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Excerpt From Home Depot Executives’ Employment Agreement

January 4, 2007
Related Topics: Compensation Design and Communication, Featured Article
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The following is an excerpt of a proxy statement that Home Depot filed April 14. It includes a discussion of the terms of the employment agreements for the company’s named executive officers, who include Dennis Donovan, executive vice president, human resources:

"The Company also has employment agreements with Dennis M. Donovan, Executive Vice President – Human Resources, dated as of March 16, 2001, and with Frank L. Fernandez, Executive Vice President, Secretary and General Counsel, dated as of April 2, 2001. The initial term of Mr. Donovan's agreement terminates on December 31, 2005, and beginning on January 1, 2003, automatically extends so that the remaining term is always three years. The initial term of Mr. Fernandez's agreement terminates on April 2, 2004, and beginning on April 2, 2002, automatically extends so that the remaining term is always two years. Each agreement provides that the automatic extensions will continue until either the Company or the executive gives written notice of termination of the extension provision.

"The employment agreements provide for each of Messrs. Donovan and Fernandez to receive a base salary of not less than $525,000 per year. Mr. Donovan is eligible for an annual bonus of no less than his then-current base salary. Mr. Fernandez is eligible for an annual bonus of no less than 65% of his then-current base salary. Both Messrs. Donovan and Fernandez were guaranteed a bonus for Fiscal 2001. In connection with the commencement of employment, Messrs. Donovan and Fernandez each received awards of stock options exercisable for 320,000 shares, which vest 25% per year beginning on the second anniversary of the grant date, and awards of deferred stock units corresponding to 328,821 shares and 50,000 shares, respectively. Mr. Donovan's units vest in one-third increments on the first, third and fifth anniversaries of his date of employment and Mr. Fernandez's units vest in increments of 25% annually beginning on the second anniversary of the date of his employment agreement. The agreements provide that for 2002 and subsequent calendar years, Messrs. Donovan and Fernandez are eligible for an annual grant of stock options exercisable for at least 90,000 and 70,000 shares, respectively.

"In connection with their relocations, Messrs. Donovan and Fernandez received loans in the amount of $3 million and $500,000, respectively. Interest on the loans accrues at the rate of 5.8% per year. Interest will be forgiven annually on the respective anniversaries of the loans. Mr. Fernandez' loan was fully satisfied as of the end of Fiscal 2005. Mr. Donovan's loan must be repaid upon the earlier of (1) the fifth anniversary of the date of the loan or (2) 90 days following the termination of the executive's employment by the Company for cause or by the executive without good reason.

"Upon the termination of the employment of either Mr. Donovan or Mr. Fernandez by the Company for cause or by the executive without good reason, the Company will pay the executive all cash compensation accrued but not paid as of the termination date. If the employment of Mr. Donovan or Mr. Fernandez is terminated by the Company other than for cause, by the executive for good reason or for any reason within 12 months after a change in control or due to death or disability, the executive will receive all cash compensation accrued but not paid as of the termination date and certain additional benefits, including salary and target bonus continuation for 24 months and immediate vesting of all unvested equity-based awards, which such award will continue to be exercisable (1) by Mr. Donavan through the end of the awards' original term and (2) by Mr. Fernandez through the shorter of the end of the awards' original term or third anniversary of the end of his employment with the Company. In the event of a change in control, in addition to receiving any protection that is applicable to other senior executives, all grants of equity-based awards to Messrs. Donovan and Fernandez shall become fully vested and exercisable.

"Pursuant to their respective agreements, each of Messrs. Donovan and Fernandez has agreed that during the term of his employment and for two years thereafter, he shall not, without the prior written consent of the Company, participate (as defined in the agreements) in the management of certain competitors of the Company. During the same period, each executive has also agreed not to solicit any employee of the Company to accept a position with another entity or to solicit any vendor or customer of the Company to alter its relationship with the Company in any way that would be adverse to the Company.

"Under the terms of the agreements with Messrs. Nardelli, Donovan and Fernandez, termination of employment for good reason generally means the occurrence of certain events without the executive's consent, including, among other things, (1) the Company assigning him duties inconsistent in any material respect with his duties and responsibilities as contemplated by the employment agreement or taking any other action that results in a significant diminution in such executive's position, duties or responsibilities, (2) failure of the Company to comply with any material provision of the employment agreement, or (3) in Mr. Donovan's case, cessation of a direct reporting relationship with Mr. Nardelli.

"Termination for cause means, among other things, that the executive (1) has engaged in conduct that constitutes willful gross neglect or willful gross misconduct with respect to employment duties that results in material economic harm to the Company, subject to certain conditions, or (2) has been convicted of a felony involving theft or moral turpitude. Any determination that cause exists must be approved by a majority of the Company's Board of Directors after giving notice of such meeting to the executive and providing the executive and his legal counsel an opportunity to address the Board at such meeting. In addition to these and other benefits set forth in the applicable employment agreements, Messrs. Nardelli, Donovan and Fernandez are entitled to participate in the benefit plans offered to all executive officers of the Company and to receive the same perquisites as are commonly provided to other senior executives of the Company. The Company will also reimburse them for income taxes applicable to certain specified benefits and payments under the agreement and for excise taxes imposed in the event payments or benefits received by the executive under their respective agreements, or otherwise, result in "parachute payments" under the Internal Revenue Code."

Click here to read the full proxy statement.

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