeting, at the office of the Secretary of the Company at 1221
Broadway, Oakland, California.
A copy of the Company's Annual Report for the fiscal year ended June 30,
1996, containing financial statements, is included with this mailing.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING. EVEN IF YOU
PLAN TO ATTEND THE MEETING, WE HOPE THAT YOU WILL PROMPTLY MARK, SIGN, DATE AND
RETURN THE ENCLOSED TWO-SIDED PROXY IN THE ENCLOSED ENVELOPE. THIS WILL NOT
LIMIT YOUR RIGHT TO ATTEND OR VOTE AT THE MEETING.
By Order of the Board of Directors
Edward A. Cutter,
SENIOR VICE PRESIDENT -- GENERAL
COUNSEL
AND SECRETARY
September 30, 1996
<PAGE>
THE CLOROX COMPANY
1221 BROADWAY
OAKLAND, CALIFORNIA 94612
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of proxies
by the board of directors of The Clorox Company, a Delaware corporation (the
"Company"), for use at the Annual Meeting of Stockholders of the Company, to be
held at 9:00 A.M. on November 20, 1996 at the above offices of the Company (the
"Annual Meeting").
THE PROXY
A stockholder giving the enclosed proxy may revoke it at any time before it is
used by giving written notice of revocation to the Secretary of the Company or
by voting in person at the Annual Meeting.
VOTING AT THE ANNUAL MEETING
The only voting securities of the Company are its shares of common stock $1.00
par value (the "Common Stock"), of which 51,577,205 were outstanding and
entitled to vote at the close of business on September 23, 1996. Only
stockholders of record at the close of business on September 23, 1996 are
entitled to vote at the Annual Meeting. The holders of the Common Stock are
entitled to one vote per share on each matter submitted to a vote of
stockholders.
The holders of a majority of the issued and outstanding Common Stock, present in
person or by proxy, will constitute a quorum for the transaction of business at
the Annual Meeting or any adjournment thereof. Abstentions and broker non-votes
are counted as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Abstentions are not counted as votes cast
on the proposed election of directors, but will have the same legal effect as a
vote against the adoption of The Clorox Company 1996 Stock Incentive Plan and
The Clorox Company 1996 Executive Incentive Compensation Plan and the
ratification of the appointment of independent auditors. Broker non-votes are
not counted as votes cast on any matter to which they relate.
This proxy statement and the accompanying proxy are first being sent or given to
stockholders on or about September 30, 1996.
PROPOSAL NO. 1:
NOMINEES FOR ELECTION AS DIRECTORS
At the Annual Meeting, thirteen persons will be elected as members of the board
of directors, each for a one-year term. The Nominating Committee of the board of
directors has nominated the thirteen persons listed below for election at the
Annual Meeting. All of such nominees were elected at the Company's Annual
Meeting of Stockholders held on November 15, 1995.
The proxies given to the proxyholders will be voted or not voted as directed
thereon and, if no direction is given, will be voted FOR these thirteen
nominees. The board of directors knows of no reason why any of these nominees
should be unable or unwilling to serve. However, if for any reason any nominee
should be unable or unwilling to serve, the proxies will be voted for the
election of such other person to the office of director as the board of
directors may nominate in the place of such nominee.
Certain information with respect to each nominee appears on the following pages,
including age, period or periods served as a director, position (if any) with
the Company, business experience during at least the past five years and
directorships of other publicly-owned corporations.
1
<PAGE>
<TABLE>
<CAPTION>
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NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
WILLIAM F. AUSFAHL Group Vice President and Chief Financial 1984
Officer of the Company.
Mr. Ausfahl is the senior executive officer responsible for
the financial activities of the Company, which include
controllership, treasury, tax and audit, and for information
services, investor relations, and public affairs. He joined
the Company in December 1982, and became Group Vice President
and Chief Financial Officer in January 1983. Age: 56.
[PHOTO]
- ---------------------------------------------------------------------------------
DANIEL BOGGAN, JR. Chief Operating Officer, the National Col- 1990
legiate Athletic Association.
Mr. Boggan became the Chief Operating Officer of the National
Collegiate Athletic Association in 1996, after having been
Group Executive Director for Education Services for the
National Collegiate Athletic Association since November 1994.
Previously, he had been Vice Chancellor for business and
administrative services at the University of Cali-
fornia at Berkeley since 1986. Age: 50. [PHOTO]
- ---------------------------------------------------------------------------------
JOHN W. COLLINS Former President and Chief Operating Officer 1993
of the Company.
Mr. Collins was President and Chief Operating Officer of the
Company from March 1986 through December 1989. He was also a
Director of the Company from July 1983 through October 1989.
Beginning January 1990, he was on a paid leave of absence
which extended until his retirement on December 31, 1993. He
was not active in the Company's
affairs from January 1990 until his reelection to the board [PHOTO]
of directors in January 1993. Age: 65.
- ---------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
URSULA FAIRCHILD Professional Photographer. 1976
Mrs. Fairchild is a professional photographer, as well as a
member of the Supervisory Board of Henkel KGaA, Duesseldorf,
Germany (manufacturer of household products and chemicals).
She is a member of the Henkel family which controls Henkel
KGaA and is nominated pursuant to an understanding between
the Company and Henkel KGaA (see
Certain Relationships and Transactions, page 9 below). Age: [PHOTO]
65.
- ---------------------------------------------------------------------------------
JUERGEN MANCHOT Vice-Chairman of the Shareholders' Commit- 1989
tee, Henkel KGaA.
Dr. Manchot is the Vice-Chairman of the Shareholders'
Committee of Henkel KGaA, Duesseldorf, Germany (manufacturer
of household products and chemicals). He is a member of the
Henkel family which controls Henkel KGaA and is nominated
pursuant to an understanding between the Company and Henkel
KGaA (See Certain Relationships
and Transactions, page 9 below). Dr. Manchot is a director of [PHOTO]
Transaction Network Services Inc. Age: 59.
- ---------------------------------------------------------------------------------
DEAN O. MORTON Retired Executive Vice President and Chief 1991
Operating Officer, Hewlett-Packard Company.
Mr. Morton was the Executive Vice President, Chief Operating
Officer and a Director of Hewlett-Packard Company until his
retirement in 1993. Mr. Morton is a director of ALZA
Corporation, Raychem Corporation, Tencor Instruments,
Centigram Communications Corporation, and Kaiser Foundation
Health Plan, Inc. Hospitals. He is a trustee of
the State Street Research Group of Funds, The State Street
Research Portfolios, Inc. and The Metropolitan Series Fund [PHOTO]
Inc. Age: 64.
- ---------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
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NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
KLAUS MORWIND Executive Vice President and Personally Liable 1995
Associate, Henkel KGaA.
Dr. Morwind is a member of the Management Board of Henkel
KGaA, Duesseldorf, Germany (manufacturer of household
products and chemicals). He joined Henkel KGaA in 1969 and
held several management positions before assuming his current
responsibility. Dr. Morwind is nominated pursuant to an
understanding between the Company and
Henkel KGaA (see Certain Relationships and Transactions, page [PHOTO]
9 below). Age: 53.
- ---------------------------------------------------------------------------------
EDWARD L. SCARFF Private Investor. 1986
Mr. Scarff has been a private investor for more than five
years. From 1983 through 1994, he was Chairman of the Board
and Chief Executive Officer of Arcata Corporation (commercial
printer and manufacturer of redwood lumber). Age: 65.
[PHOTO]
- ---------------------------------------------------------------------------------
LARY R. SCOTT Executive Vice President, Arkansas Best 1989
Corporation.
Mr. Scott was elected as Executive Vice President of Arkansas
Best Corporation in January 1996. Previously, he had been
President of Alexis Consulting, a transportation consulting
firm. From 1985 to 1990, Mr. Scott was President and Chief
Executive Officer of Consolidated Freightways, Inc., a
worldwide transportation company. Mr. Scott is a
director of WorldWay Corporation. Age: 60. [PHOTO]
- ---------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
FORREST N. SHUMWAY Retired Vice Chairman of the Board, 1985
Allied-Signal Inc.
Mr. Shumway is the retired Vice Chairman of the Board of
Allied-Signal Inc. (manufacturer of products in the
aerospace, aviation, chemical and energy industries).
Previously, he was Chief Executive Officer (1968-1985) and
Chairman of the Board (1980-1985) of The Signal Companies,
Inc. until its merger into Allied-Signal Inc. Mr. Shumway is
a director of Aluminum Company of America, American President [PHOTO]
Companies, Ltd. and Transamerica Corporation. Age: 69.
- ---------------------------------------------------------------------------------
G. CRAIG SULLIVAN Chairman of the Board and Chief Executive 1992
Officer of the Company.
Mr. Sullivan has been Chairman of the Board and Chief
Executive Officer of the Company since July 1, 1992.
Previously, he was Vice Chairman and Chief Executive Officer
(May-June, 1992); Group Vice President (1989-1992); Vice
President -- Household Products (1984-1989); and Vice
President -- Food Service Products Division
(1981-1984). He joined the Company in 1971. Mr. Sullivan is a [PHOTO]
director of American President Companies, Ltd. Age: 56.
- ---------------------------------------------------------------------------------
JAMES A. VOHS Retired Chairman of Kaiser Foundation Health 1988
Plan, Inc. and Kaiser Foundation Hospitals.
Mr. Vohs retired as Chairman of the Board of Kaiser
Foundation Health Plan, Inc. and Kaiser Foundation Hospitals
in March 1992. Previously, he had served as President
(1975-1991) and Chief Executive Officer (1980-1991).
Currently, Mr. Vohs serves as Deputy Chairman of the Board of
Directors of the Federal Reserve Bank of San Francisco.
Age: 67. [PHOTO]
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</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NAME, PRINCIPAL OCCUPATION DIRECTOR
AND OTHER INFORMATION SINCE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
C. A. (AL) WOLFE Retired President, U.S. Division, DDB 1991
Needham Worldwide and President, Al Wolfe Associates, Inc.
Mr. Wolfe is the President of Al Wolfe Associates, Inc., a
marketing and advertising consulting firm. He is the retired
President of the U.S. Division of DDB Needham Worldwide, a
major advertising agency. Previously, Mr. Wolfe had been
Executive Vice President of N.W. Ayer and Executive Vice
President and General Manager of Wells, Rich,
Greene advertising agencies. He is a director of Dolphin [PHOTO]
Software, Inc. Age: 64.
- ---------------------------------------------------------------------------------
</TABLE>
ORGANIZATION OF THE BOARD OF DIRECTORS
The board of directors has established six standing committees: the Executive
Committee, the Finance Committee, the Audit Committee, the Nominating Committee,
the Employee Benefits and Management Compensation Committee, and the Board
Administration and Public Policy Committee. The Finance, Audit, Nominating,
Employee Benefits and Management Compensation, and the Board Administration and
Public Policy Committees consist only of non-management, independent directors,
with the exception of the Board Administration and Public Policy Committee on
which Mr. Sullivan serves as the chairman and secretary.
EXECUTIVE COMMITTEE. The Executive Committee, consisting of directors Collins,
Fairchild, Manchot, Morton, Morwind, Scarff, Shumway, Sullivan and Vohs, is
delegated all of the powers of the board of directors except certain powers
reserved by law to the full board. In addition to being available to meet
between regular board meetings on occasions when board action is required but
the convening of a full board is impracticable, the Executive Committee is
authorized to handle special assignments as requested from time to time by the
board. The Executive Committee held no meetings during fiscal year 1996.
FINANCE COMMITTEE. The Finance Committee consists of directors Boggan, Collins,
Manchot, Morton, Morwind, Scarff and Shumway and, working with the Company's
finance and operating personnel, considers and recommends to the board major
financial policies and actions of the Company. The Finance Committee held four
meetings during fiscal year 1996.
AUDIT COMMITTEE. The Audit Committee, composed of directors Fairchild, Morwind,
Scarff, Scott and Wolfe, is the principal link between the board and the
Company's independent public accountants. The Audit Committee makes
recommendations to the board regarding selection and employment of the Company's
independent auditors and, working with the Company's internal and external
auditors, monitors internal audit and control procedures. The Audit Committee
held three meetings during fiscal year 1996.
NOMINATING COMMITTEE. Directors Boggan, Fairchild, Scarff, Vohs and Wolfe are
members of the Nominating Committee. The Nominating Committee identifies and
recommends to the board of directors prospective candidates to be considered as
nominees for election to the board, including those recommended in writing by
any stockholder. The Nominating Committee held two meetings during fiscal year
1996.
COMPENSATION COMMITTEE. The Employee Benefits and Management Compensation
Committee (the "Compensation Committee") consists of directors Fairchild,
Manchot, Morton, Scott, Shumway and Vohs. The Compensation Committee establishes
and monitors the policies under which compensation is paid or awarded to the
Company's executive officers, determines executive compensation, grants stock
options, restricted stock, performance units and other cash or stock awards
under the Company's stock option,
6
<PAGE>
management incentive compensation, restricted stock and long-term compensation
plans, and reviews pension and other retirement plans for adequacy and
compliance with applicable regulations. The Compensation Committee held five
meetings during fiscal year 1996.
BOARD ADMINISTRATION AND PUBLIC POLICY COMMITTEE. The Board Administration and
Public Policy Committee consists of directors Boggan, Collins, Fairchild,
Manchot, Morton, Morwind, Scarff, Scott, Shumway, Sullivan, Vohs and Wolfe. The
Board Administration and Public Policy Committee establishes the rules and
procedures for board governance, is the principal link between the board and the
public community and has oversight responsibility for environmental matters. The
Board Administration and Public Policy Committee held one meeting during fiscal
year 1996.
The board of directors held seven meetings during fiscal year 1996. All
directors attended more than 75% of the meetings of the board and committees of
which they were members during fiscal year 1996.
Non-management directors received an annual fee of $27,500 for the 1996 fiscal
year. In addition, each non-management director received $1,000 for each meeting
of the board attended and $875 for each meeting of a board committee attended.
The chairperson of each committee received an additional $625 for each committee
meeting attended. In addition, each non-management director is entitled to
receive $1,000 per day for any special assignment requested of any such director
by the board. However, no such special assignment fees were paid in fiscal year
1996. Management directors receive no extra compensation for their service as
directors. Directors may elect to defer all or a part of such compensation. Any
such deferred amounts are credited with interest annually. The interest paid is
based on the rate of interest paid by Wells Fargo Bank as its Prime Rate on July
1 of each year. Wells Fargo Bank's Prime Rate on July 1, 1995 was 8.325%. During
fiscal year 1996, all deferred fees were payable only in cash. In addition,
under the retirement plan for non-management directors, through fiscal year 1996
any directors who had at least five years of service, after termination of
service and upon attainment of age 65, would have received annual payments equal
to the annual retainer they received during their last twelve months of service
for the number of calendar years and quarters they served as a non-management
director. Commencing fiscal year 1997, in order to maintain competitiveness, the
value of the retirement benefits to directors will be replaced with an award
based on the value of the Common Stock. Directors are covered by the Company's
business travel accident insurance plan for travel to and from meetings of the
board of directors.
Pursuant to the Company's 1993 Directors' Stock Option Plan, each non-management
director received a grant of stock options covering 500 shares of Common Stock
during fiscal year 1996. Such stock options vest in two equal installments on
each of the first two anniversary dates of the grant date and have an exercise
price equal to the fair market value on the grant date. Other than the
non-management director fees, the retirement benefits, the business travel
accident insurance coverage, and the stock option grants described above,
directors who are not employees of the Company do not receive any additional
form of direct compensation, nor do they participate in any of the Company's
employee plans.
7
<PAGE>
BENEFICIAL OWNERSHIP OF VOTING SECURITIES
The following table shows, as of July 31, 1996, the holdings of the Common Stock
by (i) the only entity or person known to the Company to be the beneficial owner
of more than 5% of the Common Stock, (ii) each director and each of the five
executive officers named in the Summary Compensation Table on page 14 (the
"Named Officers"), and (iii) all directors, Named Officers, and other executive
officers of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER(1) OWNERSHIP(2) CLASS(3)
- -------------------------------------------------------- ---------------------- ----------
<S> <C> <C>
HC Investments, Inc. (4) 15,428,100 29.94%
William F. Ausfahl 98,125 *
Daniel Boggan, Jr. 1,287 *
John W. Collins 24,200 *
Neil P. DeFeo (5) 48,371 *
Ursula Fairchild 5,750 *
Ramon A. Llenado 34,458 *
Peter N. Louras 52,703 *
Juergen Manchot 3,750 *
Dean O. Morton 4,750 *
Klaus Morwind 200 *
Edward L. Scarff 7,750 *
Lary R. Scott 6,108 *
Forrest N. Shumway 7,750 *
G. Craig Sullivan 141,198 *
James O. Vohs 3,750 *
C. A. (Al) Wolfe 3,750 *
All directors, Named Officers and other executive
officers as a group (34 persons) (6) 971,084 1.88%
</TABLE>
- ---------
Notes:
* Does not exceed 1% of the outstanding shares.
(1) Correspondence to all executive officers and directors of the Company may be
mailed to 1221 Broadway, Oakland, California 94612. The address of HC
Investments, Inc. is 1100 North Market Street, Suite 780, Wilmington,
Delaware 19801.
(2) Each beneficial owner listed has sole voting and dispositive power (or
shares such power with her or his spouse) concerning the shares indicated.
These totals include the following number of shares of Common Stock which
such persons have the right to acquire through stock options exercisable
within 60 days of July 31, 1996: Mr. Sullivan -- 120,659; Mr. DeFeo --
40,226; Mr. Ausfahl -- 59,246; Mr. Louras -- 39,864; Dr. Llenado -- 22,670;
Mr. Boggan -- 1,000; Mr. Collins -- 20,500; Dr. Morwind -- 0; Mr. Wolfe --
1,750; each of the other directors -- 2,750; and all directors, Named
Officers and other executive officers as a group (34 persons) -- 717,475.
The numbers above do not include the following number of shares of Common
Stock which such persons have the right to acquire on or after December 31,
1997 through deferred stock units granted in December 1995 in exchange for
the cancellation of certain restricted stock, and through deferred stock
unit dividends thereon: Mr. Sullivan -- 20,779; Mr. Ausfahl -- 6,233; Mr.
Louras -- 6,731; each of the directors and Mr. DeFeo and Dr. Llenado -- 0;
and all directors, Named Officers and other executive officers as a group
(34 persons) -- 83,314.
(3) On July 31, 1996, there were 51,531,384 shares of Common Stock issued and
outstanding.
8
<PAGE>
(4) Indirect wholly-owned United States subsidiary of Henkel KGaA of
Duesseldorf, Germany (manufacturer of household products and chemicals).
(5) Mr. DeFeo is the former Group Vice President -- U.S. Operations. His
employment with the Company terminated as of July 1, 1996.
(6) Executive officers include the chief executive officer and all the vice
presidents of the Company.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
The Company and Henkel KGaA are parties to a June 1981 letter agreement (as
amended in July 1986 and March 1987), relating to ownership by Henkel KGaA of
Common Stock and representation on the Company's board of directors. The July
1986 amendment assures Henkel KGaA of the right to nominate for election to the
board a minimum of two representatives so long as Henkel KGaA beneficially owns
at least 5% of the outstanding shares of Common Stock. Under the letter
agreement, as amended, Henkel KGaA's maximum permitted ownership of Common Stock
without consultation with the Company is limited to 30%, and Henkel KGaA has
affirmed that it considers its investment in the Company as long-term and its
role in the Company as that of a significant minority stockholder without an
active role in the management of the Company.
The Company and Henkel KGaA have entered into certain joint manufacturing,
marketing and product development arrangements in the United States and
internationally, either directly or through affiliates or joint venture
collaboration. No such arrangements, either individually or in the aggregate,
were material to the Company or Henkel KGaA during fiscal year 1996.
During fiscal year 1995, in connection with joining the Company, Frank A.
Tataseo, Vice President -- Sales of the Company, received a five-year $150,000
mortgage loan without interest from the Company, which loan remained outstanding
during fiscal year 1996.
EMPLOYEE BENEFITS AND MANAGEMENT COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The membership of the Compensation Committee consists entirely of directors who
have never been employees of the Company (see page 6). The Compensation
Committee establishes and regularly determines executive compensation levels and
policies.
COMPENSATION PHILOSOPHY.
Compensation for executive officers is based on the principles that compensation
must (a) be competitive with other businesses to attract, motivate and retain
the talent needed to lead and grow the Company's business; (b) be linked to the
Company's performance in achieving its short-term and long-term goals; (c)
provide strong incentives for superior Company and individual performance and
adverse consequences for below-target performance; and (d) encourage executive
officers to build their holdings of the Company's stock to align their goals
with those of the stockholders.
COMPENSATION OF EXECUTIVE OFFICERS.
The key components of the executive compensation program are base annual salary,
annual short-term incentive awards in the form of stock or cash under the
Management Incentive Compensation Plan (the "MIC Plan"), and long-term incentive
awards in the form of stock options, restricted stock, and performance units
under the Company's 1987 Long-Term Compensation Program. The compensation
guidelines are determined by competitive data collected from the comparator peer
group discussed below and internal ranking within the executive officer group.
General targeted competitive levels for all elements of pay are the 50th
percentile of such comparator peer group when adjusted for size. There is
opportunity for the executive officers to earn more than the targeted 50th
percentile if the Company's performance exceeds the measures discussed in this
report and less than the 50th percentile when performance falls below the
targeted levels.
9
<PAGE>
BASE ANNUAL SALARY. Base annual salaries for executive officers are determined
by the following factors: (1) parity to market; (2) the individual's
performance; (3) promotions resulting in increases in responsibility; and (4)
equity in relationship to other executive positions within the Company. With the
assistance of the Company's compensation consulting firm, surveys are conducted
of benchmark positions in 27 other peer companies (the "Peer Companies"), most
of which compete with the Company in one or more of its primary businesses or
compete with the Company for management talent. Those which are not direct
competitors are in closely-related fields. The Compensation Committee takes into
account both the size and performance of the Company relative to the size and
performance of the Peer Companies. It also considers the competitiveness of the
entire compensation package of the Company's executive officers compared to the
Peer Companies. The Compensation Committee reviews which peer companies are
selected for compensation analysis and updates the composition of the Peer
Companies periodically. For fiscal year 1996, the Compensation Committee
established salary ranges for executive officer positions with midpoints which
approximate the 50th percentile or median level of the comparable, benchmarked
positions. An individual executive officer's position within a salary range
depends upon her or his length of service in the position and the executive
officer's performance, as judged by her or his immediate superior and the chief
executive officer. The chief executive officer's performance is judged by the
Compensation Committee. The performance of the other five executive officers who
serve as members of the management executive committee is judged by the chief
executive officer and the Compensation Committee together. Elements of
performance assessed for all executive officers include achieving financial
performance goals tied to their particular responsibilities in the Company and
individual objectives, some of which are not of a financial nature. All such
objectives are agreed to in advance by the executive officer and her or his
immediate superior, or in the chief executive officer's case, by him and the
Compensation Committee. An executive officer may also receive a promotional
salary increase to reflect increases in her or his job responsibility.
MANAGEMENT INCENTIVE COMPENSATION PLAN. The MIC Plan is an annual incentive
plan in which the top 311 managers of the Company participate. For fiscal year
1996, the MIC Plan, as it applied to executive officers, established a linkage
between the annual bonus awards and both the Company's performance and the
individual performance of each executive officer. The Compensation Committee
believes that awards under the MIC Plan should include an element of adverse
consequences for poor financial results, including no MIC Plan award funding for
the Company's financial performance component described below unless the Company
achieves an earnings before taxes target previously established by the
Compensation Committee. That earnings before taxes target was exceeded in fiscal
year 1996.
In keeping with the Company's desire to have executive officers build their
holdings of the Company's stock, in fiscal year 1996 executive officers
continued to be able to elect to receive all or a portion of their MIC Plan
award in the Company's stock rather than cash. Those participants electing stock
received a premium equal to 20% of the bonus amount elected to be paid in the
Company's stock based on the fair market value on August 30, 1996. Those premium
shares will be forfeited if the officer transfers the MIC Plan stock before
September 1, 1998 or leaves the Company, other than by death, disability or
retirement, before that date.
For the MIC Plan, the Compensation Committee divided the executive officer group
into two subcategories. For fiscal year 1996, the six executive officers who
served as members of the management executive committee are the five executive
officers named in the Summary Compensation Table on page 14, plus Mr. Edward A.
Cutter, Senior Vice President -- General Counsel and Secretary. For those six
executive officers, 75% of the MIC Plan award was determined by achieving
corporate financial performance measures previously established by the
Compensation Committee based on a computation consisting of targeted operating
margin level, asset turnover rate and volume growth. In the computation, the
targeted operating margin level and asset turnover rate were given equal weight
and counted approximately 75% in the determination of the financial measures.
Volume growth was weighted at approximately 25%. The targeted corporate
financial measures were exceeded as measured at the end of fiscal year 1996.
The remaining 25% of the MIC Plan award was based on achieving pre-established
individual objectives related to goals that cannot be measured by traditional
accounting tools, including the review and updating
10
<PAGE>
of the Company's strategic plan and the simplification of the Company's work
processes. Individual objectives and the weight given each individual objective
were the same for the members of the management executive committee.
The target MIC Plan award for the six management executive committee members was
50% of base annual salary at June 30, 1996 (60% for the chief executive officer)
if the corporate financial performance and individual objectives were achieved.
The maximum MIC Plan award was 100% of base annual salary at June 30, 1996 (120%
for the chief executive officer) if the goals were substantially exceeded, and
the minimum MIC Plan award was 0 if the goals came in substantially lower than
the targets. All MIC Plan awards are determined by the chief executive officer
and the Compensation Committee or, in the chief executive officer's case, by the
Compensation Committee. The MIC Plan awards to members of the executive officer
group, other than the six management executive committee members, were
determined based on (i) the same corporate financial performance measures; and
(ii) achieving individual objectives, including, for operating division
officers, operating division financial performance measures and other individual
objectives, and for staff executive officers, individual objectives, such as the
achievement of selected strategic goals and the successful development of human
resources. Individual objectives and the weight given each individual objective
varied from person to person depending on job responsibilities. The target MIC
Plan award for the other members of the executive officer group was 40% of base
annual salary at June 30, 1996 if goals were achieved up to a maximum of 80% if
the goals were substantially exceeded and down to a minimum of 0 if the goals
came in substantially lower than the targets.
LONG-TERM COMPENSATION PROGRAM. A major goal of the Compensation Committee is
to create strong alignment between the executive officers and stockholders. This
alignment is achieved through the design of incentive plans and through actual
stock ownership. In furtherance of this goal, in September 1993, the
Compensation Committee departed from its previous practice of annual grants of
stock options and restricted stock and provided significantly larger grants to
all executive officers than it had in prior years. It was the Compensation
Committee's general intention that the larger September 1993 grants were to be
in place of smaller annual grants in September of 1993, 1994, and 1995. The
Compensation Committee believes that the 1993 grants were very effective in
focusing the officers on creation of stockholder value. To continue that
objective and in anticipation of the expiration of the 1993 awards, the
Compensation Committee approved a new 3-year grant to all executive officers in
April 1996. The fiscal year 1996 grants continued the Compensation Committee's
past practice of targeting overall compensation to the 50th percentile of
comparable positions from the Peer Companies. The Compensation Committee granted
additional stock options to each executive officer which would have the
possibility of lifting the executive officer's stock-based compensation
component from the 50th to the 75th percentile. Except for such additional stock
options, the stock options awarded to executive officers in fiscal year 1996 had
ten-year lives and one-third of the number of option shares will vest on each of
June 30, 1998, 1999, and 2000. Option shares vesting on June 30, 1998 have an
exercise price of $80.94, the fair market value on the option grant date. Option
shares vesting on June 30, 1999 and 2000 have exercise prices of $89.03 and
$97.13, premiums of 10% and 20%, respectively, over the $80.94 fair market value
on the option grant date. The additional stock options will vest in seven years,
on June 30, 2003, but could vest earlier if the Company's stock trades for 45
consecutive days at an average price of $121.41 per share, a 50% premium over
the $80.94 fair market value on the option grant date.
In fiscal year 1996, performance units were issued to executive officers, and
vesting will be determined based on the relative total stockholder return (stock
price appreciation plus dividends paid) of the Common Stock measured against two
comparator groups: first, the total stockholder return of the Standard & Poor's
500 Stock Index and second, the total stockholder return of an index of stocks
of the Peer Companies. Each comparator group will have an equal weight of 50%.
If, on average, the Company's total stockholder return is at or above the 60th
percentile relative to the stockholder returns of the two groups as measured at
the end of fiscal year 1999, the restrictions on the performance units will
lapse on that day. If the restrictions do not lapse on that date and the
Company's total stockholder return is at or above the 50th percentile at the end
of fiscal year 2000, the performance units will vest at that time. If, at the
end of fiscal year 2000 the Company's total stockholder return is at or above
the 40th percentile, but below the 50th percentile, half of the
11
<PAGE>
performance units will vest and the other half will be forfeited. If, at the end
of fiscal year 2000, the Company's total stockholder return is below the 40th
percentile, all of the performance units will be forfeited.
Performance shares awarded to executive officers in September 1993 had the first
opportunity to vest based on the Company's total stockholder return compared
with the Standard & Poor's 500 Stock Index and the comparator companies at the
end of fiscal year 1996. In December 1995, the Company offered the executive
officers the opportunity to exchange some or all of those performance shares for
performance units which are redeemable in an equal number of shares of the
Common Stock. Conversion of the performance units into unrestricted shares of
stock was deferred until the officer's retirement or termination from the
Company. Performance units received in the exchange were subject to a risk of
forfeiture if the officer voluntarily terminated her or his employment, other
than by retirement, prior to December 31, 1997, or if the officer was terminated
for "Cause," as that term is defined in the officer's employment agreement,
prior to that date. As an incentive for executive officers to make the exchange,
the officer received additional performance units equal to 10% of the number of
performance shares exchanged. The Company's total stockholder return performance
at the end of fiscal year 1996 was such that the performance shares awarded in
September 1993 will vest on October 1, 1996 unless they were exchanged as
described above.
The Compensation Committee has endorsed target stock ownership levels by
executive officers to be achieved by fiscal year 1999, based on the fair market
value of the Common Stock at that time. The levels are the equivalent of four
times base annual salary for the chief executive officer, three times base
annual salary for the other executive officers who serve as members of the
management executive committee, and two times base annual salary for other
executive officers. No stock options will be counted in determining ownership
levels, which will be based on shares of Common Stock held, including restricted
stock, performance shares and performance units, if payable only in stock, and
shares held via the Company's Value Sharing Plan.
BENEFITS. The Company provides various employee benefit programs to its
executive officers, including medical and life insurance benefits, retirement
benefits, an employee stock purchase plan and the Value Sharing Plan (formerly,
the Profit Sharing Plan), which also includes 401(k) features. Except for the
Supplemental Executive Retirement Plan and the Nonqualified Deferred
Compensation Plan described on page 19 and individual financial planning
services, these benefit programs are generally available to all employees of the
Company.
CHIEF EXECUTIVE OFFICER COMPENSATION.
The Compensation Committee increased Mr. Sullivan's base annual salary on
October 1, 1995 from $625,000 to $690,000. In determining the amount of Mr.
Sullivan's salary increase for fiscal year 1996, the Compensation Committee took
into consideration the Company's overall performance for the 1995 fiscal year.
The Company's achievements included volume growth of 10%; an increase in net
earnings of 12%; maintenance of a net profit margin of more than 10%; an
all-time record high 21.7% return on equity from continuing operations; and a
reversal of a long-term decline in net asset productivity, as net assets in
fiscal year 1995 grew only 8% compared with the 10% volume and 12% profit gains.
Mr. Sullivan's salary increase was also determined based on parity to the median
level of comparable positions in the Peer Companies.
Mr. Sullivan's MIC Plan award for fiscal year 1996 was based upon the weighted
corporate financial performance measures (75%) and individual objectives (25%)
established by the Compensation Committee as described above. The targets were
exceeded, and Mr. Sullivan's MIC Plan award formula called for a payment of
$571,320.
The Long-term Compensation Program component of Mr. Sullivan's compensation is
described above. Other than making awards at a higher percentage of his base
annual salary, the Compensation Committee did not treat Mr. Sullivan's Long-term
Compensation Program or MIC Plan awards differently from other members of the
management executive committee.
12
<PAGE>
ON-GOING REVIEW OF COMPENSATION.
The Company's compensation consulting firm conducts an ongoing review of the
Company's existing executive compensation programs for the Compensation
Committee to continue to ensure the programs support the future direction of the
Company and the principles on which executive compensation is based. The
Compensation Committee reserves the right to select and/or meet independently
with any consultant at its discretion. The Compensation Committee has access to
and reviews independent compensation data relating to executive compensation at
other companies. The Compensation Committee has developed performance goals,
subject to stockholder approval, to qualify the bulk of the MIC Plan awards and
all stock-based long-term compensation to the five highest-paid executive
officers for the federal $1 million tax deductibility limit pursuant to Section
162(m) of the Internal Revenue Code of 1986, as amended. The Compensation
Committee's policy seeks to balance the interests of the Company in maintaining
flexible incentive plans and how the Company benefits from the compensation
package paid to any executive officer against the possible loss of a tax
deduction when taxable compensation for any of the five highest-paid executive
officers exceeds $1 million per year. The Committee's performance measures,
which apply to MIC Plan awards and stock-based long-term compensation to
executive officers, will be submitted for stockholder approval at the Annual
Meeting (see pages 21 through 27) in order to qualify such awards and
compensation as performance-based compensation eligible for tax deductibility.
Dean O. Morton, Chair Lary R. Scott
Ursula Fairchild Forrest N. Shumway
Juergen Manchot James A. Vohs
(Members of the Compensation Committee)
13
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation for each of the last three
fiscal years earned by or paid or awarded to the chief executive officer of the
Company and the four other most highly compensated executive officers of the
Company (the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------------------- ---------
(A) (B) (C) (D) (E) (F) (G) (H)
SECURITIES
UNDERLYING
OTHER ANNUAL RESTRICTED STOCK OPTIONS/ LTIP
SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) ($)(1)(3)(4)(5)(6) (#)(3)(6) ($)(6)(7)
- ------------------------------ ------- -------- -------- ------------ ------------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
G. Craig Sullivan ............ 1996 $673,750 $571,520 -- $ 90,629 290,706 $ 34,684
Chairman of the Board and 1995 $615,000 $541,900 -- $ 93,466 -- $206,600
Chief Executive Officer 1994 $551,250 $422,956 -- $1,061,343 114,963 $136,197
Neil P. DeFeo ................ 1996 $393,750 $276,200 $ 4,193 -- 40,226 $ 4,050
Former Group Vice President 1995 $368,750 $282,700 $19,676 -- -- --
-- U.S. Operations 1994 $343,494 $175,000 $20,321 $ 102,500 40,226 --
William F. Ausfahl ........... 1996 $307,500 $217,550 -- $ 43,255 70,699 $ 9,797
Group Vice President and 1995 $302,500 $222,300 -- $ 44,501 -- $ 87,971
Chief Financial Officer 1994 $292,500 $174,050 --` $ 334,807 34,005 $131,289
Peter N. Louras .............. 1996 $285,000 $200,300 -- $ 33,611 70,699 $ 3,190
Group Vice President 1995 $267,500 $201,600 -- $ 30,348 -- $ 68,422
1994 $251,250 $153,400 -- $ 330,457 37,782 $ 77,301
Ramon A. Llenado ............. 1996 $264,500 $187,880 -- -- 54,944 $ 2,479
Group Vice President -- 1995 $259,500 $189,800 -- $ 37,995 -- $ 78,197
Technical 1994 $252,000 $154,665 -- $ 330,930 34,005 --
<CAPTION>
(A) (I)
ALL
OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(2)(8)
- ------------------------------ ------------
<S> <C>
G. Craig Sullivan ............ $145,125
Chairman of the Board and $119,242
Chief Executive Officer $25,993
Neil P. DeFeo ................ $ 6,450
Former Group Vice President $12,207
-- U.S. Operations $19,042
William F. Ausfahl ........... $63,831
Group Vice President and $62,698
Chief Financial Officer $26,161
Peter N. Louras .............. $57,452
Group Vice President $51,688
$26,107
Ramon A. Llenado ............. $55,153
Group Vice President -- $43,274
Technical $26,108
</TABLE>
- ------------
(1) Pursuant to the MIC Plan, starting with fiscal year 1994 awards, executive
officers were able to elect all or a portion of their annual bonus plan
awards in Common Stock rather than cash. Those participants electing stock
receive a premium equal to 20% of the gross bonus amount elected to be paid
in Common Stock based on the fair market value on August 30. Such stock
awards are subject to transfer restrictions for two years from the date of
grant or the premium will be forfeited. The amount of the annual bonus
elected to be paid in Common Stock is included in the bonus column (d) in
the annual compensation portion of this table. The 20% premium received with
such election, which is subject to forfeiture restrictions, is included in
the restricted stock awards column (f) in the long-term compensation portion
of this table. The net number of shares and value of the MIC Plan annual
bonus amounts paid in Common Stock awards, after deductions to the base
awards made for income tax purposes, were as follows: for fiscal year 1996,
base award -- 3,125 shares ($292,578) and premium -- 968 shares ($90,629)
for Mr. Sullivan; 0 shares for Mr. DeFeo; base award -- 1,492 shares
($139,689) and premium -- 462 shares ($43,255) for Mr. Ausfahl; base award
-- 1,161 shares ($108,699) and premium -- 359 shares ($33,611) for Mr.
Louras; and 0 shares for Dr. Llenado; for fiscal year 1995, base award --
4,052 shares ($275,050) and premium -- 1,377 shares ($93,466) for Mr.
Sullivan; base award -- 2,691 shares ($182,651) and premium -- 0 shares for
Mr. DeFeo (Mr. DeFeo's premium shares were forfeited when his employment
terminated effective July 1, 1996); base award -- 2,116 shares ($143,627)
and premium -- 656 shares ($44,501) for Mr. Ausfahl; base award -- 1,182
shares ($80,207) and premium -- 447 shares ($30,348) for Mr. Louras; and
base award -- 1,807 shares ($122,629) and premium -- 560 shares ($37,995)
for Dr. Llenado; and for fiscal year 1994, base award -- 3,790 shares
($198,035) and premium -- 1,174 shares ($61,353) for Mr. Sullivan; base
award -- 2,075 shares ($108,424) and premium -- 0 shares for Mr. DeFeo (Mr.
DeFeo's premium shares were forfeited when his employment terminated
effective July 1, 1996); base award -- 2,151 shares ($112,395) and premium
-- 666 shares ($34,810) for Mr. Ausfahl; base award -- 1,000 shares
($52,250) and premium -- 200 shares ($10,450) for Mr. Louras; and base award
-- 1,911 shares ($99,855) and premium -- 592 shares ($30,933) for Dr.
Llenado. The fiscal year 1996 bonus amounts include a holiday bonus of $200.
(2) Mr. DeFeo, former Group Vice President -- U.S. Operations, was reimbursed
for his relocation costs by the Company when he joined the Company during
fiscal year 1994 in accordance with the Company's general relocation policy
for experienced new hires. The amounts the Company paid Mr. DeFeo in excess
of such relocation policy are set forth in the table above as follows: (i)
the amounts of $4,193, $19,676 and $20,321 in the other annual compensation
column (e) represent the excess tax gross-up paid to Mr. DeFeo in connection
with his relocation in fiscal year 1996, 1995 and 1994, respectively; and
(ii) $5,359, $10,720 and $18,580 of the amounts listed in the all other
compensation column (i) in fiscal year 1996, 1995 and 1994, respectively,
represent other excess relocation cost reimbursement received by Mr. DeFeo.
(3) Amounts include awards earned for the years indicated, consistent with past
practice. In support of the goal of increasing the level of ownership of the
Company's stock by the executive officer group, in fiscal year 1994
significantly larger grants of stock options and restricted stock were made
to all executive officers than in prior years. Because of the sizes of the
fiscal year 1994 grants, no Named Officer received any grants of stock
options or restricted stock during fiscal year 1995 except for shares of
restricted stock awarded to Named Officers who elected to receive some or
all of their respective fiscal year 1995 MIC Plan awards in stock rather
than cash. To continue its objective of focusing the executive officers on
creation of stockholder value and in anticipation of the expiration of the
fiscal year 1994 awards, the Compensation Committee approved a new 3-year
grant of stock options and performance units to all executive officers in
fiscal year 1996. The amounts shown for Mr. DeFeo in columns (f) and (g) do
not include unvested restricted stock and unvested stock options which he
forfeited upon the termination of his employment.
(4) Performance shares awarded to executive officers in fiscal year 1994 have
the first opportunity to vest on October 1, 1996 based on the Company's
total stockholder return comparison with the Standard & Poor's 500 Stock
Index and the comparator companies at the end of fiscal year 1996. In
December 1995, the Company offered executive officers the opportunity to
exchange some or all of
14
<PAGE>
those performance shares for performance units which are redeemable in an
equal number of shares of the Company's stock. Conversion of the performance
units into unrestricted shares of stock is deferred until the officer's
retirement or termination from the Company. Performance units received in
the exchange are subject to a risk of forfeiture if the officer voluntarily
terminates her or his employment, other than by retirement, prior to
December 31, 1997, or if the officer is terminated for "Cause," as that term
is defined in the officer's employment agreement, prior to that date. As an
incentive for executive officers to make the exchange, the officer received
additional performance units equal to 10% of the number of performance
shares exchanged. The Company's total stockholder return performance at the
end of fiscal year 1996 was such that the performance shares awarded in
fiscal year 1994 will vest on October 1, 1996 unless they were exchanged for
performance units as described above.
(5) The value of all restricted stock awards set forth in the table above was
determined by multiplying the fair market value of the Common Stock on the
date of grant by the number of shares awarded. As of June 30, 1996, the
number and value of aggregate restricted stock award holdings, based on fair
market value on June 30, 1996, were as follows: 5,422 shares ($480,459) for
Mr. Sullivan; 0 shares ($0) for Mr. DeFeo; 2,618 shares ($232,007) for Mr.
Ausfahl; 1,554 shares ($137,733) for Mr. Louras; and 7,971 shares ($706,412)
for Dr. Llenado. Dividends are paid on shares of restricted stock awarded
commencing from the date of grant. Mr. DeFeo's restricted shares were
forfeited in connection with the termination of his employment effective
July 1, 1996.
(6) In the event of a "change of control," all restrictions on restricted stock
and performance units end and all stock options become exercisable. A change
of control will be deemed to occur if any person or entity becomes the
beneficial owner, directly or indirectly, of a specified percentage of the
then outstanding shares of Common Stock or has, directly or indirectly, a
specified percentage of the combined voting power of the then outstanding
securities entitled to vote for directors. For all persons or entities other
than Henkel KGaA, the specified percentage is 20%. For Henkel KGaA, the
specified percentage is that agreed to between the Company and Henkel KGaA
pursuant to an agreement dated June 18, 1981, as amended. The current agreed
percentage for Henkel KGaA is 30%. A feature of both the Restricted Stock
Plan and the 1987 and 1977 Stock Option Plans is the stock withholding
election, pursuant to which a recipient may elect to have the Company
withhold shares of Common Stock to pay any withholding tax liability that
arises when the restrictions on the restricted stock are released or when
non-qualified stock options are exercised, respectively. In both cases, the
value of shares which may be withheld is based on the per share price of the
Common Stock on the Composite Transactions Report for the New York Stock
Exchange on the last business day before the withholding is made.
(7) The amounts reflect dividends received from deferred stock units granted in
December 1995 in exchange for the cancellation of certain restricted stock
and from performance units granted in April 1996.
(8) Except for $5,359, $10,720 and $18,580 related to Mr. DeFeo's relocation in
fiscal years 1996, 1995 and 1994, respectively, and amounts received under
the Nonqualified Deferred Compensation Plan, the amounts shown in the column
are pursuant to programs provided to salaried employees generally and
represent actual Company contributions under the Company's Value Sharing
Plan and the Nonqualified Deferred Compensation Plan and term life insurance
premiums paid by the Company for the benefit of each respective Named
Officer. In January 1996, the Company credited the following amounts under
the Nonqualified Deferred Compensation Plan to the accounts of the Named
Officers for fiscal year 1995: $119,242 for Mr. Sullivan; $62,698 for Mr.
Ausfahl; $51,688 for Mr. Louras; and $43,274 for Dr. Llenado. Such amounts
are included in the column for fiscal year 1995. Mr. DeFeo's employment with
the Company terminated effective July 1, 1996. The amounts shown for Mr.
DeFeo in the column do not include the amounts he forfeited upon the
termination of his employment.
15
<PAGE>
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables show options and stock appreciation rights ("SARs") granted
or exercised during fiscal year 1996 to or by the Named Officers, and the value
of the options and SARs held by the Named Officers at the end of fiscal year
1996.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F) (G)
<S> <C> <C> <C> <C> <C> <C> <C>
INDIVIDUAL GRANTS
------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS/SARS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE)(1) DATE(3) 0%(4) 5%(4)(5) 10%(4)(5)
- ----------------------- --------------- ----------------- ----------- ----------- ----------- ---------- ----------
G. Craig Sullivan...... 50,972 3.46% $ 80.9375 04/12/06 -0- $6,719,948 $10,700,395
50,972 3.46% $ 89.0313 04/12/06 -0- $7,391,947 $11,770,441
50,972 3.46% $ 97.125 04/12/06 -0- $8,063,938 $12,840,473
137,790 9.36% $ 80.9375 04/12/06 -0- $18,165,917 $28,926,187
Neil P. DeFeo.......... 16,310 1.11% $ 80.9375 07/01/96 -0- -0- -0-
16,310 1.11% $ 89.0313 07/01/96 -0- -0- -0-
16,310 1.11% $ 97.125 07/01/96 -0- -0- -0-
40,847 2.78% $ 80.9375 07/01/96 -0- -0- -0-
William F. Ausfahl..... 12,844 0.87% $ 80.9375 04/12/06 -0- $1,693,204 $2,696,144
12,844 0.87% $ 89.0313 04/12/06 -0- $1,862,525 $2,965,760
12,844 0.87% $ 97.125 04/12/06 -0- $2,031,845 $3,235,373
32,167 2.19% $ 80.9375 04/12/06 -0- $4,240,722 $6,752,642
Peter N. Louras........ 12,844 0.87% $ 80.9375 04/12/06 -0- $1,693,204 $2,696,144
12,844 0.87% $ 89.0313 04/12/06 -0- $1,862,525 $2,965,760
12,844 0.87% $ 97.125 04/12/06 -0- $2,031,845 $3,235,373
32,167 2.19% $ 80.9375 04/12/06 -0- $4,240,722 $6,752,642
Ramon A. Llenado....... 9,982 0.68% $ 80.9375 04/12/06 -0- $1,315,882 $2,095,322
9,982 0.68% $ 89.0313 04/12/06 -0- $1,447,471 $2,304,855
9,982 0.68% $ 97.125 04/12/06 -0- $1,579,058 $2,514,386
24,998 1.70% $ 80.9375 04/12/06 -0- $3,295,571 $5,247,646
</TABLE>
- ------------
(1) In fiscal year 1996, stock option grants continued the Compensation
Committee's past practice of targeting overall compensation to the 50th
percentile of comparable positions from the Peer Companies. The Compensation
Committee granted additional stock options to each executive officer which
would have the possibility of lifting the executive officer's stock-based
compensation component from the 50th to the 75th percentile. Except for such
additional stock options, the stock options awarded to executive officers in
fiscal year 1996 had ten-year lives and one-third of the number of option
shares will vest on each of June 30, 1998, 1999, and 2000. Option shares
vesting on June 30, 1998 have an exercise price of $80.9375, the fair market
value on the option grant date. Option shares vesting on June 30, 1999 and
2000 have exercise prices of $89.0313 and $97.125, premiums of 10% and 20%,
respectively, over the $80.9375 fair market value on the option grant date.
The additional stock options will vest in seven years, on June 30, 2003, but
could vest earlier if the Company's stock trades for 45 consecutive days at
an average price of $121.41 per share, a 50% premium over the $80.9375 fair
market value on the option grant date. The stock options granted during
fiscal year 1996 are intended to cover the next three fiscal years. In the
event of a "change of control" (as described in footnote (6) to the Summary
Compensation Table on page 14), all stock options become exercisable.
(2) The total number of options/SARs granted to employees of the Company in
fiscal year 1996 represented 1,471,519 shares of Common Stock. The potential
realizable value (excluding dividends) of such options at assumed annual
rates of appreciation of 5% and 10% from the dates of their respective
grants to the end of the option terms using the appropriate prices above
would be $76,254,292 and $193,243,347, respectively.
(3) Stock options granted to Mr. DeFeo during fiscal year 1996 expired on July
1, 1996 when his employment with the Company terminated.
(4) The 5% and 10% assumed rates of appreciation are shown in response to
requirements of the rules of the Securities and Exchange Commission. There
can be no assurance that the market value of the Common Stock will
appreciate in the assumed manner. The column reflecting no appreciation in
market value is intended for illustrative purposes only. The market value of
the Common Stock on April 12, 1996, the date of grant of the above options,
was $80.9375 per share.
(5) Based on the fair market value of $88.5625 of the outstanding shares of
Common Stock on June 30, 1996 and not including dividends, the potential
realizable value at assumed annual rates of Common Stock appreciation of 5%
and 10% for a ten-year period for all stockholders would be $2,868,247,656
and $7,268,702,705, respectively. The potential realizable value at assumed
annual rates of appreciation of 5% and 10% rates on the options of the Named
Officers from the date of grant to the end of the ten-year option terms
would be $80,116,924 and $127,572,812, respectively. Thus, the Named
Officers' potential realizable value as a percentage of all stockholders'
gain would be 2.79% in the event of a 5% assumed annual rate of appreciation
and 1.76% in the event of a 10% assumed annual rate of appreciation.
Further, the potential realizable value of all employee options as a
percentage of all stockholders' gain would be 6.89% in the event of a 5%
assumed annual rate of appreciation and 4.33% in the event of a 10% assumed
annual rate of appreciation over the ten-year option terms.
16
<PAGE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR,
AND FY-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/
FY-END SARS AT FY-END
SHARES ACQUIRED VALUE (#) EXERCISABLE/ ($) EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE(1) UNEXERCISABLE(1)(2)
- --------------------- --------------- ---------- ------------------ -----------------
<S> <C> <C> <C> <C>
G. Craig Sullivan.... 1,642 $ 98,777 121,701/329,027 $4,790,315/$1,939,387
Neil P. DeFeo........ -0- -0- 40,226/0 $1,370,888/$0
William F. Ausfahl... 10,600 $ 611,406 59,246/82,034 $2,643,051/$511,294
Peter N. Louras...... 3,100 $ 298,941 39,864/83,293 $1,546,739/$542,848
Ramon A. Llenado..... 7,683 $ 318,845 22,670/66,279 $747,402/$460,656
</TABLE>
- ------------
(1) The number of shares covered and the value of the unexercisable options
listed in columns (d) and (e) of the table above were all granted under the
1987 Stock Option Plan. Mr. DeFeo forfeited his unexercisable options when
his employment with the Company terminated effective July 1, 1996. In the
event of a "change of control" (as described in footnote (6) to the Summary
Compensation Table on page 14), all stock options become exercisable.
(2) The value of the unexercised options was determined by multiplying the
number of shares subject to unexercised options on the fiscal year end, June
30, 1996, by $88.5625, the fair market value of the Common Stock on such
date, minus the exercise price of each unexercised option.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
The table below reflects awards to the Named Officers during fiscal year 1996
under The Clorox Company 1995 Performance Unit Plan and The Clorox Company 1987
Long-Term Compensation Program. If objectives are met, such awards are
redeemable in shares of Common Stock.
<TABLE>
<CAPTION>
(A) (B) (C)
<S> <C> <C>
NUMBER OF SHARES, UNITS PERFORMANCE OR OTHER PERIOD
NAME OR OTHER RIGHTS (#)(1)(2) UNTIL MATURATION OR PAYMENT
- ------------------------------------------------------- ------------------------- -------------------------------
G. Craig Sullivan...................................... 20,779 12/31/97
23,884 6/30/99, 6/30/00 or Forfeited
Neil P. DeFeo.......................................... -0- Forfeited
William F. Ausfahl..................................... 6,233 12/31/97
6,018 6/30/99, 6/30/00 or Forfeited
Peter N. Louras........................................ 6,732 12/31/97
6,018 6/30/99, 6/30/00 or Forfeited
Ramon A. Llenado....................................... -0- 12/31/97
4,678 6/30/99, 6/30/00 or Forfeited
</TABLE>
- ------------
(1) To continue its objective of focusing the executive officers on creation of
stockholder value and in anticipation of the expiration of fiscal year 1994
awards, the Compensation Committee approved a new 3-year grant of
performance units to all executive officers in April 1996. The April 1996
grants could vest on June 30, 1999 based on the relative total stockholder
return (stock price appreciation plus dividends paid) of the Common Stock
measured against two comparator groups: first, the total stockholder return
of the Standard & Poor's 500 Stock Index and second, the total stockholder
return of an index of stocks of the Peer Companies. Each comparator group
will have an equal weight of 50%. If, on average, the Company's total
stockholder return is at or above the 60th percentile relative to the
stockholder returns of the two groups as measured at the end of fiscal year
1999, the restrictions on the performance units will lapse on that day. If
the restrictions do not lapse on that date and the Company's total
stockholder return is at or above the 50th percentile at the end of fiscal
year 2000, the performance units will vest at that time. If, at the end of
fiscal year 2000, the Company's total stockholder return is at or above the
40th percentile, but below the 50th percentile, half of the performance
units will vest and the other half will be forfeited. If, at the end of
fiscal year 2000, the Company's total stockholder return is below the 40th
percentile, all of the performance units will be forfeited. Mr. DeFeo was
granted 7,642 performance units during fiscal year 1996, all of which were
terminated when he left the Company. The performance units are redeemable in
an equal number of shares of Common Stock.
(2) Performance shares awarded to executive officers in fiscal year 1994 had the
first opportunity to vest based on the Company's total stockholder return
comparison with the Standard & Poor's 500 Stock Index and the comparator
companies at the end of fiscal year 1996. In December 1995, the Company
offered executive officers the opportunity to exchange some or all of those
performance shares for performance units which are redeemable in an equal
number of shares of Common Stock. Conversion of the performance units into
unrestricted shares of Common Stock was deferred until the officer's
retirement or termination from the Company. Performance units received in
the exchange were subject to a risk of forfeiture if the officer voluntarily
terminated her or his employment, other than by retirement, prior to
December 31, 1997, or if the officer was terminated for "Cause," as that
term is defined in the officer's employment agreement, prior to that date.
As an incentive for executive officers to make the exchange, the officer
received additional performance units equal to 10% of the number of
performance shares exchanged. The Company's total stockholder return
performance at the end of fiscal year 1996 was such that the performance
shares awarded in fiscal year 1994 will vest on October 1, 1996 unless they
were exchanged as described above. Mr. Louras' 6,732 number above includes
83 performance units received as dividends in connection with the
performance units granted in December 31, 1997. Dr. Llenado and Mr. DeFeo
did not exchange any performance shares for performance units in December
1995. The performance units are redeemable in an equal number of shares of
Common Stock.
(3) In the event of a "change of control" (as described in footnote (6) to the
Summary Compensation Table on page 14), all performance units become
exercisable.
17
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total stockholder return of the Common
Stock for the last five fiscal years with the cumulative total return of the
Standard & Poor's 500 Stock Index and a composite index composed of the Standard
& Poor's Household Products Index and the Standard & Poor's Housewares Index for
a five-year period ending June 30, 1996. The composite index is weighted based
on market capitalization as of the end of each quarter during each of the last
five years.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
CLOROX S&P 500 COMBINED INDEX OF S&P
<S> <C> <C> <C>
Household Products and
Housewares Indices
June 1991 100.00 100.00 100.00
June 1992 119.88 113.36 127.52
June 1993 142.67 128.74 140.72
June 1994 138.51 130.59 144.86
June 1995 191.03 164.53 197.58
June 1996 266.54 207.19 249.11
</TABLE>
18
<PAGE>
PENSION BENEFITS
Pension benefits are paid to executive officers under three different plans, the
Pension Plan, the Nonqualified Deferred Compensation Plan and the Supplemental
Executive Retirement Plan ("SERP").
The Company's Pension Plan is a noncontributory "cash balance" defined benefit
plan qualified under pertinent income tax laws. Essentially all salaried
employees as well as nonunion hourly employees with at least one year of service
participate in the Pension Plan. Prior to July 1, 1996, benefits were calculated
based on career average compensation. Effective July 1, 1996, participants in
the plan accrue benefits equal to 3% of qualified earnings each year. Qualified
earnings include base annual salary and bonus. Participants' benefits are
adjusted each quarter by an interest factor. Participants meeting certain age
and years of service levels will receive the greater of the benefits calculated
under the career average compensation formula and the new cash balance formula.
Each of the Named Officers except Dr. Llenado and Mr. DeFeo met the age and
years of service levels and will receive the greater of the benefits under the
current and prior formulas. A participant is fully vested in her or his benefit
after 5 years of service.
The Nonqualified Deferred Compensation Plan provides additional benefits equal
to the employer-provided benefits that plan participants do not receive under
the Pension Plan because of Internal Revenue Code limits. This plan has the same
five-year vesting provision as the Pension Plan.
The purpose of the SERP is to provide executive officers a fixed objective of
55% of the average annual compensation for the three consecutive years of
highest compensation. Compensation consists of base annual salary and the MIC
Plan bonus. For the Named Officers, those amounts are shown in salary and bonus
columns (c) and (d) of the Summary Compensation Table on page 14. There is a
minimum service requirement of ten years. SERP benefits are offset by the
annuity value of amounts received from primary social security, the Pension Plan
and Company contributions to the Value Sharing Plan and Nonqualified Deferred
Compensation Plan.
Assuming retirement at age 65, fiscal year 1996 annual base salary and bonus and
no future increase in such compensation and an interest rate of 8%, the SERP
benefits for the Named Officers will exceed benefits under the other plans. The
retirement benefits shown in the table below are based on the SERP, calculated
for an unmarried person, on a straight life annuity basis, based on retirement
at age 65 with 15 or more years of service with the Company. They would be
proportionately reduced for early retirement or for shorter years of service to
a minimum of 10 years. Thus, the table below shows what would be received by the
Named Officers under the three plans for pension benefits, taken collectively.
<TABLE>
<CAPTION>
15 OR MORE
YEARS OF
COMPENSATION(1) SERVICE
- ------------------------------------------------------------------------------ --------------
<S> <C>
$500,000...................................................................... $ 275,000
$600,000...................................................................... $ 330,000
$700,000...................................................................... $ 385,000
$800,000...................................................................... $ 440,000
$900,000...................................................................... $ 495,000
$1,000,000.................................................................... $ 550,000
$1,100,000.................................................................... $ 605,000
$1,200,000.................................................................... $ 660,000
$1,300,000.................................................................... $ 715,000
$1,400,000.................................................................... $ 770,000
$1,500,000.................................................................... $ 825,000
</TABLE>
- ---------
(1) The number of years of credited service for each of the Named Officers are:
Mr. Sullivan, 25; Mr. Ausfahl, 14; Mr. Louras, 16; and Dr. Llenado, 4. Mr.
DeFeo's employment with the Company terminated before his interests under
the Pension Plan, the Nonqualified Deferred Compensation Plan and the SERP
were vested.
19
<PAGE>
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
The Company has entered into employment agreements with each of the Named
Officers named in the Summary Compensation Table on page 14 above. The term of
the employment agreement for Mr. Sullivan is five years and for each of the
other Named Officers is three years. Such agreement terms are "evergreen" in
that they maintain a five-year term, in the case of the chief executive officer,
or a three-year term, in the case of the other Named Officers, unless either
party gives five-years' notice of termination, in the case of the chief
executive officer's employment agreement, and three-years' notice of
termination, in the case of the other Named Officers' employment agreements. The
employment agreements are also terminable at any time by the Company either for
"Cause," as that term is defined in them, or "at will" by either the Named
Officer or the Company. In the case of an "at will" termination by the Company,
a Named Officer is entitled to receive annually severance benefits of his then
current base salary, plus 75% of his target MIC Plan award for the previous
fiscal year, for the length of the remaining term of his employment agreement,
subject to offset for other earned income. He is also entitled to continue to
participate in the Company's medical and dental insurance programs for the same
period. In addition, the Named Officer would receive a pro-rated MIC Plan award
for the year in which termination occurs. Mr. Neil DeFeo's employment with the
Company terminated effective July 1, 1996. In accordance with his employment
agreement, he is receiving semi-monthly payments of $22,917 through June 30,
1999, which will be reduced by any other earned income.
During fiscal year 1996, the board of directors approved change of control
agreements with each of the Named Officers. Within a three-year period of a
"change of control" (as described in footnote (6) to the Summary Compensation
Table on page 14), a Named Officer may terminate his employment in the event of
a reduction or elimination in rank, responsibilities, compensation or benefits,
and he may also terminate his employment absent such reasons within a 30-day
period following the first anniversary of the change of control. In the event of
such termination, the Named Officer will receive a lump sum amount equal to his
then current base salary, plus 100% of his target MIC Plan award for the then
current fiscal year, multiplied by the change of control benefit multiple under
the change of control agreements. For the Named Officers, such multiple is
three. In addition, a Named Officer is entitled to continue to participate in
the Company's medical and dental insurance programs for the remaining term of
his change of control agreement. The Named Officer would also receive a
pro-rated MIC Plan award for the year in which termination occurs. If payments
received under the change of control agreements are subject to tax under Section
4999 of the Internal Revenue Code (which deals with certain payments contingent
on a change of control), the Company will make an additional payment to the
Named Officer in respect of such tax.
The Company has also entered into employment agreements and change of control
agreements on similar terms with each of the other executive officers of the
Company. The termination notice periods for these agreements range from three
years to one year depending upon the executive officer's level in the
organization and her or his tenure as an executive officer.
20
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and Securities and Exchange
Commission regulations require the Company's directors, certain officers and
greater than ten percent stockholders to file reports of ownership on Form 3 and
changes in ownership on Forms 4 or 5 with the Securities and Exchange
Commission. The Company undertakes to file such forms on behalf of the reporting
person pursuant to a power of attorney given to certain attorneys-in-fact. Such
reporting officers, directors and ten percent stockholders are also required by
Securities and Exchange Commission rules to furnish the Company with copies of
all Section 16(a) reports they file.
Based solely on its review of copies of such reports received or written
representations from such executive officers, directors and ten percent
stockholders, the Company believes that all Section 16(a) filing requirements
applicable to its directors, executive officers and ten percent stockholders
were complied with during fiscal year 1996, except the following officers and
directors inadvertently omitted reporting the following transactions: Messrs.
Anthony Biebl and James Cole made charitable stock gifts to the United Way in
November 1995, which were disclosed in Form 4 filings in September 1996, Mr.
Daniel Boggan had a transaction relating to stock options which occurred in
August 1995, which was disclosed in a Form 4 filing in September 1995, and Mr.
Al Wolfe had a sale transaction which occurred in August 1995, which was
disclosed in a Form 4 filing in October 1995.
PROPOSAL NO. 2: ADOPTION OF
THE CLOROX COMPANY 1996 STOCK INCENTIVE PLAN
On July 16, 1996, the board of directors adopted, subject to approval by
stockholders at the Annual Meeting, The Clorox Company 1996 Stock Incentive Plan
(the "Plan"). The text of the Plan, which will replace the 1977 Stock Option and
Restricted Stock Plans and the 1987 Long-Term Compensation Program
(collectively, the "Prior Plans"), is set forth in Exhibit A to this Proxy
Statement.
The purposes of the Plan are to attract and retain the best available personnel
for positions of substantial responsibility, to provide additional incentives to
employees and consultants of the Company and its subsidiaries, and to promote
the success of the Company's business by providing employees and consultants
with the opportunity to acquire Common Stock or to receive monetary payments
based on the value of the Common Stock or on the financial performance of the
Company, or both, on advantageous terms. The Plan is designed to permit the
Company to provide several different forms of awards to meet competitive
conditions, including incentive stock options, non-qualified stock options,
stock appreciation rights, restricted stock awards, performance units and
performance shares (the "Awards").
The Plan authorizes the granting of Awards with respect to an aggregate of: (i)
3,500,000 shares of the Common Stock (subject to adjustments as provided below).
Any shares issued under the Executive Incentive Plan (as defined on page 26)
will reduce the amount of shares available for awards under the Plan. The
3,500,000 shares reserved under the Plan equal approximately 6.9% of the
outstanding Common Stock as of July 31, 1996. On July 31, 1996, the closing
price of the Common Stock on the New York Stock Exchange was $90.875.
As of July 31, 1996, options to purchase 3,302,151 Common Stock were outstanding
and no shares were reserved and available for additional grants under the Prior
Plans. Following approval of the Plan by stockholders, awards will no longer be
granted under the Prior Plans.
The Common Stock covered by the Plan may be either authorized but unissued
shares or treasury shares. If there is a lapse, expiration, termination, or
cancellation of any Award granted under the Plan without the issuance of shares
or payment of cash thereunder, or if shares are issued under any Award under the
Plan and thereafter are reacquired by the Company pursuant to rights reserved
upon the issuance thereof, or pursuant to the payment of the purchase price of
shares under stock options by delivery of other Common Stock of the Company, the
shares subject to or reserved for such Award, or so reacquired, may again be
used for new options, rights, or awards of any type authorized under the Plan.
However, the Common Stock issued under the Plan that is not reacquired by the
Company pursuant to rights reserved upon the issuance
21
<PAGE>
thereof or pursuant to payment of the purchase price of shares under stock
options by delivery of other Common Stock of the Company may not exceed the
total number of shares reserved for issuance under the Plan.
In the event of the exercise of a stock appreciation right, the number of shares
reserved for issuance under the Plan shall be reduced by the number of shares of
Common Stock covered by the option or portion thereof which is surrendered in
connection with such exercise. The number of shares reserved for issuance under
the Plan also shall be reduced by the largest whole number obtained by dividing
the monetary value of performance units granted at the commencement of a
performance period by the market value of a share of Common Stock at such time.
The following summary of certain provisions of the Plan is qualified in its
entirety by reference to the copy of the Plan set forth in Exhibit A to this
Proxy Statement.
ADMINISTRATION.
The Plan provides that grants of Awards and other determinations under the Plan
shall be made by (i) the board of directors or (ii) one or more Committees
designated by the board (the "Administrator") which, in the case of grants of
awards to employees who are officers or directors of the Company, will be
constituted in a manner to permit the grants and related transactions under the
Plan to be exempt from Section 16(b) of the Exchange Act in accordance with Rule
16b-3 of the Securities and Exchange Commission and which, in the case of grants
to "covered employees," is intended to constitute performance-based compensation
and will be made up solely of two or more "outside directors" as such terms are
defined under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code").
PERFORMANCE BASED COMPENSATION.
Section 162(m) of the Code limits to $1 million annually the income tax
deduction a public corporation may claim for compensation paid to any of its top
five executive officers, except in limited circumstances. One such exception is
for "performance based compensation," which is defined as compensation paid
solely on account of the attainment of one or more performance goals, but only
(1) if the goals are determined by a compensation committee of the board of
directors comprised of two or more outside directors, (2) the performance goals
are disclosed to stockholders and approved by a majority vote before the
remuneration is paid, and (3) before the remuneration is paid, the compensation
committee certifies that the performance goals and any other material terms were
in fact satisfied.
Internal Revenue Service regulations provide that compensation attributable to a
stock option or stock appreciation right will be deemed to satisfy the
requirement that performance goals be preestablished if the grant of the award
is made by a properly appointed compensation committee appointed by the board of
directors; the plan under which the award is granted states the maximum number
of shares with respect to which options or rights may be granted during a
specified period to any employee; and, under the terms of the option or award,
the amount of compensation the employee could receive is based solely on an
increase in the value of the stock after the date of the grant or award. In the
case of all other types of awards, the performance criteria must be established
within 90 days after the commencement of the period of service to which the
performance goal relates, and the performance goal must be objective and capable
of determination by a third party having knowledge of the relevant facts.
The Plan includes features intended to permit the Administrator to grant Awards
to employees that will qualify as performance-based compensation. The Plan
limits the number of shares with respect to which incentive stock options,
non-qualified stock options, and stock appreciation rights may be granted in any
one fiscal year to any one participant to 500,000 shares. The Plan further
provides that in the case of Awards other than options or stock appreciation
rights, the maximum value of any Award intended to qualify as performance-based
compensation granted to any employee in any fiscal year of the Company is
limited to $2 million, based upon the value of the Award assuming performance
goals were met on the date of the Award grant. The Plan provides that the
Administrator may condition exercise of an Award on attainment of an objective
performance goal or goals based on one or more of the following performance
criteria: cash flow,
22
<PAGE>
earnings per share, economic value added (including Clorox Value Measure, an
economic value-added model the calculation of which links profits to investment
by including a capital charge for assets employed in the business), expenses,
gross or net margin, increase in stock price, inventory turnover, market share,
net income (before or after taxes), net operating income, personal management
objectives, return on assets, return on equity, return on investment, return on
sales, revenue, and total stockholder return. In establishing such performance
goals, the Administrator may apply the performance criteria as a measure of the
performance of any, all or any combination of the Company, any subsidiary, any
division, group or other unit of the Company or a subsidiary, or any product
category or categories. Partial achievement of goals may result in payment or
vesting corresponding to the degree of achievement. The Administrator may, in
its discretion, reduce the amount of a settlement otherwise to be made in
connection with an Award intended to qualify as performance-based compensation,
but may not exercise discretion to increase the Award.
ELIGIBILITY.
Selected employees of the Company and its subsidiaries (including the persons
named in the Summary Compensation Table on page 14 and directors who are
employees) will be eligible to receive options and other Awards under the Plan.
Awards may be granted to employees of the Company and its subsidiaries residing
in foreign jurisdictions under additional terms and conditions to accommodate
local laws and to provide the employees favorable treatment under local laws
provided that no such terms are inconsistent with the Plan.
DURATION.
The Plan will be effective upon stockholder approval and will continue in effect
until terminated by the board of directors, except that no award may be granted
more than ten years after the date of adoption of the Plan by the board of
directors.
ADJUSTMENTS.
The Plan provides for adjustment in the number of shares reserved and in the
shares covered by each outstanding Award in the event of a stock dividend or
stock split and for vesting of Awards and removal of restrictions on Awards
automatically in the event of certain corporate transactions, including a change
of ownership or control of the Company. Generally, a change of control will
occur for purposes of the Plan in the event of the acquisition by any person of
beneficial ownership of 20% or more, or in the case of Henkel KGaA 30% or more,
of the Company's voting stock, other than an acquisition directly from the
Company or as part of a business combination approved by the board of directors.
DILUTIVE EFFECT.
The Company's intent is to reduce or eliminate the potential dilutive effect of
the Plan. In furtherance of this goal, on September 18, 1996 the board of
directors approved the repurchase of shares of Common Stock on an ongoing basis
which will support the reduction or elimination of dilution upon the issuance of
shares pursuant to the Plan, the Executive Incentive Plan and the existing 1987
Long-Term Compensation Program. The board's approval of the repurchase of shares
of Common Stock is not limited by any number of shares or amounts.
OPTIONS.
The Plan provides that the purchase price of any incentive stock option shall be
at least 100% of the fair market value of the Common Stock at the time the
option is granted, and that the purchase price of any non-qualified stock option
shall be not less than 100% of fair market value at the time the option is
granted unless otherwise determined by the Administrator. It is the present
intention of the board of directors that below fair market value options would
be granted only in isolated instances. The Plan provides that the aggregate fair
market value (determined as of the time the option is granted) of the Common
Stock with respect to which incentive stock options may become exercisable for
the first time by any individual during any calendar year may not exceed
$100,000. The Administrator may provide for the payment of the purchase price in
cash, by delivery of other Common Stock of the Company having a market value
equal to the purchase price of
23
<PAGE>
such shares, or by any other method, such as delivery of promissory notes. A
participant may pay the purchase price by delivery of an exercise notice
accompanied by a copy of irrevocable instructions to a broker to deliver
promptly to the Company sale or loan proceeds to pay the purchase price.
The Administrator may permit or require a participant to pay all or a portion of
the federal, state and local taxes, including FICA and medicare withholding tax,
arising in connection with the exercise of a non-qualified stock option, the
vesting of a restricted stock award or the receipt or exercise of any other
Award, by having the Company withhold shares or by delivering shares received in
connection with the Award or previously acquired, having a fair market value
approximating the amount to be withheld.
The period of any option will be determined by the Administrator, but no
incentive stock option may be exercised after the expiration of ten years from
the date it is granted. Option awards will provide rules covering the time of
exercise of an option in case of retirement, death, disability, or other
termination of employment.
STOCK APPRECIATION RIGHTS.
A stock appreciation right will permit the holder of the right to elect to
surrender the right or a portion thereof that is then exercisable and receive,
in exchange therefor, Common Stock, cash, or a combination thereof. Such cash,
stock, or combination shall have an aggregate value equal to the excess of the
fair market value on the date of such election of one share of Common Stock over
the purchase price specified in such right multiplied by the number of shares
covered by such right or portion thereof which is so surrendered. A stock
appreciation right may be awarded separately or in conjunction with the award of
a stock option, in which case the exercise of the stock appreciation right will
correspondingly reduce the number of shares available under the option and the
exercise of the option will correspondingly reduce the number of shares to which
the stock appreciation right applies.
A stock appreciation right will be exercisable upon such additional terms and
conditions as may be prescribed by the Administrator in its sole discretion, but
in no event shall it be exercisable after the expiration of any related stock
option.
RESTRICTED STOCK AWARDS.
Restricted stock awards will consist of Common Stock transferred to
participants, without other payment therefor, as additional compensation for
their services to the Company or one of its subsidiaries. Restricted stock
awards will be subject to such terms and conditions as the Administrator
determines are appropriate including, without limitation, restrictions on the
sale or other disposition of such shares and rights of the Company to reacquire
such shares upon termination of the participant's employment within specified
periods. No more than 10% of the total shares available for issuance in
connection with Awards granted in any calendar year may be issued as restricted
stock awards.
PERFORMANCE AWARDS.
The Plan permits the grant of performance awards in the form of performance
units or performance shares. Performance units consist of monetary awards and
performance shares consist of Common Stock or awards denominated in Common
Stock, which may be earned in whole or in part if the Company achieves certain
goals established by the Administrator over a designated period of time. Payment
of an award earned may be in cash or in Common Stock, or in a combination of
both, and may be made when earned, or may be vested and deferred, as the
Administrator in its sole discretion determines. Deferred awards may earn Common
Stock dividend equivalents or interest on the terms and at a rate determined by
the Administrator. The Plan provides that upon the occurrence of a change in
control, business combination or other corporate transaction, the performance
award will be deemed to have been fully earned and be immediately payable as of
the date of the change in control, business combination, or corporate
transaction.
24
<PAGE>
AMENDMENTS AND DISCONTINUANCE.
The Plan is subject to amendment or termination by the board of directors
without stockholder approval as deemed in the best interests of the Company.
However, no such amendment shall, without the consent of the holder, reduce the
amount of any Award or adversely change the terms and conditions thereof.
The terms and conditions applicable to any Awards granted and outstanding may at
any time be amended, modified, or canceled by mutual agreement between the
Administrator and the participant so long as any amendment or modification does
not increase the number of shares of Common Stock issuable under the Plan.
FEDERAL INCOME TAX CONSEQUENCES.
Under existing law and regulations, the grant of non-qualified stock options and
stock appreciation rights will not result in income taxable to the employee or
provide a deduction to the Company. However, the exercise of a non-qualified
stock option or a stock appreciation right results in taxable income to the
holder, and the Company is entitled to a corresponding deduction. At the time of
the exercise of a non-qualified stock option, the amount so taxable and so
deductible will be the excess of the fair market value of the shares purchased
over their option price. Upon the exercise of a stock appreciation right, the
participant will be taxed at ordinary income tax rates on the amount of the cash
and the fair market value of the shares received by the employee, and the
Company will be entitled to a corresponding deduction.
No income is recognized by an optionee when an incentive stock option is granted
or exercised. If the holder holds the shares received on exercise of an
incentive stock option for at least two years from the date of grant and one
year from date of exercise, any gain realized by the holder on the disposition
of the stock will be accorded long-term capital gain treatment, and no deduction
will be allowed to the Company. If the holding period requirements are not
satisfied, the employee will recognize ordinary income at the time of
disposition equal to the lesser of (i) the gain realized on the disposition, or
(ii) the difference between the option price and the fair market value of the
shares on the date of exercise. Any additional gain on the disposition not
reflected above will be long-term or short-term capital gain, depending upon the
length of time the shares are held. The Company will be entitled to an income
tax deduction equal to the amount of ordinary income recognized by the employee.
An employee who is granted a restricted stock award will not be taxed upon the
acquisition of such shares so long as the interest in such shares is subject to
a "substantial risk of forfeiture" within the meaning of Section 83 of the Code.
Upon lapse or release of the restrictions, the recipient will be taxed at
ordinary income tax rates on an amount equal to the current fair market value of
the shares. Any awards that are not subject to a substantial risk of forfeiture
will be taxed at the time of grant. The Company will be entitled to a
corresponding deduction when the value of the award is included in the
recipient's taxable income. The basis of restricted shares held after lapse or
termination of restrictions will be equal to their fair market value on the date
of lapse or termination of restrictions, and upon subsequent disposition any
further gain or loss will be long-term or short-term capital gain or loss,
depending upon the length of time the shares are held.
An employee may elect to be taxed at ordinary income tax rates on the full fair
market value of the restricted shares at the time of transfer. If the election
is not made, the basis of the shares so acquired will be equal to the fair
market value at the time of transfer. If the election is made, no tax will be
payable upon the subsequent lapse or release of the restrictions, and any gain
or loss upon disposition will be a capital gain or loss. A participant will
realize ordinary income as a result of performance awards at the time Common
Stock is transferred or cash is paid in an amount equal to the value of the
shares delivered plus the cash paid.
The foregoing discussion is not a complete description of the federal income tax
aspects of Awards under the Plan. In addition, administrative and judicial
interpretations of the application of the federal income tax laws are subject to
change. Furthermore, no information is given with respect to state or local
taxes that may be applicable to any Awards. Participants in the Plan who are
residents of or are employed in a country other than the United States may be
subject to taxation in accordance with the tax laws of that particular country
in addition to or in lieu of United States federal income taxes.
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THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE CLOROX
COMPANY 1996 STOCK INCENTIVE PLAN AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
SHARES OF COMMON STOCK VOTE "FOR" PROPOSAL NO. 2.
PROPOSAL NO. 3: ADOPTION OF THE CLOROX COMPANY
1996 EXECUTIVE INCENTIVE COMPENSATION PLAN
On July 16, 1996 the board of directors adopted, subject to approval by
stockholders at the Annual Meeting, The Clorox Company 1996 Executive Incentive
Compensation Plan (the "Executive Incentive Plan"), which provides for the
awarding of bonuses to certain corporate officers or other key employees of the
Company and its subsidiaries subject to the attainment of certain performance
criteria.
In 1993, the Internal Revenue Code was amended by adding Section 162(m), which
limits to $1 million the federal income tax deduction that public corporations
may claim for compensation paid to any of its top five executive officers except
in certain limited circumstances. One such exception is for compensation based
solely on the attainment of one or more performance criteria which are
established by an independent compensation committee and approved by
stockholders. The Executive Incentive Plan is intended to comply with this
exclusion for performance-based compensation and is being submitted to
stockholders for approval in order generally to preserve the deductibility of
compensation paid under the Executive Incentive Plan.
The following is a brief description of certain material features of the
Executive Incentive Plan. This summary is qualified in its entirety by reference
to the terms of the Executive Incentive Plan, a copy of which appears as Exhibit
B to this Proxy Statement.
TERM.
Subject to approval by stockholders, the Executive Incentive Plan will be
effective as of July 1, 1996 and will continue until June 30, 2001, unless
reapproved by the Company's stockholders or unless amended or terminated.
PARTICIPANTS.
Participants in the Executive Incentive Plan will be executive officers of the
Company and its subsidiaries who are selected annually to participate in the
Executive Incentive Plan by the Compensation Committee. It is anticipated that
the participants selected by the Compensation Committee will be those officers
whose compensation may be subject to the deductibility limits of Section 162(m)
of the Code and will include annually less than 25 individuals. In July 1996,
the Compensation Committee designated the executive officers of the Company as
participants in the Executive Incentive Plan for fiscal year 1997.
ADMINISTRATION.
The Executive Incentive Plan will be administered by the Compensation Committee,
which will have authority to prescribe rules relating to the Executive Incentive
Plan. The decisions of the Compensation Committee with respect to the Executive
Incentive Plan will be final and conclusive.
PERFORMANCE CRITERIA.
Within 90 days after the beginning of each fiscal year, the Compensation
Committee will establish for each participant an objective performance goal or
goals based on one or more of the following performance criteria: cash flow,
earnings per share, economic value added (including Clorox Value Measure, an
economic value-added model the calculation of which links profits to investment
by including a capital charge for assets employed in the business), expenses,
gross or net margin, increase in stock price, inventory turnover, market share,
net income (before or after taxes), net operating income, personal management
objectives, return on assets, return on equity, return on investment, return on
sales, revenue, and total stockholder return. In establishing such performance
goals, the Compensation Committee may apply the performance criteria as a
measure of the performance of any, all or any combination of the Company, any
subsidiary, any division, group or other unit of the Company or a subsidiary, or
any product category or categories. The Compensation Committee will also
determine the amounts of the target awards that will be paid if the
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performance goal or goals are met and the method by which such amounts will be
calculated. In addition, at the Compensation Committee's option, it may
determine that all or any part of the award will be paid in cash, other
property, shares of Common Stock, or restricted stock having an equivalent value
to the amount of the award to be paid in stock, which shares will be subject to
such restrictions as the Compensation Committee may determine. Any issuance of
Common Stock or grant of options for Common Stock would be subtracted from the
shares available for grant and issuance under the Plan. The award may provide
for payment of all or a portion of the award in the case of the participant's
retirement, death or disability or in the case of a change in ownership or
control of the Company or a subsidiary during the year. In any case, the maximum
award that may be paid to any participant under the Executive Incentive Plan for
any year is $2 million.
DETERMINATION OF AWARD.
At the end of each fiscal year, the Compensation Committee will determine and
certify for each participant if the performance goal or goals have been met and
the amount of the award, if any, to be paid. Awards will be paid to participants
in cash, property, stock and/or restricted stock, as applicable, following such
determination and within 90 days after the end of such fiscal year. In order to
reflect additional considerations relating to performance, the Compensation
Committee may, in its discretion, reduce or eliminate any calculated award to be
paid to a participant, but may not increase such award.
DILUTIVE EFFECT.
The Company's intent is to reduce or eliminate the potential dilutive effect of
the Executive Incentive Plan. In furtherance of this goal, on September 18, 1996
the board of directors approved the repurchase of shares of Common Stock on an
ongoing basis which will support the reduction or elimination of dilution upon
the issuance of shares pursuant to the Executive Incentive Plan, the Plan and
the existing 1987 Long-Term Compensation Program. The board's approval of the
repurchase of shares of Common Stock is not limited by any number of shares or
amounts.
AMENDMENT AND TERMINATION.
The Executive Incentive Plan may be amended or terminated by the Compensation
Committee at any time, except that if any such amendment would require
stockholder approval to maintain the qualification of awards under the Executive
Incentive Plan as performance-based compensation under Section 162(m) of the
Code, stockholder approval will be required.
FISCAL YEAR 1997 AWARDS.
The Compensation Committee has established performance goals and target awards
under the Executive Incentive Plan for fiscal year 1997 for all executive
officers of the Company. The actual awards to be paid under the Executive
Incentive Plan (or that would have been payable under the Plan for fiscal year
1996, had the Executive Incentive Plan then been in effect) cannot be determined
at this time since the awards are dependent on the Company's financial
performance for fiscal year 1997. An affirmative vote of a majority of the
shares present, in person or by proxy, and entitled to vote at the Annual
Meeting is required to approve the Executive Incentive Plan.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE ADOPTION OF THE CLOROX
COMPANY 1996 EXECUTIVE INCENTIVE COMPENSATION PLAN AND UNANIMOUSLY RECOMMENDS
THAT HOLDERS OF SHARES OF COMMON STOCK VOTE "FOR" PROPOSAL NO. 3.
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PROPOSAL NO. 4:
RATIFICATION OF INDEPENDENT AUDITORS
The Audit Committee of the board of directors has recommended, and the board of
directors has selected, Deloitte & Touche LLP as independent auditors for the
fiscal year ending June 30, 1997. This firm has been so engaged since 1957.
During fiscal year 1996, Deloitte & Touche LLP examined the Company's
consolidated financial statements, made limited reviews of the interim financial
reports, reviewed filings with the Securities and Exchange Commission and
provided general advice regarding related accounting matters.
Ratification of the selection of Deloitte & Touche LLP by stockholders is not
required by law. However, as a matter of policy, such selection is being
submitted to the stockholders for ratification at the Annual Meeting (and it is
the present intention of the board of directors to continue this policy). The
board of directors recommends the adoption of the following resolution which
will be presented to the Annual Meeting:
RESOLVED, that the stockholders of The Clorox Company hereby ratify the
selection of Deloitte & Touche LLP as independent auditors for the fiscal
year ending June 30, 1997.
The persons designated in the enclosed proxy will vote your shares FOR
ratification unless instructions to the contrary are indicated in the enclosed
proxy. If the stockholders fail to ratify the selection of this firm, the board
of directors will reconsider the matter.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting to respond to appropriate questions and to make a statement
should they desire to do so.
OTHER BUSINESS
The board of directors is not aware of any other matters to come before the
Annual Meeting. If any matter not mentioned herein is properly brought before
the Annual Meeting, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies with respect thereto in accordance
with their judgment.
SOLICITATION OF PROXIES
The Company has not retained an outside firm in connection with the solicitation
of the enclosed proxy. However, executive officers, directors and regular
employees of the Company, who will receive no extra compensation for their
services, may solicit proxies by telephone, telegraph, facsimile or personal
call.
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Stockholders who may wish to present proposals for inclusion in the Company's
proxy material and for consideration at the 1997 annual meeting must submit such
proposals in writing to the Secretary at the address shown on the top of the
notice accompanying this proxy statement not later than June 2, 1997.
By Order of the Board of Directors
Edward A. Cutter,
SENIOR VICE PRESIDENT -- GENERAL
COUNSEL
AND SECRETARY
September 30, 1996
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EXHIBIT A
THE CLOROX COMPANY
1996 STOCK INCENTIVE PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Incentive Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees of the Company and
its Subsidiaries and to promote the success of the Company's business.
Definitions of capitalized terms used in the Plan are contained in the attached
Glossary which is an integral part of the Plan.
2. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 9, below, the maximum aggregate
number of Shares which may be issued pursuant to Awards shall be 3.5 million
Shares. Notwithstanding the foregoing, (i) no more than ten percent (10%) of
the total number of Shares available for grant under the Plan in any fiscal
year of the Company may be issued as restricted stock and (ii) any Shares
issued pursuant to awards under the Company's Executive Incentive
Compensation Plan granted after the date of the Board's adoption of the Plan
shall reduce on a Share for Share basis the number of Shares otherwise
available under the Plan. The Shares to be issued pursuant to Awards may be
authorized, but unissued, or reacquired Common Stock.
(b) If an Award expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Award exchange program,
or if any unissued Shares are retained by the Company upon exercise of an
Award in order to satisfy the exercise price for such Award or any
withholding taxes due with respect to such Award, such unissued or retained
Shares shall become available for future grant or sale under the Plan
(unless the Plan has terminated). Shares that actually have been issued
under the Plan pursuant to an Award shall not be returned to the Plan and
shall not become available for future distribution under the Plan, except
that if unvested Shares are forfeited, or repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
3. ADMINISTRATION OF THE PLAN.
(a) PLAN ADMINISTRATOR.
(i) ADMINISTRATION WITH RESPECT TO EMPLOYEES WHO ARE DIRECTORS AND
OFFICERS. With respect to grants of Awards to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee
shall be constituted in such a manner as to satisfy Applicable Laws and
to permit such grants and related transactions under the Plan to be
exempt from Section 16(b) of the Exchange Act in accordance with Rule
16b-3. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board.
(ii) ADMINISTRATION WITH RESPECT TO OTHER EMPLOYEES. With respect to
grants of Awards to Employees who are neither Directors nor Officers of
the Company, the Plan shall be administered by (A) the Board or (B) a
Committee designated by the Board, which Committee shall be constituted
in such a manner as to satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO COVERED EMPLOYEES.
Notwithstanding the foregoing, grants of Awards to any Covered Employee
intended to qualify as Performance-Based Compensation shall be made only
by a Committee (or subcommittee of a Committee) which is composed solely
of two or more Directors eligible under the Code to serve on a committee
making Awards qualifying as Performance-Based Compensation. In the case
of such Awards granted to Covered Employees, references to the
"Administrator" or to a "Committee" shall be deemed to be references to
such Committee or subcommittee.
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(b) POWERS OF THE ADMINISTRATOR. Subject to Applicable Laws, the
provisions of the Plan (including any other powers given to the
Administrator hereunder) and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees to whom Awards may from time to time be
granted hereunder;
(ii) to determine whether and to what extent Awards are granted
hereunder;
(iii) to determine the number of Shares to be covered by each Award
granted hereunder;
(iv) to approve forms of Award Agreement for use under the Plan;
(v) to determine the terms and conditions of any Award granted
hereunder;
(vi) to amend the terms of any outstanding Award granted under the
Plan, provided that any amendment that would adversely affect the
Grantee's rights under an outstanding Award shall not be made without the
Grantee's written consent;
(vii) to construe and interpret the terms of the Plan and Awards
granted pursuant to the Plan; and
(viii) to take such other action, not inconsistent with the terms of
the Plan, as the Administrator deems appropriate.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions, determinations
and interpretations of the Administrator shall be final and binding on the
Grantees and any other holders of Awards intended by the Administrator to be
affected thereby.
4. ELIGIBILITY. Awards other than Incentive Stock Options may be granted
to Employees. Incentive Stock Options may be granted only to Employees. An
Employee who has been granted an Award may, if otherwise eligible, be granted
additional Awards. Awards may be granted to such Employees of the Company and
its subsidiaries who are residing in foreign jurisdictions as the Administrator
in its sole discretion may determine from time to time. The Administrator may
establish additional terms, conditions, rules or procedures to accommodate the
rules or laws of applicable foreign jurisdictions and to afford Grantees
favorable treatment under such laws; provided, however, that no Award shall be
granted under any such additional terms, conditions, rules or procedures with
terms or conditions which are inconsistent with the provisions of the Plan.
5. TERMS AND CONDITIONS OF AWARDS.
(a) TYPE OF AWARDS. The Administrator is authorized under the Plan to
award any type of arrangement to an Employee that is not inconsistent with
the provisions of the Plan and that by its terms involves or might involve
the issuance of (i) Shares, (ii) an Option, a SAR or similar right with an
exercise or conversion privilege at a fixed or variable price related to the
Common Stock and/or the passage of time, the occurrence of one or more
events, or the satisfaction of performance criteria or other conditions, or
(iii) any other security with the value derived from the value of the Common
Stock. Such awards include, without limitation, Options, SARs, sales or
bonuses of Restricted Stock, Dividend Equivalent Rights, Performance Units
or Performance Shares, and an Award may consist of one such security or
benefit, or two or more of them in any combination or alternative.
(b) DESIGNATION OF AWARD. Each Award shall be designated in the Award
Agreement. In the case of an Option, the Option shall be designated as
either an Incentive Stock Option or a Non-Qualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of Shares subject to Options designated as Incentive Stock
Options which become exercisable for the first time by a Grantee during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as
Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall
be taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the date the Option
with respect to such Shares is granted.
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(c) CONDITIONS OF AWARD. Subject to the terms of the Plan, the
Administrator shall determine the provisions, terms, and conditions of each
Award including, but not limited to, the Award vesting schedule, repurchase
provisions, rights of first refusal, forfeiture provisions, form of payment
(cash, Shares, or other consideration) upon settlement of the Award, and
payment contingencies. In the case of an Award (other than an Option or SAR)
intended to qualify as Performance-Based Compensation, the grant, exercise
and/or settlement of such Award shall be contingent upon achievement of
preestablished performance goals, which shall consist of one or more of the
following performance criteria: total shareholder return, stock price,
Clorox Value Measure, cash value added, economic value added, operating
margin, asset turnover, sales growth, asset growth, return on investment,
earnings per share, return on equity, return on assets, return on capital,
operating cash flow, cost of capital, net income, customer satisfaction,
employee satisfaction, and personal management objectives. Performance goals
shall be objective and shall otherwise meet the requirements of Code Section
162(m) and the regulations thereunder. Performance goals may differ for
Awards granted to any one Employee or to different Employees. Achievement of
performance goals in respect of Awards intended to qualify as
Performance-Based Compensation shall be measured over a performance period
specified in the Award of up to ten years, and the goals shall be
established not later than 90 days after the beginning of the performance
period applicable to the Award, or at such other date as may be required or
permitted for Performance-Based Compensation. The Award may provide that
partial achievement of the performance goal will result in a payment or
vesting corresponding to the degree of achievement as specified in the
Award. The Administrator may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with an Award intended to
qualify as Performance-Based Compensation, but may not exercise discretion
to increase the award.
(d) DEFERRAL OF AWARD PAYMENT. The Administrator may establish one or
more programs under the Plan to permit selected Grantees the opportunity to
elect to defer receipt of consideration upon exercise of an Award,
satisfaction of performance criteria, or other event that absent the
election would entitle the Grantee to payment or receipt of Shares or other
consideration under an Award. The Administrator may establish the election
procedures, the timing of such elections, the mechanisms for payments of,
and accrual of interest or other earnings, if any, on amounts or Shares so
deferred, and such other terms, conditions, rules and procedures that the
Administrator deems advisable for the administration of any such deferral
program.
(e) AWARD EXCHANGE PROGRAMS. The Administrator may establish one or more
programs under the Plan to permit selected Grantees to exchange an Award
under the Plan for one or more other types of Awards under the Plan on such
terms and conditions as established by the Administrator from time to time.
(f) TERM OF AWARD. The term of each Award shall be the term stated in
the Award Agreement, provided, however, that the term of an Incentive Stock
Option shall be no more than ten (10) years from the date of grant thereof.
However, in the case of an Incentive Stock Option granted to a Grantee who,
at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the term of the Incentive Stock Option shall be
five (5) years from the date of grant thereof or such shorter term as may be
provided in the Award Agreement.
(g) INDIVIDUAL OPTION, SAR LIMIT. The maximum aggregate number of Shares
with respect to which Options and SAR may be granted to any Employee in any
fiscal year of the Company shall be five hundred thousand (500,000) Shares.
The foregoing limitation shall be adjusted proportionately in connection
with any change in the Company's capitalization pursuant to Section 9,
below. This Section 5(g) is intended to comply with the requirements for the
award of Performance-Based Compensation applicable to stock options and
stock appreciation rights and shall be construed in accordance with the
requirements of Section 162(m) of the Code and the regulations thereunder.
(h) INDIVIDUAL PERFORMANCE-BASED COMPENSATION LIMIT FOR AWARDS OTHER
THAN OPTIONS AND SARS. The maximum value of any Award (other than an Option
or SAR) granted to any Employee in any fiscal
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year of the Company and intended to qualify as Performance-Based
Compensation shall be two million dollars ($2,000,000), calculated based
upon the value of the Award assuming the performance goal was met on the
date of the grant of the Award. This Section 5(h) is intended to comply with
the requirements for the award of Performance-Based Compensation applicable
to awards other than stock options and stock appreciation rights and shall
be construed in accordance with the requirements of Section 162(m) of the
Code and the regulations thereunder.
(i) TRANSFERABILITY OF AWARDS. Incentive Stock Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner
other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Grantee, only by the Grantee. Other
Awards shall be transferable to the extent provided in the Award Agreement.
(j) TIME OF GRANTING AWARDS. The date of grant of an Award shall for all
purposes be the date on which the Administrator makes the determination to
grant such Award, or such other date as is determined by the Administrator.
Notice of the grant determination shall be given to each Employee to whom an
Award is so granted within a reasonable time after the date of such grant.
6. AWARD EXERCISE OR PURCHASE PRICE, CONSIDERATION, AND TAXES.
(a) EXERCISE OR PURCHASE PRICE. The exercise or purchase price, if any,
for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of such
Incentive Stock Option owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be not
less than one hundred ten percent (110%) of the Fair Market Value per
Share on the date of grant.
(B) granted to any Employee other than an Employee described in
the preceding clause, the per Share exercise price shall be not less
than one hundred percent (100%) of the Fair Market Value per Share on
the date of grant.
(ii) In the case of a Non-Qualified Stock Option, the per Share
exercise price shall be not less than one hundred percent (100%) of the
Fair Market Value per Share on the date of grant unless otherwise
determined by the Administrator.
(iii) In the case of any other Award, including Restricted Stock,
such price, if any, as determined by the Administrator.
(b) CONSIDERATION. Subject to Applicable Laws, the consideration to be
paid for the Shares to be issued upon exercise or purchase of an Award
including the method of payment, shall be determined by the Administrator
(and, in the case of an Incentive Stock Option, shall be determined at the
time of grant). In addition to any other types of consideration the
Administrator may determine, the Administrator is authorized to accept as
consideration for Shares under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with such recourse,
interest, security, and redemption provisions as the Administrator in its
discretion determines as appropriate;
(iv) surrender of Shares (including withholding of Shares otherwise
deliverable upon exercise of the Award) which have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares
as to which said Award shall be exercised (but only to the extent that
such exercise of the Award would not result in an accounting compensation
charge with respect to the Shares used to pay the exercise price unless
otherwise determined by the Administrator);
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(v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Award and delivery
to the Company of the sale or loan proceeds required to pay the exercise
price and/or related withholding taxes; or
(vi) any combination of the foregoing methods of payment.
(c) TAXES. No Shares shall be delivered under the Plan to any Grantee or
other person until such Grantee or other person has made arrangements
acceptable to the Administrator for the satisfaction of federal, state, and
local income and employment tax withholding obligations, including, without
limitation, obligations incident to the receipt of Shares or the
disqualifying disposition of Shares received on exercise of an Incentive
Stock Option. Upon exercise of an Award, the Company shall withhold from
Grantee an amount sufficient to satisfy such tax obligations.
7. EXERCISE OF AWARD.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER.
(i) Any Award granted hereunder shall be exercisable at such times
and under such conditions as determined by the Administrator under the
terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms
of the Award by the person entitled to exercise the Award and full
payment for the Shares with respect to which the Award is exercised has
been received by the Company. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such
Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to Shares subject to an Award,
notwithstanding the exercise of an Option or other Award. The Company
shall issue (or cause to be issued) such stock certificate promptly upon
exercise of the Award. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock
certificate is issued, except as provided in the Award Agreement or
Section 9, below.
(b) EXERCISE OF AWARD FOLLOWING TERMINATION OF EMPLOYMENT RELATIONSHIP.
(i) An Award may not be exercised after the termination date of such
Award set forth in the Award Agreement and may be exercised following the
termination of a Grantee's Continuous Status as an Employee only to the
extent provided in the Award Agreement.
(ii) Where the Award Agreement permits a Grantee to exercise an Award
following the termination of the Grantee's Continuous Status as an
Employee for a specified period, the Award shall terminate to the extent
not exercised on the last day of the specified period or the last day of
the original term of the Award whichever occurs first.
(iii) Any Award designated as an Incentive Stock Option to the extent
not exercised within the time permitted by law for the exercise of
Incentive Stock Options following the termination of a Grantee's
Continuous Status as an Employee shall convert automatically to a
Non-Qualified Stock Option and thereafter shall be exercisable as such to
the extent exercisable by its terms for the period specified in the Award
Agreement.
8. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued pursuant to the exercise of an Award
unless the exercise of such Award and the issuance and delivery of such
Shares pursuant thereto shall comply with all Applicable Laws, and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
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(b) As a condition to the exercise of an Award, the Company may require
the person exercising such Award to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any
Applicable Laws.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. Subject to any required
action by the stockholders of the Company, the number of Shares covered by each
outstanding Award, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Awards have yet been granted or which
have been returned to the Plan, as well as the price per share of Common Stock
covered by each such outstanding Award, shall be proportionately adjusted for
any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other similar event resulting in
an increase or decrease in the number of issued shares of Common Stock. Such
adjustment shall be made by the Administrator, and its determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason hereof shall be made with respect to, the number or price
of Shares subject to an Award.
10. CORPORATE TRANSACTIONS/CHANGES OF CONTROL/SUBSIDIARY DISPOSITIONS.
(a) In the event of a Corporate Transaction, each Award which is at the
time outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any restrictions on transfer and repurchase
or forfeiture rights, immediately prior to the specified effective date of
such Corporate Transaction, for all of the Shares at the time represented by
such Award. Effective upon the consummation of the Corporate Transaction,
all outstanding Awards under the Plan shall terminate unless assumed by the
successor company or its Parent.
(b) In the event of a Change of Control (other than a Change of Control
which also is a Corporate Transaction), each Award which is at the time
outstanding under the Plan automatically shall become fully vested and
exercisable and be released from any restrictions on transfer and repurchase
or forfeiture rights, immediately prior to the specified effective date of
such Change of Control, for all of the Shares at the time represented by
such Award. Each such Award shall remain so exercisable until the expiration
or sooner termination of the applicable Award term.
(c) The Administrator shall have the authority, exercisable either in
advance of any actual or anticipated Subsidiary Disposition or at the time
of an actual Subsidiary Disposition and either at the time of the grant of
an Award or at any time while an Award remains outstanding, to provide for
the automatic full vesting and exercisability of one or more outstanding
unvested Awards under the Plan and the termination of restrictions on
transfer and repurchase or forfeiture rights on such Awards, in connection
with a Subsidiary Disposition, but only with respect to those Grantees who
are at the time engaged primarily in Continuous Service as an Employee with
the subsidiary corporation involved in such Subsidiary Disposition. The
Administrator also shall have the authority to condition any such Award
vesting and exercisability or release from such limitations upon the
subsequent termination of the affected Grantee's Continuous Service as an
Employee with that subsidiary corporation within a specified period
following the effective date of the Subsidiary Disposition. The
Administrator may provide that any Awards so vested or released from such
limitations in connection with a Subsidiary Disposition, shall remain fully
exercisable until the expiration or sooner termination of the Award.
(d) The portion of any Incentive Stock Option accelerated under this
Section 10 in connection with a Corporate Transaction, Change of Control or
Subsidiary Disposition shall remain exercisable as an Incentive Stock Option
under the Code only to the extent the $100,000 dollar limitation of Section
422(d) of the Code is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated excess portion of such Option shall be exercisable
as a Non-Qualified Stock Option.
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<PAGE>
(e) In the event of termination of a Grantee's Continuous Status as an
Employee as a result of his or her Retirement, unless otherwise provided in
the Award Agreement, each outstanding Award held by such Grantee shall
become fully vested and exercisable and be released from any restrictions on
transfer and repurchase or forfeiture rights for all of the Shares at the
time represented by such Award.
11. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the stockholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated.
12. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
(a) The Board may at any time amend, suspend or terminate the Plan. To
the extent necessary and desirable to comply with Applicable Laws, the
Company shall obtain stockholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) No Award may be granted during any suspension or after termination
of the Plan.
(c) Any amendment, suspension or termination of the Plan shall not
affect Awards already granted, and such Awards shall remain in full force
and effect as if the Plan had not been amended, suspended or terminated,
unless mutually agreed otherwise between the Grantee and the Administrator,
which agreement must be in writing and signed by the Grantee and the
Company.
13. AMENDMENT TO PRIOR PLANS. No Awards shall be granted under the
Company's 1977 Stock Option and Restricted Stock Plans and 1987 Long Term
Compensation Program on or after stockholder approval of the Plan.
14. RESERVATION OF SHARES.
(a) The Company, during the term of the Plan, will at all times reserve
and keep available such number of Shares as shall be sufficient to satisfy
the requirements of the Plan.
(b) The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority shall not
have been obtained.
15. NO EFFECT ON TERMS OF EMPLOYMENT. The Plan shall not confer upon any
Grantee any right with respect to continuation of employment or consulting
relationship with the Company, nor shall it interfere in any way with his or her
right or the Company's right to terminate his or her employment or consulting
relationship at any time, with or without cause.
16. STOCKHOLDER APPROVAL. Continuance of the Plan with respect to the
grant of Incentive Stock Options and grants to Covered Employees shall be
subject to approval by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted, and such stockholder approval
shall be a condition to the right of a Covered Employee to receive
Performance-Based Compensation hereunder. Such stockholder approval shall be
obtained in the degree and manner required under Applicable Laws.
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<PAGE>
GLOSSARY OF DEFINED TERMS
DEFINITIONS. As used in the Plan, the following definitions shall apply:
"ADMINISTRATOR" means the Board or any of the Committees appointed to
administer the Plan.
"AFFILIATE" and "ASSOCIATE" shall have the respective meanings ascribed to
such terms in Rule 12b-2 promulgated under the Exchange Act.
"APPLICABLE LAWS" means the legal requirements relating to the
administration of stock incentive plans, if any, under applicable provisions of
federal securities laws, state corporate and securities laws, the Code, and the
rules of any applicable stock exchange or national market system.
"AWARD" means the grant of an Option, SAR, Dividend Equivalent Right,
Restricted Stock, Performance Unit, Performance Share, or other right or benefit
under the Plan.
"AWARD AGREEMENT" means the written agreement evidencing the grant of an
Award executed by the Company and the Grantee, including any amendments thereto.
"BOARD" means the Board of Directors of the Company.
"BUSINESS COMBINATION" means a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation or entity, in each
case, unless, immediately following such Business Combination, (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the outstanding Common Stock and outstanding Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than fifty percent (50%) of, respectively, the then
outstanding shares of common stock and the combined voting power of the then
outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such Business
Combination of the outstanding Common Stock and outstanding Voting Securities,
as the case may be, (ii) no Person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, twenty percent (20%) or
more (or, in the case of Henkel, more than the percentage limit of the Company's
issued common stock agreed to in paragraph 4(a) of the June 18, 1981 agreement
between the Company and Henkel, as amended), of the then outstanding shares of
common stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination.
"CHANGE OF CONTROL" means a change in ownership or control of the Company
effected through either of the following transactions:
The acquisition by any Person of beneficial ownership (within the
meaning of Rule 13(d)(3) promulgated under the Exchange Act) of twenty
percent (20%) or more (or, in the case of Henkel, more than the
percentage limit of the Company's issued common stock agreed to in
paragraph 4(a) of the June 18, 1981 agreement between the Company and
Henkel, as amended) of either (A) the then outstanding shares of Common
Stock or (B) the combined voting power of the then outstanding Voting
Securities; provided, however, that for purposes of this paragraph, the
following acquisitions shall not constitute a Change of Control: (W) any
acquisition directly from the Company, (X) any acquisition by the
Company, including any acquisition which, by reducing the number of
shares outstanding, is the sole cause for increasing the percentage of
shares beneficially owned by any such Person or by Henkel to more than
the applicable percentage set forth above, (Y) any
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<PAGE>
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or
(Z) any acquisition pursuant to a Business Combination which complies
with clauses (i), (ii) and (iii) of the definition of "Business
Combination" above; or Directors constituting the Incumbent Board cease
for any reason to constitute at least a majority of the Directors.
"CLOROX VALUE MEASURE" means an economic value added model the calculation
of which links profit to investment by including a capital charge for assets
employed in the business.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means any committee appointed by the Board to administer the
Plan.
"COMMON STOCK" means the common stock of the Company, as adjusted in
accordance with the provisions of Section 9.
"COMPANY" means The Clorox Company.
"CONTINUOUS STATUS AS AN EMPLOYEE" means that the employment relationship
with the Company, any Parent, or Subsidiary, is not interrupted or terminated.
Continuous Status as an Employee shall not be considered interrupted in the case
of (i) any leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any Subsidiary, or
any successor. A leave of absence approved by the Company shall include sick
leave, military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed ninety (90) days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract.
"CORPORATE TRANSACTION" means any of the following stockholder-approved
transactions to which the Company is a party:
a Business Combination, or
a complete liquidation or dissolution of the Company.
"COVERED EMPLOYEE" means an Employee who is a "covered employee" under
Section 162(m)(3) of the Code at the time of an Award under the Plan.
"DIRECTOR" means a member of the Board.
"DISABILITY" means disability as defined in subsection 4.1(a) of The Clorox
Company Disability Plan for twelve (12) consecutive months.
"DIVIDEND EQUIVALENT RIGHT" means a right entitling the Grantee to
compensation measured by dividends paid with respect to Common Stock.
"EMPLOYEE" means any person, including Officers and Directors, employed by
the Company or any Parent or Subsidiary of the Company. The payment of a
director's fee by the Company shall not be sufficient to constitute "employment"
by the Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" means, as of any date, the value of Common Stock
determined as follows:
Where there exists a public market for the Common Stock, the Fair
Market Value shall be (A) the closing sales price for a Share for the
last market trading day prior to the time of the determination (or, if no
sales were reported on that date, on the last trading date on which sales
were reported) on the New York Stock Exchange, the NASDAQ National Market
or the principal securities exchange on which the Common Stock is listed
for trading, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the
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<PAGE>
average of the closing bid and asked prices of a Share on the NASDAQ
Small Cap Market, in each case, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable; or
In the absence of an established market of the type described above,
for the Common Stock, the Fair Market Value thereof shall be determined
by the Administrator in good faith, and such determination shall be
conclusive and binding on all persons.
"GRANTEE" means an Employee who receives an Award under the Plan.
"HENKEL" means Henkel KGaA and any person controlled by Henkel KGaA.
"INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive
stock option within the meaning of Section 422 of the Code.
"INCUMBENT BOARD" means Directors who (i) are Directors as of the date of
Board adoption of the Plan, (ii) were elected or nominated for election as
Directors by at least a majority of the Directors described in clause (i) who
were still in office at the time such election or nomination was approved by the
Board, or (iii) have been nominated as a representative of Henkel KGaA pursuant
to the agreement between Henkel KGaA and the Company dated July 16, 1986;
provided that a person shall not be deemed an Incumbent Board member if his or
her initial assumption of office as a Director was the result of an actual or
threatened election contest with respect to the election or removal of
Directors, or other actual or threatened solicitation of proxies or stockholder
consents, by or on behalf of a Person other than the Board.
"NON-QUALIFIED STOCK OPTION" means an Option not intended to qualify as an
Incentive Stock Option.
"OFFICER" means a person who is an officer of the Company within the meaning
of Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.
"OPTION" means a stock option granted pursuant to the Plan.
"PARENT" means a "parent corporation," whether now or hereafter existing, as
defined in Section 424(e) of the Code.
"PERFORMANCE-BASED COMPENSATION" means compensation qualifying as
"performance-based compensation" under Section 162(m) of the Code.
"PERFORMANCE SHARES" means Shares or an Award denominated in Shares which
may be earned in whole or in part upon attainment of performance criteria
established by the Administrator and which may be settled for cash, securities,
or a combination of cash and securities as determined by the Administrator.
"PERFORMANCE UNITS" means awards which may be earned in whole or in part
upon attainment of performance criteria established by the Administrator and
which may be settled for cash, securities or a combination of cash and
securities as determined by the Administrator.
"PERSON" means any individual, entity or group within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act.
"PLAN" means this 1996 Stock Incentive Plan.
"RESTRICTED STOCK" means an award of Shares under the Plan to the Grantee
for such consideration, if any, and subject to such restrictions on transfer,
rights of first refusal, repurchase provisions, forfeiture provisions, and other
terms and conditions as established by the Administrator.
"RETIREMENT" means termination of Continuous Status as an Employee after
attaining age fifty-five (55) with ten (10) or more years of "vesting service"
as defined in The Clorox Company Pension Plan.
"RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor thereto.
"SAR" means a stock appreciation right entitling the Grantee to Shares or
cash compensation measured by appreciation in the value of Common Stock.
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<PAGE>
"SHARE" means a share of the Common Stock.
"SUBSIDIARY" means a "subsidiary corporation," whether now or hereafter
existing, as defined in Section 424(f) of the Code.
"SUBSIDIARY DISPOSITION" means the disposition by the Company of its equity
holdings in any subsidiary corporation effected by a merger or consolidation
involving that subsidiary corporation, the sale of all or substantially all of
the assets of that subsidiary corporation or the Company's sale or distribution
of substantially all of the outstanding capital stock of such subsidiary
corporation.
"VOTING SECURITIES" means voting securities of the Company entitled to vote
generally in the election of Directors.
A-11
<PAGE>
EXHIBIT B
THE CLOROX COMPANY 1996
EXECUTIVE INCENTIVE COMPENSATION PLAN
1. PURPOSE
The purpose of The Clorox Company Executive Incentive Compensation Plan (the
"Plan") is to provide an incentive for corporate officers and to recognize and
reward those officers.
2. DEFINITIONS
The following terms will have the following meaning for purposes of the
Plan:
(a) "Award" means a bonus paid in cash, Stock and/or restricted Stock.
(b) "Board" means the Board of Directors of the Company.
(c) "Clorox Value Measure" means an economic value-added model the
calculation of which links profit to investment by including a capital
charge for assets employed in the business.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the Employee Benefits and Management Compensation
Committee of the Board, or such other Committee designated by the Board
to administer the Plan provided that the Committee shall consist of two
or more persons, each of whom is an "outside director" within the meaning
of Section 162(m) of the Code.
(f) "Company" means The Clorox Company.
(g) "Participant" means a corporate officer of the Company or a Subsidiary
selected by the Committee to participate in the Plan.
(h) "Performance Criteria" means the following measures of performance:
total shareholder return, Stock price, Clorox Value Measure, cash value
added, economic value added, operating margin, asset turnover, sales
growth, asset growth, return on investment, earnings per share, return on
equity, return on assets, return on capital, operating cash flow, cost of
capital, net income, customer satisfaction, and employee satisfaction.
A Performance Criterion may be applied by the Committee as a measure of
the performance of any, all, or any combination of the following: the
Company, a Subsidiary, a division, group or other unit of the Company or
a Subsidiary, or a particular product category or categories of the
Company or a Subsidiary.
(i) "Performance Goal(s)" means the goal or goals established for a
Participant by the Committee in accordance with Section 4(a).
(j) "Stock" means common stock of the Company.
(k) "Subsidiary" means any corporation in which the Company, directly or
indirectly, controls 50 percent or more of the total combined voting
power of all classes of stock.
(l) "Target Award" means the amount of the target award established for each
Participant by the Committee in accordance with Section 4(a).
3. TERM
The Plan shall be effective as of July 1, 1996, subject to stockholders
approval, and shall continue until June 30, 2001 unless reapproved by the
Company's stockholders or unless amended or terminated pursuant to Section 9
hereof.
B-1
<PAGE>
4. AWARDS
(a) Within 90 days after the beginning of each fiscal year of the Company (a
"year"), the Committee will select Participants for the year and
establish in writing (i) an objective Performance Goal or Goals for each
Participant for that year based on one or more of the Performance
Criteria, (ii) the specific Award amounts that will be paid to each
Participant if his or her Performance Goal or Goals are achieved (the
"Target Award") and (iii) the method by which such amounts will be
calculated. The Committee may specify as to each Target Award the form of
payment of the Award (cash, Stock, restricted Stock, and/or other
property), provided that if restricted Stock is offered as an incentive
to Participants to take some or all of their Award in Stock the amount of
the restricted Stock shall be specified and the Target Award, including
such restricted Stock, shall not exceed the maximum Award permitted under
Section 4(b). The Target Award may provide for payment of all or part of
the Target Award in the case of retirement, death, disability or change
of ownership of control of the Company or a Subsidiary during the year.
(b) The maximum Award that may be paid to any Participant under the Plan for
any year will be $2 million.
(c) The Committee may reduce or eliminate, but may not increase, any Award
calculated under the methodology established in accordance with paragraph
(a) in order to reflect additional considerations relating to
performance.
(d) As soon as practicable following each year while the Plan is in effect,
the Committee shall determine and certify, for each Participant, the
extent to which the Performance Goal or Goals have been met and the
amount of the Award, if any, to be made. Awards will be paid to the
Participants following such certification by the Committee and no later
than ninety (90) days following the close of the year with respect to
which the Awards are made.
(e) The Company shall withhold from the payment of any Award hereunder any
amount required to be withheld for taxes.
5. TERMINATION OF EMPLOYMENT
Except as may be specifically provided in an Award pursuant to Section 4(a),
a Participant shall have no right to an Award under the Plan for any year in
which the Participant is not actively employed by the Company or its
Subsidiaries on June 30 of such year. In establishing Target Awards, the
Committee may also provide that in the event a Participant is not employed by
the Company or its Subsidiaries on the date on which the Award is paid, the
Participant may forfeit his or her right to the Award paid under the Plan.
6. ADMINISTRATION
The Plan will be administered by the Committee. The Committee will have the
authority to interpret the Plan, to prescribe rules relating to the Plan and to
make all determinations necessary or advisable in administering the Plan.
Decisions of the Committee with respect to the Plan will be final and
conclusive.
7. UNFUNDED PLAN
Awards under the Plan will be paid from the general assets of the Company,
and the rights of Participants under the Plan will be only those of general
unsecured creditors of the Company.
8. CODE SECTION 162(M)
It is the intent of the Company that all Awards under the Plan qualify as
performance-based compensation for purposes of Code Section 162(m)(4)(C) so that
the Company's tax deduction for such Awards is not disallowed in whole or in
part under Code Section 162(m). The Plan is to be applied and interpreted
accordingly.
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<PAGE>
9. AMENDMENT OR TERMINATION OF THE PLAN
The Committee may from time to time suspend, revise, amend or terminate the
Plan; PROVIDED, that any such amendment or revision which requires approval of
the Company's shareholders in order to maintain the qualification of Awards as
performance-based compensation pursuant to Code Section 162(m)(4)(C) shall not
be made without such approval.
10. APPLICABLE LAW
The Plan will be governed by the laws of California.
11. NO RIGHTS TO EMPLOYMENT
Nothing contained in the Plan shall give any person the right to be retained
in the employment of the Company or any of its Subsidiaries. The Company
reserves the right to terminate any Participant at any time for any reason
notwithstanding the existence of the Plan.
12. NO ASSIGNMENT
Except as otherwise required by applicable law, any interest, benefit,
payment, claim or right of any Participant under the Plan shall not be sold,
transferred, assigned, pledged, encumbered or hypothecated by any Participant
and shall not be subject in any manner to any claims of any creditor of any
Participant or beneficiary, and any attempt to take any such action shall be
null and void. During the lifetime of any Participant, payment of an Award shall
only be made to such Participant. Notwithstanding the foregoing, the Committee
may establish such procedures as it deems necessary for a Participant to
designate a beneficiary to whom any amounts would be payable in the event of any
Participant's death.
13. STOCKHOLDER APPROVAL
This Plan shall be subject to approval by a vote of the stockholders of the
Company at the 1996 Annual Meeting, and such stockholder approval shall be a
condition to the right of any Participant to receive any benefits hereunder.
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| 0129
|__
/ x / PLEASE MARK CHOICES IN BLUE OR BLACK INK AS IN THIS SAMPLE.
The Board of Directors unanimously recommends a vote FOR the election of the
nominees for director and FOR proposals 2, 3 and 4.
FOR WITHHELD
1. Election of Directors. / / / /
(see list below)
FOR, EXCEPT VOTE WITHHELD FROM THE FOLLOWING NOMINEE(S):
________________________________________________________
FOR AGAINST ABSTAIN
2. Proposal to consider the adoption of The / / / / / /
Clorox Company 1996 Stock Incentive Plan.
FOR AGAINST ABSTAIN
3. Proposal to consider the adoption of The / / / / / /
Clorox Company 1996 Executive Incentive
Compensation Plan.
FOR AGAINST ABSTAIN
4. Proposal to ratify the selection of Deloitte & / / / / / /
Touche LLP as independent auditors for The
Clorox Company for the fiscal year ending
June 30, 1997.
Check this box only if you have comments or / /
change of address and use the back of form.
Check this box only if you wish to attend and / /
vote at the meeting.
SIGNATURE(S)__________________________________ DATE ___________________________
NOTE: Your signature should conform with your name as printed above. If signing
as attorney, executor, administrator, trustee or guardian, please give
your full title as such. If stock is owned by a partnership or
corporation, please indicate your capacity in signing the proxy. If stock
is held in joint ownership, all co-owners must sign. Please sign, date and
return promptly.
- --------------------------------------------------------------------------------
PLEASE TEAR OFF AT PERFORATION AND RETURN SIGNED PORTION AS SOON AS POSSIBLE.
[CLOROX LOGO] THE CLOROX COMPANY
ANNUAL MEETING NOVEMBER 20, 1996
Nominees for Director:
William F. Ausfahl, Daniel Boggan, Jr., John W. Collins,
Ursula Fairchild, Juergen Manchot, Dean O. Morton,
Klaus Morwind, Edward L. Scarff, Lary R. Scott,
Forrest N. Shumway, G. Craig Sullivan, James A. Vohs,
C.A. (Al) Wolfe
**********IMPORTANT**********
DETACH AT PERFORATION AND RETAIN THIS PORTION.
THE PROXY VOTING INSTRUCTIONS SHOULD BE
RETURNED AS SOON AS POSSIBLE
<PAGE>
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CLOROX
COMPANY
The undersigned, whose signature appears on the reverse, hereby appoints G. C.
SULLIVAN, W. F. AUSFAHL and E. A. CUTTER, and each of them, with full
power of substitution and revocation, the proxy or proxies of the undersigned
to vote the shares of common stock which the undersigned would be entitled to
vote if personally present at the Annual Meeting of Stockholders to be held
on November 20, 1996, and at any and all adjournments thereof and on all
matters that may properly come before the meeting.
Your shares will be voted as directed herein. If signed and no direction is
given for any item, it will be voted in favor of Items 1, 2, 3 and 4.
If you have any comments or change of address, MARK THE APPROPRIATE BOX ON
THE REVERSE SIDE and use the following space:
INSTRUCTIONS:
1. Use the reverse side to specify your voting instructions for each proposal.
2. Sign and date form.
3. Tear off at perforation and RETURN THIS PORTION OF THE FORM ONLY.
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
BY RETURNING YOUR VOTING INSTRUCTIONS PROMPTLY, YOU CAN AVOID THE
INCONVENIENCE OF RECEIVING FOLLOW-UP MAILINGS PLUS HELP AVOID THE
EXPENSES ASSOCIATED WITH SUCH ADDITIONAL MAILINGS.
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[CLOROX LOGO]
