-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GNZQsPlO/AHSjkYxdQr3TRbQGMpJyL1of2zOTEZycCMg8UZ0vGI1rqwyRRRYlvTt gtOVMAdWL1Rna1FMefhHwg== /in/edgar/work/0000912057-00-047421/0000912057-00-047421.txt : 20001107 0000912057-00-047421.hdr.sgml : 20001107 ACCESSION NUMBER: 0000912057-00-047421 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001106 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECOLAB INC CENTRAL INDEX KEY: 0000031462 STANDARD INDUSTRIAL CLASSIFICATION: [2840 ] IRS NUMBER: 410231510 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-09328 FILM NUMBER: 753960 BUSINESS ADDRESS: STREET 1: ECOLAB CTR STREET 2: 370 N WABASHA ST CITY: ST PAUL STATE: MN ZIP: 55102 BUSINESS PHONE: 6122932233 FORMER COMPANY: FORMER CONFORMED NAME: ECONOMICS LABORATORY INC DATE OF NAME CHANGE: 19861203 10-Q 1 a2029351z10-q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ____________________ Commission File No. 1-9328 ------ ECOLAB INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 41-0231510 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Ecolab Center, 370 Wabasha Street N., St. Paul, Minnesota 55102 - ------------------------------------------------------------------------------- (Address of principal executive offices)(Zip Code) 651-293-2233 ------------ (Registrant's telephone number, including area code) (Not Applicable) - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 31, 2000. 127,014,480 shares of common stock, par value $1.00 per share. PART I - FINANCIAL INFORMATION ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME
Third Quarter Ended September 30 (thousands, except per share) 2000 1999 -------- -------- (unaudited) Net sales $600,666 $554,511 Cost of sales 266,951 247,619 Selling, general and administrative expenses 235,987 219,037 -------- -------- Operating income 97,728 87,855 Interest expense, net 6,528 4,860 -------- -------- Income before income taxes and equity in earnings of Henkel-Ecolab 91,200 82,995 Provision for income taxes 36,232 33,555 Equity in earnings of Henkel-Ecolab 5,370 5,581 -------- -------- Net income $ 60,338 $ 55,021 ======== ======== Net income per common share Basic $ 0.47 $ 0.42 Diluted $ 0.46 $ 0.41 Dividends per common share $ 0.12 $ 0.105 Weighted-average common shares outstanding Basic 127,112 129,546 Diluted 131,167 134,394
The accompanying notes are an integral part of the consolidated financial statements. 2 ECOLAB INC. CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended September 30 (thousands, except per share) 2000 1999 ---------- ---------- (unaudited) Net sales $1,697,637 $1,564,231 Cost of sales 762,817 702,769 Selling, general and administrative expenses 685,771 639,602 ---------- ---------- Operating income 249,049 221,860 Interest expense, net 17,130 16,819 ---------- ---------- Income before income taxes and equity in earnings of Henkel-Ecolab 231,919 205,041 Provision for income taxes 93,927 84,082 Equity in earnings of Henkel-Ecolab 13,367 12,484 ---------- ---------- Net income $ 151,359 $ 133,443 ========== ========== Net income per common share Basic $ 1.18 $ 1.03 Diluted $ 1.14 $ 0.99 Dividends per common share $ 0.36 $ 0.315 Weighted-average common shares outstanding Basic 128,134 129,560 Diluted 132,534 134,569
The accompanying notes are an integral part of the consolidated financial statements. 3 ECOLAB INC. CONSOLIDATED BALANCE SHEET
September 30 December 31 (thousands) 2000 1999 ------------ ----------- (unaudited) ASSETS Current assets Cash and cash equivalents $ 45,075 $ 47,748 Accounts receivable, net 358,100 299,751 Inventories 183,487 176,369 Deferred income taxes 43,717 41,701 Other current assets 14,229 11,752 ---------- ---------- Total current assets 644,608 577,321 Property, plant and equipment, net 482,916 448,116 Investment in Henkel-Ecolab 198,359 219,003 Other assets 398,496 341,506 ---------- ---------- Total assets $1,724,379 $1,585,946 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. (Continued) 4 ECOLAB INC. CONSOLIDATED BALANCE SHEET (Continued)
September 30 December 31 (thousands, except per share) 2000 1999 ------------ ----------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt $ 234,310 $ 112,060 Accounts payable 139,434 122,701 Compensation and benefits 86,829 90,618 Income taxes -- 5,743 Other current liabilities 174,164 139,552 ---------- ---------- Total current liabilities 634,737 470,674 Long-term debt 161,717 169,014 Postretirement health care and pension benefits 108,866 97,527 Other liabilities 73,847 86,715 Shareholders' equity (common stock, par value $1.00 per share; shares outstanding: September 30, 2000 - 127,079; December 31, 1999 - 129,416) 745,212 762,016 ---------- ---------- Total liabilities and shareholders' equity $1,724,379 $1,585,946 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30 (thousands) 2000 1999 --------- --------- (unaudited) OPERATING ACTIVITIES Net income $ 151,359 $ 133,443 Adjustments to reconcile net income to cash provided by operating activities: Depreciation 88,360 82,090 Amortization 21,550 18,764 Deferred income taxes (4,589) (972) Equity in earnings of Henkel-Ecolab (13,367) (12,484) Henkel-Ecolab royalties and dividends 15,519 21,179 Other, net (625) 650 Changes in operating assets and liabilities: Accounts receivable (51,303) (83,086) Inventories (13,427) (2,972) Other assets 1,063 (21,428) Accounts payable 12,156 9,267 Other liabilities 29,347 54,510 --------- --------- Cash provided by operating activities $ 236,043 $ 198,961 --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. (Continued) 6 ECOLAB INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Nine Months Ended September 30 (thousands) 2000 1999 --------- --------- (unaudited) INVESTING ACTIVITIES Capital expenditures $(110,203) $(102,012) Property disposals 343 2,836 Business acquisitions and investments (74,505) (40,144) Sale of Gibson businesses and assets 850 8,801 Other, net -- (72) --------- --------- Cash used for investing activities (183,515) (130,591) --------- --------- FINANCING ACTIVITIES Notes payable 125,012 35,086 Long-term debt borrowings -- 62,540 Long-term debt repayments (8,983) (107,014) Reacquired shares (143,295) (31,743) Cash dividends on common stock (46,501) (40,769) Other, net 17,169 11,843 --------- --------- Cash used for financing activities (56,598) (70,057) --------- --------- Effect of exchange rate changes on cash 1,397 (261) --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (2,673) (1,948) Cash and cash equivalents, at beginning of period 47,748 28,425 --------- --------- Cash and cash equivalents, at end of period $ 45,075 $ 26,477 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 7 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. CONSOLIDATED FINANCIAL STATEMENTS The unaudited consolidated financial statements for the third quarter and the nine months ended September 30, 2000 and 1999, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of the Company for the interim periods. These adjustments consisted of normal, recurring items. The financial results for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, 1999 were derived from audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. PricewaterhouseCoopers LLP, the Company's independent accountants, have performed limited reviews of the interim financial information included herein. Their report on such reviews accompanies this filing. 2. BALANCE SHEET INFORMATION
September 30 December 31 (thousands) 2000 1999 ------------ ----------- (unaudited) Inventories Finished goods $ 72,113 $ 71,395 Raw materials and parts 112,470 106,239 Excess of fifo cost over lifo cost (1,096) (1,265) --------- --------- Total $ 183,487 $ 176,369 ========= ========= Shareholders' Equity Common stock $ 147,043 $ 145,556 Additional paid-in capital 258,974 223,290 Retained earnings 861,696 756,601 Deferred compensation (9,265) (13,714) Accumulated other comprehensive loss: cumulative translation (78,771) (59,363) Treasury stock (434,465) (290,354) --------- --------- Total $ 745,212 $ 762,016 ========= =========
8 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 3. COMPREHENSIVE INCOME Comprehensive income was as follows:
Third Quarter Nine Months Ended Ended September 30 September 30 (thousands) 2000 1999 2000 1999 --------- --------- --------- --------- (unaudited) (unaudited) Net income $ 60,338 $ 55,021 $ 151,359 $ 133,443 Foreign currency translation (6,543) 1,261 (19,408) (23,018) --------- --------- --------- --------- Comprehensive income $ 53,795 $ 56,282 $ 131,951 $ 110,425 ========= ========= ========= =========
4. BUSINESS ACQUISITIONS AND INVESTMENTS In February 2000, the Company issued 424,111 shares of common stock plus other cash consideration to purchase Southwest Sanitary Distributing Company (SSDC) of Carrollton, Texas. SSDC is a provider of cleaning and sanitizing products to the quickservice (fast-food) restaurant industry and has become part of the Company's Kay operations. Annual sales of SSDC were approximately $24 million in 1999. In February 2000, the Company purchased Spartan de Chile Limitada and Spartan de Argentina S.A. Both companies are leaders in the institutional and industrial cleaning and sanitizing markets in their countries. Annual sales for the combined companies were approximately $20 million in 1999 and these acquisitions have become part of the Company's Latin America operations. In May 2000, Ecolab purchased ARR/CRS, a Columbus, Ohio-based provider of commercial kitchen equipment parts and repair services in the Upper Midwest. ARR/CRS has become part of the Company's GCS operations. ARR/CRS's 1999 sales were approximately $4 million. In May 2000, the Company purchased the assets of Dong Woo Deterpan Co., Ltd., a leading marketer of institutional cleaning and sanitizing products and services based in Seoul, Korea. Sales for Dong Woo Deterpan were approximately $6 million in 1999. The purchased assets have been combined with Ecolab's existing operations in Korea and have become part of the Company's Asia Pacific operations. 9 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. BUSINESS ACQUISITIONS AND INVESTMENTS (continued) In August 2000, Ecolab purchased Stove Parts Supply, which provides commercial kitchen equipment parts and repair services throughout central Texas. Stove Parts Supply has become part of the Company's GCS operations. Stove Parts Supply's 1999 sales were approximately $19 million. In August 2000, the Company also purchased Facilitec Corp.(Facilitec), which provides rooftop grease filter products and kitchen exhaust cleaning services for restaurants and food service customers. Facilitec has become part of Ecolab's Institutional division. Facilitec's 1999 sales were approximately $14 million. In September 2000, Ecolab purchased a 17 percent equity interest in FreshLoc Technologies Inc. FreshLoc is a privately held developer of wireless food safety technology, which monitors conditions affecting fresh food via measurement devices connected to the Internet. The total cash paid by the Company for the above acquisitions included cash of $74,505,000 and shares of common stock issued in the SSDC acquisition with a market value of $14,139,000. As of September 30, 2000, the allocation of the purchase price to the assets acquired and the liabilities assumed is preliminary. These acquisitions have been accounted for as purchases and, accordingly, the results of their operations have been included in the financial statements of the Company from the dates of acquisition. The operations of these acquired businesses are not significant to the Company's consolidated results of operations, financial position and cash flows for the third quarter and nine months ended September 30, 2000. 10 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 5. NET INCOME PER COMMON SHARE The computations of the basic and diluted net income per share amounts were as follows:
Third Quarter Ended Nine Months Ended (thousands, September 30 September 30 except per share) 2000 1999 2000 1999 -------- -------- -------- -------- (unaudited) (unaudited) Net income $ 60,338 $ 55,021 $151,359 $133,443 ======== ======== ======== ======== Weighted-average common shares outstanding Basic 127,112 129,546 128,134 129,560 Effect of dilutive stock options and awards 4,055 4,848 4,400 5,009 -------- -------- -------- -------- Diluted 131,167 134,394 132,534 134,569 ======== ======== ======== ======== Net income per common share Basic $ 0.47 $ 0.42 $ 1.18 $ 1.03 Diluted $ 0.46 $ 0.41 $ 1.14 $ 0.99
Stock options to purchase approximately 6.2 million shares for the third quarter and nine months ended September 30, 2000 and 3.6 million shares for the third quarter and nine months ended September 30, 1999 were not dilutive and, therefore, were not included in the computations of the diluted net income per common share amounts. 11 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 6. OPERATING SEGMENTS Financial information for each of the Company's reportable segments was as follows:
Third Quarter Ended Nine Months Ended September 30 September 30 (thousands) 2000 1999 2000 1999 ----------- ----------- ----------- ----------- (unaudited) (unaudited) Net Sales United States Cleaning & Sanitizing $ 407,521 $ 385,508 $ 1,156,351 $ 1,080,602 Other Services 67,596 56,467 183,918 157,108 ----------- ----------- ----------- ----------- Total 475,117 441,975 1,340,269 1,237,710 International Cleaning & Sanitizing 130,117 115,463 365,024 333,565 Effect of foreign currency translation (4,568) (2,927) (7,656) (7,044) ----------- ----------- ----------- ----------- Consolidated $ 600,666 $ 554,511 $ 1,697,637 $ 1,564,231 =========== =========== =========== =========== Operating Income United States Cleaning & Sanitizing $ 76,091 $ 70,479 $ 190,651 $ 178,900 Other Services 8,317 8,207 20,898 18,907 ----------- ----------- ----------- ----------- Total 84,408 78,686 211,549 197,807 International Cleaning & Sanitizing 14,804 10,766 37,839 28,761 Corporate income (expense) (786) (1,111) 625 (3,444) Effect of foreign currency translation (698) (486) (964) (1,264) ----------- ----------- ----------- ----------- Consolidated $ 97,728 $ 87,855 $ 249,049 $ 221,860 =========== =========== =========== ===========
The International Cleaning & Sanitizing amounts included above are based on translation into U.S. dollars at the fixed currency exchange rates used by management for 2000. Corporate income (expense), which normally represents only overhead costs directly related to Henkel-Ecolab, also includes $0.3 million of income for third quarter and $4.1 million of income for the first nine months of 2000, related to net reductions in probable losses related to certain environmental matters. 12 ECOLAB INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 7. EQUITY IN EARNINGS OF HENKEL-ECOLAB Certain financial data of Henkel-Ecolab and the components of the Company's equity in earnings of Henkel-Ecolab were as follows:
Third Quarter Ended Nine Months Ended September 30 September 30 (thousands) 2000 1999 2000 1999 --------- --------- --------- --------- (unaudited) (unaudited) Henkel-Ecolab Net sales $ 220,689 $ 235,242 $ 655,516 $ 693,103 Gross profit 125,197 127,690 369,341 384,421 Income before income taxes 21,886 24,582 58,735 57,473 Net income $ 12,819 $ 13,513 $ 33,411 $ 32,540 Ecolab equity in earnings Ecolab equity in net income $ 6,410 $ 6,756 $ 16,706 $ 16,270 Ecolab royalty income from Henkel-Ecolab, net of income taxes 596 651 1,707 1,943 Amortization expense for the excess of cost over the underlying net assets of Henkel-Ecolab (1,636) (1,826) (5,046) (5,729) --------- --------- --------- --------- Equity in earnings of Henkel-Ecolab $ 5,370 $ 5,581 $ 13,367 $ 12,484 ========= ========= ========= =========
8. REVENUE RECOGNITION In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, which summarizes certain of the staff's views regarding the application of generally accepted accounting principles to revenue recognition in financial statements. The Company is in the process of analyzing the requirements of the Bulletin and is required to comply with the Bulletin in the fourth quarter of 2000. Management believes the ultimate outcome will not have a significant effect on the Company's consolidated results of operations. 13 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Directors Ecolab Inc. We have reviewed the accompanying consolidated balance sheet of Ecolab Inc. as of September 30, 2000, and the related consolidated statements of income for each of the three and nine-month periods ended September 30, 2000 and 1999, and of cash flows for the nine-month periods ended September 30, 2000 and 1999. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 1999, and the related consolidated statements of income, of comprehensive income and shareholders' equity and of cash flows for the year then ended (not presented herein); and in our report dated February 28, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1999, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP October 19, 2000 14 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that management believes is useful in understanding the Company's operating results, cash flows and financial position. The discussion should be read in conjunction with the consolidated financial statements and related notes included in this Form 10-Q. The following discussion contains various "Forward-Looking Statements" within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the Company's statement entitled "Forward-Looking Statements and Risk Factors" beginning on page 19 of this report. Additional risk factors may be described from time to time in Ecolab's filings with the Securities and Exchange Commission. RESULTS OF OPERATIONS - THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 Consolidated net sales for the third quarter ended September 30, 2000 were $601 million, an increase of 8 percent over net sales of $555 million in the third quarter of last year. For the first nine months of 2000, net sales increased 9 percent to $1.698 billion from $1.564 billion in the comparable period of 1999. Businesses acquired in 2000 and the annualized effect of businesses acquired in 1999 accounted for approximately 40 percent of the growth in consolidated net sales for third quarter and 30 percent for the nine-months ended September 30, 2000. Changes in currency translation had an insignificant effect on sales for the periods ended September 30, 2000. The growth in sales also reflected benefits from new products, new customers, investments in the growth and training of the sales-and-service force, and a continuation of generally good conditions in the hospitality and lodging industries in the United States. The gross profit margin for the third quarter of 2000 was 55.6 percent of net sales, up slightly compared with the third quarter 1999 gross profit margin of 55.3 percent of net sales. For the nine-month periods, the gross profit margins were 55.1 percent in both 2000 and 1999. The increase in gross profit margin for the third quarter was primarily due to the strong Institutional and International business performances, which helped offset the negative effect of the lower margins of businesses acquired, and to a lesser extent, the higher costs of fuel. Selling price increases during the first nine months of 2000 were not significant. Selling, general and administrative expenses represented 39.3 percent of net sales in the third quarter of 2000, a decrease from 39.5 percent of net sales in the third quarter of last year. For the nine-month period, selling, general and administrative expenses also decreased as a percentage of net sales to 40.4 percent in 2000 from 40.9 percent in 1999. Selling, general and administrative expense improvements 15 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (continued) reflected the Company's cost control efforts and lower expenses related to retirement plans. These benefits were partially offset by continued investments in the growth and training of the sales-and-service force. The Company expects to continue investing in its sales-and-service force, including investments in training and productivity. Net income totaled $60 million for the third quarter of 2000, an increase of 10 percent over net income of $55 million in the third quarter of last year. On a per share basis, diluted net income per share increased 12 percent to $0.46 in the third quarter of 2000 from $0.41 in the third quarter of 1999. During the third quarter of 1999, the Company recognized a non-taxable gain of $1.5 million, or $0.01 per diluted share, on the receipt of shares from an insurance company that demutualized through a public offering. This one-time gain was recorded in selling, general and administrative expenses during the quarter, and also had a favorable effect on the Company's third quarter and nine-month effective income tax rates for 1999. Excluding this one-time gain from last year's results, diluted earnings per share would have increased 15% for the third quarter of 2000. For the first nine months of 2000, net income was $151 million and increased 13 percent over net income of $133 million in the comparable period of last year. Diluted net income per share increased 15 percent to $1.14 for the nine months ended September 30, 2000 from $0.99 for the first nine months of last year. These earnings improvements reflected good operating income growth and a decrease in the effective tax rate. Net income was negatively affected by higher net interest expense. Sales of the Company's United States Cleaning & Sanitizing operations totaled $408 million for the third quarter of 2000, an increase of 6 percent over net sales of $386 million in the third quarter of last year. United States Cleaning & Sanitizing sales were $1.156 billion for the first nine months of 2000, up 7 percent over net sales of $1.081 billion in the comparable period of last year. Business acquisitions accounted for approximately one-third of the growth in sales during the third quarter and approximately one-fourth of the growth in sales for the nine months ended September 30, 2000. Sales reflected double-digit growth in sales of Kay operations and a solid performance by Institutional. Growth also reflected benefits from sales of new products and services, as well as aggressive sales efforts and programs. Selling price increases during the first nine months of 2000 were not significant. Sales of the Company's Institutional operations increased 6 percent for the third quarter and 7 percent for the first nine months of 2000. The acquisition of Facilitec in September accounted for approximately $1 million of Institutional's sales for the third quarter and nine-month periods. Institutional's specialty program grew at double-digit rates for the quarter, supported 16 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (continued) by solid growth in the housekeeping and Ecotemp businesses. Kay's U.S. operations reported sales growth of 36 percent for both the third quarter and the nine-month periods. Excluding the acquisition of SSDC, Kay's sales increased 12 percent for the third quarter and 15 percent for the nine-month period. Kay's sales increases reflect double-digit growth in its food retail services business and solid growth in sales to its core quickservice customers. Textile Care sales decreased 8 percent for the third quarter and 4 percent for the first nine months of 2000. Textile Care sales decreases reflect the division's strategy to improve profit margins by discontinuing low margin business. Although third quarter sales were down from last year for Textile Care, gross margins rose. The Company expects the U.S. Textile Care business to continue to experience challenging market conditions over the near term while focusing on improving profitability. Sales of the Company's Professional Products operations decreased 3 percent for the third quarter of 2000 and decreased 2 percent for the nine-month period. The sales decrease for the quarter was due to lower sales in the specialty market caused by the loss of a key customer and lower warehouse club sales. Water Care sales increased 4 percent for the third quarter and 5 percent for the nine-month period with good growth in sales to the food and beverage and hospitality markets. The Company's Food & Beverage operations reported sales growth of 2 percent for the third quarter and 4 percent for the nine-month period with good growth in sales to the dairy market. Sales for Food & Beverage reflect the challenging conditions in several of its markets, including very weak dairy industry conditions and continuing consolidation of plants in food processing and beverage markets. Vehicle Care sales decreased 1 percent for the third quarter and increased 7 percent for the nine-month period. When adjusted for the impact of the Blue Coral acquisition in 1999, nine-month sales were flat, principally due to the effects of integration and a sales force reorganization. Sales of the Company's United States Other Services operations totaled $68 million for the third quarter of 2000, an increase of 20 percent over net sales of $56 million in the third quarter of last year. United States Other Services sales were $184 million for the first nine months of 2000, an increase of 17 percent over net sales of $157 million in the comparable period of last year. Excluding business acquisitions, sales increased 11 percent for the third quarter and 12 percent for the first nine months of 2000. Pest Elimination reported sales growth of 11 percent for the third quarter and 12 percent for 17 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (continued) the nine months with significant new customer business as well as additional product and service sales through new offerings to existing customers. GCS sales increased 43 percent for the third quarter and 31 percent for the nine-month period. Excluding the effects of GCS acquisitions, sales increased 10 percent for the third quarter and 12 percent for the nine months. The Company is continuing to focus on coordinating GCS operations with other Ecolab businesses and expanding operations to provide national coverage. Management rate sales for the Company's International Cleaning & Sanitizing operations were $130 million for the third quarter ended September 30, 2000, an increase of 13 percent over sales of $115 million in the third quarter of last year. For the first nine months of 2000, sales increased 9 percent to $365 million from $334 million during the comparable period of last year. Strong sales growth in core Latin America operations along with the benefits of business acquisitions are the primary reasons for this increase. Sales in the Asia Pacific region increased 8 percent for the third quarter and 4 percent for the nine-month period. Excluding acquisitions, Asia Pacific sales increased 5 percent for the third quarter and 3 percent for the nine-month period. Double-digit sales increases in East Asia were partially offset by slightly lower sales in Australia. Latin America sales increased 40 percent for the third quarter and 35 percent for the first nine months of 2000. Excluding acquisitions, Latin America sales increased 12 percent for the third quarter and 11 percent for the nine-month period. Sales in the region included significant double-digit growth in Northern and Central Latin America. Sales in Canada increased 5 percent for the third quarter of 2000 and 7 percent for the nine-month period with good growth in sales to the institutional market. Operating income of the Company's United States Cleaning & Sanitizing operations totaled $76 million for the third quarter of 2000, up 8 percent over operating income of $70 million in the third quarter of last year. For the first nine months of 2000, operating income was $191 million, an increase of 7 percent over operating income of $179 million in the comparable period of last year. Operating income increased from 18.3 percent of net sales in the third quarter of last year to 18.7 percent in the third quarter of 2000 and decreased slightly for the nine-month period from 16.6 percent of net sales 18 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (continued) in 1999 to 16.5 percent in 2000. Excluding acquisitions, operating income of United States Cleaning & Sanitizing rose 7 percent over the third quarter of last year and 5 percent over the nine-month period of last year. Operating income benefited from Kay's strong sales performance, sales of new products and cost controls but was partially offset by investments in the sales-and-service force to support new business development and higher fuel costs. Third quarter 2000 operating income of United States Other Services was $8 million, an increase of 1 percent over the third quarter of last year. For the nine-month period, operating income was $21 million, up 11 percent over the comparable period last year. Operating income decreased to 12.3 percent of net sales in 2000 from 14.5 percent for the third quarter of 1999 and decreased to 11.4 percent of net sales in 2000 from 12.0 percent for the first nine months of 1999. Operating income margins declined for United States Other Services primarily due to growth-related investments the Company made in GCS during the third quarter. Operating income of International Cleaning & Sanitizing operations at management rates totaled $15 million for the third quarter of 2000 and increased 38 percent over operating income of $11 million in the third quarter of last year. For the first nine months of 2000, operating income was $38 million and increased 32 percent over operating income of $29 million in the comparable period of last year. Operating income improved to 11.4 percent of net sales in the third quarter of 2000 from 9.3 percent in 1999 and to 10.4 percent of net sales for the first nine months of 2000 from 8.6 percent during the first nine months of last year. Double-digit operating income growth and good margin improvement in Asia Pacific, Latin America and Canada all contributed to this increase. Corporate operating expense was $0.8 million in the third quarter of 2000 and corporate operating income was $0.6 million in the first nine months of 2000. Corporate operations, which normally represent only overhead costs directly related to Henkel-Ecolab, also included the recognition of $0.3 million of income for the third quarter and $4.1 million of income for the nine-month period related to net reductions in probable losses related to certain environmental matters in the first quarter of 2000. Net interest expense totaled $7 million in the third quarter of 2000, up 34 percent from the third quarter of last year and was $17 million 19 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS - THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (continued) for the nine-month period, an increase of 2 percent from the comparable period of 1999. This increase in interest expense is primarily due to higher debt levels related to the financing of business acquisitions and to fund the Company's share repurchase program. The provision for income taxes for the third quarter of 2000 reflected an effective income tax rate of 39.7 percent, down from the third quarter of 1999 effective rate of 40.4 percent. For the first nine months of 2000, the provision for income taxes reflected an estimated annual effective income tax rate of 40.5 percent; down from last year's nine-month estimated annual effective tax rate of 41.0 percent. This decrease was principally due to lower anticipated overall effective rates on earnings of international operations for 2000. For the third quarter of 2000, the Company's equity in earnings of Henkel-Ecolab was $5.4 million, a decrease of 4 percent compared to equity earnings of $5.6 million in the third quarter of last year. For the nine-month period, the Company's equity in earnings of Henkel-Ecolab was $13.4 million, up 7 percent over equity earnings of $12.5 million last year. Ecolab's equity in earnings was unfavorably affected by weaker European currencies. Earnings of Henkel-Ecolab reflected good sales growth and margin improvement. Henkel-Ecolab sales, although not consolidated, increased 4 percent for the third quarter and increased 6 percent for the first nine months of 2000 when measured in fixed currencies. 20 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) FINANCIAL POSITION AND LIQUIDITY Total assets were approximately $1.724 billion at September 30, 2000, an increase of 9 percent over total assets at year-end 1999. Accounts receivable have increased 19 percent since year-end 1999 and reflects strong third quarter 2000 sales. Compared to the same period last year, DSO has improved and the Company has implemented changes to continue to improve its DSO in the future. The investment in Henkel-Ecolab has decreased since year-end 1999 due to the payment of dividends and the effects of changes in currency. The increase in other assets over year-end 1999 was principally due to goodwill associated with business acquisitions. Total debt was $396 million at September 30, 2000, up 41 percent over total debt of $281 million at year-end 1999. The increase in total debt from year-end 1999 was principally due to financing for business acquisitions and share repurchases. The ratio of total debt to capitalization was 35 percent at September 30, 2000, compared with 27 percent at year-end 1999. Cash provided by operating activities totaled $236 million for the first nine months of 2000, up 19 percent from $199 million during the first nine months of last year. Increased earnings and the reduced effect of changes in net operating assets contributed to the increase in cash provided by operating activities. The Company reacquired 3,731,500 shares of its common stock during the first nine months of 2000. The reacquired shares will be used for general corporate purposes and to offset the dilutive effect of shares issued for employee benefit plans. As stated in the Company's news release dated May 12, 2000, the Company expects to repurchase up to $200 million of its own stock this year. FORWARD-LOOKING STATEMENTS AND RISK FACTORS The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In this report on Form 10-Q, management discusses expectations regarding future performance of the Company which may include anticipated business or financial performance including business prospects, in particular for the Textile Care and GCS divisions, investments in the sales-and-service force, continuation of share repurchases, and similar matters. Without limiting the foregoing, words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "we believe," "estimate," "project" (including the negative or variations thereof) or similar terminology, generally identify forward-looking statements. Additionally, the Company may refer to this section of the Form 10-Q to identify risk factors related to other forward looking statements made 21 ECOLAB INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) FORWARD-LOOKING STATEMENTS AND RISK FACTORS (CONTINUED) in oral presentations including telephone conferences and/or webcasts open to the public. Forward-looking statements represent challenging goals for the Company. As such, they are based on certain assumptions and estimates and are subject to certain risks and uncertainties. The Company cautions that undue reliance should not be placed on such forward-looking statements which speak only as of the date made. In order to comply with the terms of the safe harbor, the Company hereby identifies important factors, which could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from the anticipated results or other expectations expressed in the forward-looking statements. These factors should be considered, together with any similar risk factors or other cautionary language, which may be made in the section of this report or any oral presentation containing the forward-looking statement. Risks and uncertainties that may affect operating results and business performance include: restraints on pricing flexibility due to competitive factors and customer consolidations; cost increases due to higher oil prices or availability of adequate and reasonably priced raw materials; the occurrence of capacity constraints, or the loss of a key supplier, which in either case limit the production of certain products; the effect of future acquisitions or divestitures or other corporate transactions, as well as our ability to achieve plans for past acquisitions, including difficulties in rationalizing acquired businesses and in realizing related cost savings and other benefits; market or regulatory factors which could affect the Company's ability to reacquire shares; the costs and effects of complying with: (i) the significant environmental laws and regulations which apply to the Company's operations and facilities, (ii) government regulations relating to the manufacture, storage, distribution and labeling of the Company's products and (iii) changes in tax, fiscal, governmental and other regulatory policies; economic factors such as the worldwide economy, interest rates, currency movements, euro conversion and the development of markets; the occurrence of (i) litigation or claims, (ii) natural or manmade disasters and (iii) severe weather conditions affecting the food service and the hospitality industry; loss of, or changes in, executive management; the Company's ability to continue product introductions and technological innovations; and other uncertainties or risks reported from time to time in the Company's reports to the Securities and Exchange Commission. In addition, the Company notes that its stock price can be affected by fluctuations in quarterly earnings. Despite favorable year over year quarterly comparisons in recent years, there can be no assurances that earnings will continue to increase or that the degree of improvement will meet investors' expectations. 22 PART II. OTHER INFORMATION Item 3. LEGAL PROCEEDINGS As previously reported in the Company's Form 10-K for the yearended December 31, -1999 and in prior Form 10-K's, a legal action was commenced in August, 1989 in the District Court in Zwolle, Netherlands, by the Netherlands government against a former subsidiary of the Company. Netherlands authorities were seeking monetary damages to cover the cost of investigation and planned clean-up of soil and groundwater contamination, allegedly resulting from the discharge of wastewater and chemicals during a period ended in 1981, when the subsidiary operated a plant on the site. In late September 2000, the parties reached a final settlement of this matter. This settlement did not have, nor is it expected to have a material effect on the Company's consolidated financial position, results of operations or liquidity. In September 2000, Region 5 of the United States Environmental Protection Agency ("U.S. EPA") initiated an administrative proceeding alleging that three products had been sold by the Company without registering the products as antimicrobial pesticides. U.S. EPA seeks an administrative penalty of $542,850. The Company has suspended sales of the relevant products. The Company anticipates that this matter will not have a material effect on the Company's consolidated financial position, results of operations or liquidity. Item 6 EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as exhibits to this report: (10) Ecolab Inc. 1997 Stock Incentive Plan, As Amended and Restated as of August 18, 2000. (15) Letter regarding unaudited interim financial information. (27) Financial Data Schedule. (b) Reports on Form 8-K: No reports on From 8-K were filed during the quarter ended September 30, 2000. Subsequent to the quarter ended September 30, 2000, the Company filed on October 23, 2000, a Current Report on Form 8-K to report its third quarter financial results. 23 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. ECOLAB INC. Date: November 6, 2000 By: /s/S.L. Fritze --------------- Steven L. Fritze Vice President and Controller (duly authorized officer and Chief Accounting Officer) 24 EXHIBIT INDEX
Exhibit No. Document Method of Filing - ----------- -------- ---------------- (10) Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Filed herewith Restated as of August 18, 2000. electronically (15) Letter regarding unaudited interim financial information. Filed herewith electronically (27) Financial Data Schedule. Filed herewith electronically
EX-10 2 a2029351zex-10.txt EXHIBIT 10 ECOLAB INC. 1997 STOCK INCENTIVE PLAN (AS AMENDED AND RESTATED AS OF AUGUST 18, 2000) 1. PURPOSE OF PLAN. The purpose of the Ecolab Inc. 1997 Stock Incentive Plan (the "Plan") is to advance the interests of Ecolab Inc. (the "Company") and its stockholders by enabling the Company and its Subsidiaries to attract and retain persons of ability to perform services for the Company and its Subsidiaries by providing an incentive to such individuals through equity participation in the Company and by rewarding such individuals who contribute to the achievement by the Company of its economic objectives. 2. DEFINITIONS. The following terms will have the meanings set forth below, unless the context clearly otherwise requires: 2.1 "BOARD" means the Board of Directors of the Company. 2.2 "BROKER EXERCISE NOTICE" means a written notice pursuant to which a Participant, upon exercise of an Option, irrevocably instructs a broker or dealer to sell a sufficient number of shares or loan a sufficient amount of money to pay all or a portion of the exercise price of the Option and/or any related withholding tax obligations and remit such sums to the Company and directs the Company to deliver stock certificates to be issued upon such exercise directly to such broker or dealer or their nominee. 2.3 "CAUSE" means (i) dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or any Subsidiary, (ii) any unlawful or criminal activity of a serious nature, (iii) any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Participant's overall duties, or (iv) any material breach of any employment, service, confidentiality or noncompete agreement entered into with the Company or any Subsidiary. 2.4 "CHANGE IN CONTROL" means an event described in Section 11.1 of the Plan. 2.5 "CODE" means the Internal Revenue Code of 1986, as amended. 2.6 "COMMITTEE" means the group of individuals administering the Plan, as provided in Section 3 of the Plan. 2.7 "COMMON STOCK" means the common stock of the Company, par value $1.00 per share, or the number and kind of shares of stock or other securities into which such Common Stock may be changed in accordance with Section 4.3 of the Plan. 2.8 "DISABILITY" means the disability of the Participant such as would entitle the Participant to receive disability income benefits pursuant to the long-term disability plan of the Company or Subsidiary then covering the Participant or, if no such plan exists or is applicable to the Participant, the permanent and total disability of the Participant within the meaning of Section 22(e)(3) of the Code. 2.9 "ELIGIBLE RECIPIENTS" means all employees (including, without limitation, officers and directors who are also employees) of the Company or any Subsidiary and any non-employee consultants and advisors of the Company or any Subsidiary. 2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 2.11 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of any date (or, if no shares were traded or quoted on such date, as of the next preceding date on which there was such a trade or quote) the mean between the reported high and low sale prices of the Common Stock as quoted in the WALL STREET JOURNAL reports of the New York Stock Exchange - Composite Transactions. 2.12 "INCENTIVE AWARD" means an Option, Restricted Stock Award or Performance Stock Award granted to an Eligible Recipient pursuant to the Plan. 2.13 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that qualifies as an "incentive stock option" within the meaning of Section 422 of the Code. 2.14 "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not qualify as an Incentive Stock Option. 2.15 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock Option. 2.16 "PARTICIPANT" means an Eligible Recipient who receives one or more Incentive Awards under the Plan. 2.17 "PERFORMANCE STOCK AWARD" means an award of Common Stock granted to an Eligible Recipient pursuant to Section 8 of the Plan. 2.18 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are already owned by the Participant or, with respect to any Incentive Award, that are to be issued upon the grant, exercise or vesting of such Incentive Award. 2.19 "RESTRICTED STOCK AWARD" means an award of Common Stock granted to an Eligible Recipient pursuant to Section 7 of the Plan that is subject to the restrictions on transferability and 2 the risk of forfeiture imposed by the provisions of such Section 7. 2.20 "Reload Option" means an Option granted under Section 6.6 with respect to the exercise of an earlier granted option by using Previously Acquired Shares to pay the exercise price and withholding obligation. 2.21 "RETIREMENT" means termination of employment at an age and length of service such that the Participant would be eligible to an immediate commencement of benefit payments under the Company's defined benefit pension plan available generally to its employees, whether or not such individual actually elects to commence such payments (provided that, if the Participant is not covered by the Company's defined benefit pension plan, attainment of the necessary age and length of service for immediate benefit commencement shall, for purposes of the Plan, be determined as to the Participant as if such Participant had been covered by such plan and had been credited with continuous (vesting) service pursuant to such plan rules (a) for the period of service such Participant was in the employ of the Company and any Subsidiary, and (b) with respect to a Participant who was in the employ of a corporation or other organization whose business was acquired by the Company or any Subsidiary, if (and only to the extent) specifically provided by the Committee, for the period of service such Participant was in the employ of such corporation or other organization prior to such acquisition). 2.22 "SECURITIES ACT" means the Securities Act of 1933, as amended. 2.23 "SUBSIDIARY" means any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee. 2.24 "TAX DATE" means the date any withholding tax obligation arises under the Code for a Participant with respect to an Incentive Award. 3. PLAN ADMINISTRATION. 3.1 THE COMMITTEE. The Plan will be administered by the Board or by a committee of the Board. So long as the Company has a class of its equity securities registered under Section 12 of the Exchange Act, any committee administering the Plan will consist solely of two or more members of the Board who are "non-employee directors" within the meaning of Rule 16b-3 under the Exchange Act and, if the Board so determines in its sole discretion, who are "outside directors" within the meaning of Section 162(m) of the Code. Such a committee, if established, will act by majority approval of the members (unanimous approval with respect to action by written consent), and a majority of the members of such a committee will constitute a quorum. As used in the Plan, "Committee" will refer to the Board or to such a committee, if established. To the extent consistent with corporate law, the Committee may delegate to any officers of the Company the duties, power and authority of the Committee under the Plan pursuant to such conditions or limitations as the Committee may establish; provided, however, that only the Committee may exercise such duties, power and authority with respect to Eligible Recipients who are subject to Section 16 of the Exchange Act. The Committee may exercise its duties, power and authority under the Plan in its 3 sole and absolute discretion without the consent of any Participant or other party, unless the Plan specifically provides otherwise. Each determination, interpretation or other action made or taken by the Committee pursuant to the provisions of the Plan will be conclusive and binding for all purposes and on all persons, and no member of the Committee will be liable for any action or determination made in good faith with respect to the Plan or any Incentive Award granted under the Plan. 3.2 AUTHORITY OF THE COMMITTEE. (a) In accordance with and subject to the provisions of the Plan, the Committee will have the authority to determine all provisions of Incentive Awards as the Committee may deem necessary or desirable and as consistent with the terms of the Plan, including, without limitation, the following: (i) the Eligible Recipients to be selected as Participants; (ii) the nature and extent of the Incentive Awards to be made to each Participant (including the number of shares of Common Stock to be subject to each Incentive Award, any exercise price, the manner in which Incentive Awards will vest or become exercisable and whether Incentive Awards will be granted in tandem with other Incentive Awards) and the form of written agreement, if any, evidencing such Incentive Award; (iii) the time or times when Incentive Awards will be granted; (iv) the duration of each Incentive Award; and (v) the restrictions and other conditions to which the payment or vesting of Incentive Awards may be subject. In addition, the Committee will have the authority under the Plan in its sole discretion to pay the economic value of any Incentive Award in the form of cash, Common Stock or any combination of both. (b) The Committee will have the authority under the Plan to amend or modify the terms of any outstanding Incentive Award in any manner, including, without limitation, the authority to modify the number of shares or other terms and conditions of an Incentive Award, extend the term of an Incentive Award, accelerate the exercisability or vesting or otherwise terminate any restrictions relating to an Incentive Award, accept the surrender of any outstanding Incentive Award or, to the extent not previously exercised or vested, authorize the grant of new Incentive Awards in substitution for surrendered Incentive Awards; provided, however that the amended or modified terms are permitted by the Plan as then in effect, that no amendment or modification of an outstanding Incentive Award (other than as may be required pursuant to Section 4.3 of the Plan) may decrease the per share exercise price of an Option below the Fair Market Value of the Common Stock on the date of grant, and that any Participant adversely affected by such amended or modified terms has consented to such amendment or modification. (c) In the event of (i) any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, extraordinary dividend or divestiture (including a spin-off) or any other change in corporate structure or shares, (ii) any purchase, acquisition, sale or disposition of a significant amount of assets or a significant business, (iii) any change in accounting 4 principles or practices, or (iv) any other similar change, in each case with respect to the Company or any other entity whose performance is relevant to the grant or vesting of an Incentive Award, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) may, without the consent of any affected Participant, amend or modify the vesting criteria of any outstanding Incentive Award that is based in whole or in part on the financial performance of the Company (or any Subsidiary or division or other subunit thereof) or such other entity so as equitably to reflect such event, with the desired result that the criteria for evaluating such financial performance of the Company or such other entity will be substantially the same (in the sole discretion of the Committee or the board of directors of the surviving corporation) following such event as prior to such event; provided, however, that the amended or modified terms are permitted by the Plan as then in effect. 4. SHARES AVAILABLE FOR ISSUANCE. 4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided in Section 4.3 of the Plan, the maximum number of shares of Common Stock that will be available for issuance under the Plan will be 12,000,000 shares of Common Stock. Notwithstanding any other provisions of the Plan to the contrary, no Participant in the Plan may be granted any Options or any other Incentive Awards with a value based solely on an increase in the value of the Common Stock after the date of grant, relating to more than 2,500,000 shares of Common Stock in the aggregate during any 48- month period (subject to adjustment as provided in Section 4.3 of the Plan). The shares available for issuance under the Plan may, at the election of the Committee, be either treasury shares or shares authorized but unissued, and, if treasury shares are used, all references in the Plan to the issuance of shares will, for corporate law purposes, be deemed to mean the transfer of shares from treasury. 4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are issued under the Plan or that are subject to outstanding Incentive Awards will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan. Any shares of Common Stock that are subject to an Incentive Award that lapses, expires, is forfeited or for any reason is terminated unexercised or unvested and any shares of Common Stock that are subject to an Incentive Award that is settled or paid in cash or any form other than shares of Common Stock will automatically again become available for issuance under the Plan. To the extent that the exercise price of any Option and/or associated tax withholding obligations are paid by tender or attestation as to ownership of Previously Acquired Shares, or to the extent that such tax withholding obligations are satisfied by withholding of shares otherwise issuable upon exercise of the Option, only the number of shares of Common Stock issued net of the number of shares tendered, attested to or withheld will be applied to reduce the maximum number of shares of Common Stock remaining available for issuance under the Plan; provided, however, that such net counting will not apply in determining the number of shares available for issuance pursuant to Incentive Stock Options granted hereunder, unless permitted by Section 422 of the Code and the rules and regulations thereunder. Any shares of Common Stock that constitute the forfeited portion of a Restricted Stock Award, 5 however, will not become available for further issuance under the Plan. 4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off) or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation) will make appropriate adjustment (which determination will be conclusive) as to the number and kind of securities or other property (including cash) available for issuance or payment under the Plan and, in order to prevent dilution or enlargement of the rights of Participants, (a) the number and kind of securities or other property (including cash) subject to outstanding Incentive Awards, and (b) the exercise price of outstanding Options. 5. PARTICIPATION. Participants in the Plan will be those Eligible Recipients who, in the judgment of the Committee, have contributed, are contributing or are expected to contribute to the achievement of economic objectives of the Company or its Subsidiaries. Eligible Recipients may be granted from time to time one or more Incentive Awards, singly or in combination or in tandem with other Incentive Awards, as may be determined by the Committee in its sole discretion. Incentive Awards will be deemed to be granted as of the date specified in the grant resolution of the Committee, which date will be the date of any related agreement with the Participant. 6. OPTIONS. 6.1 GRANT. An Eligible Recipient may be granted one or more Options under the Plan, and such Options will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may designate whether an Option is to be considered an Incentive Stock Option or a Non-Statutory Stock Option. To the extent that any Incentive Stock Option granted under the Plan ceases for any reason to qualify as an "incentive stock option" for purposes of Section 422 of the Code, such Incentive Stock Option will continue to be outstanding for purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock Option. 6.2 EXERCISE PRICE. The per share price to be paid by a Participant upon exercise of an Option will be determined by the Committee in its discretion at the time of the Option grant, provided that such price will not be less than 100% of the Fair Market Value of one share of Common Stock on the date of grant. 6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at such times and in such installments and upon such terms and conditions as may be determined by the Committee in its sole discretion at the time of grant (including without limitation that (i) the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period, (ii) the 6 Participant comply with certain requirements, (iii) the Participant, the Company or any division or subunit thereof, satisfy certain performance goals or criteria or (iv) the Common Stock satisfy certain performance goals or criteria); provided, however, that no Option may be exercisable prior to six months (other than as provided in Section 9.1 of the Plan) or after 10 years from its date of grant. 6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares to be purchased upon exercise of an Option will be paid entirely in cash (including check, bank draft or money order); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payments to be made, in whole or in part, by tender of a Broker Exercise Notice, by tender, or attestation as to ownership, of Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company's earnings for financial reporting purposes and that are otherwise acceptable to the Committee, or by a combination of such methods. For purposes of such payment, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value on the exercise date. 6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in whole or in part from time to time, subject to the conditions contained in the Plan and in the agreement evidencing such Option, by delivery in person, by facsimile or electronic transmission or through the mail of written notice of exercise to the Company at its principal executive office in St. Paul, Minnesota and by paying in full the total exercise price for the shares of Common Stock to be purchased in accordance with Section 6.4 of the Plan. 6.6 RELOAD OPTIONS. In connection with the grant of an Option hereunder, the Committee may provide for the automatic grant of a Reload Option when the original underlying Option is exercised in whole or in part during the term of the Participant's employment with the Company or any subsidiary and some or all of the exercise price is satisfied by tender or attestation of ownership of Previously Acquired Shares. Such Reload Option will be granted effective as of the date of exercise of the underlying Option, will provide the Participant the right to purchase the number of shares of Common Stock tendered or attested to in exercising the underlying Option and the number of shares tendered, attested to or withheld to satisfy tax obligations associated with that portion of the underlying Option exercised by such tender or attestation, will have an exercise price equal to the Fair Market Value on the date of grant, and will vest and become exercisable and will be subject to such other terms and conditions as the Committee may determine. 7. RESTRICTED STOCK AWARDS. 7.1 GRANT. An Eligible Recipient may be granted one or more Restricted Stock Awards under the Plan, and such Restricted Stock Awards will be subject to such terms and conditions, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Committee may impose such restrictions or conditions, not inconsistent with the provisions of the Plan, to the vesting of such Restricted Stock Awards as it deems appropriate, including, without limitation, that (i) the Participant remain in the continuous employ or service of the Company or a Subsidiary for a certain period; (ii) the Participant comply with certain 7 requirements; (iii) the Participant or the Company (or any Subsidiary or division or other subunit thereof) satisfy certain performance goals or criteria; or (iv) the Common Stock satisfy certain performance goals or criteria, provided, however, that other than as provided in Section 9.1 of the Plan, no Restricted Stock Award may vest prior to six months from its date of grant. 7.2 RIGHTS AS A STOCKHOLDER; TRANSFERABILITY. Except as provided in Sections 7.1, 7.3, 7.4 and 12.3 of the Plan, a Participant will have all voting, dividend, liquidation and other rights with respect to shares of Common Stock issued to the Participant as a Restricted Stock Award under this Section 7 upon the Participant becoming the holder of record of such shares as if such Participant were a holder of record of shares of unrestricted Common Stock. 7.3 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines otherwise in its sole discretion (either in the agreement evidencing the Restricted Stock Award at the time of grant or at any time after the grant of the Restricted Stock Award), any dividends or distributions (other than regular quarterly cash dividends) paid with respect to shares of Common Stock subject to the unvested portion of a Restricted Stock Award will be subject to the same restrictions as the shares to which such dividends or distributions relate. The Committee will determine in its sole discretion whether any interest will be paid on such dividends or distributions. The Committee, in an agreement evidencing a Restricted Stock Award, may require that, unless the Participant elects otherwise, regular quarterly cash dividends paid with respect to shares of Common Stock subject to a portion of the Restricted Stock Award that has not vested will be reinvested (and in such case Participants hereby consent to such reinvestment) in shares of Common Stock pursuant and in accordance with the Company's regular dividend reinvestment plan. 7.4 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred to in this Section 7, the Committee may place a legend on the stock certificates referring to such restrictions and may require the Participant, until the restrictions have lapsed, to keep the stock certificates, together with duly endorsed stock powers, in the custody of the Company or its transfer agent, or to maintain evidence of stock ownership, together with duly endorsed stock powers, in a certificateless book-entry stock account with the Company's transfer agent. 8. PERFORMANCE STOCK AWARDS. An Eligible Recipient may be granted one or more Performance Stock Awards under the Plan, and such Performance Stock Awards will be subject to such terms and conditions, if any, consistent with the other provisions of the Plan, as may be determined by the Committee in its sole discretion. The Participant will have all voting, dividend, liquidation and other rights with respect to the shares of Common Stock issued to a Participant as a Performance Stock Award under this Section 8 upon the Participant becoming the holder of record of such shares; provided, however, that the Committee may impose such restrictions on the assignment or transfer of a Performance Stock Award as it deems appropriate, and may enforce such restrictions by any or all of the methods set forth in Section 7.4 of the Plan. 8 9. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. 9.1 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. In the event a Participant's employment with the Company and all Subsidiaries is terminated by reason of death or Disability: (a) All outstanding Options then held by the Participant will become immediately exercisable in full and will remain exercisable for a period of five years after such termination (but in no event after the expiration date of any such Option); (b) All Restricted Stock Awards then held by the Participant will become fully vested; and (c) Any assignment or transfer restrictions with respect to Performance Stock Awards will lapse. 9.2 TERMINATION OF EMPLOYMENT DUE TO RETIREMENT. Subject to Section 9.6 of the Plan, in the event a Participant's employment with the Company and all Subsidiaries is terminated by reason of Retirement: (a) All outstanding Options then held by the Participant will, to the extent exercisable as of such termination, remain exercisable in full for a period of five years after such termination (but in no event after the expiration date of any such Option). Options not exercisable as of such Retirement will be forfeited and terminate. (b) All Restricted Stock Awards then held by the Participant that have not vested as of such termination will be terminated and forfeited; and (c) Any assignment or transfer restrictions with respect to Performance Stock Awards that have not lapsed will continue in effect in accordance with their terms unless otherwise provided in the agreement evidencing such Performance Stock Awards. 9.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT. Subject to Section 9.6 of the Plan, in the event a Participant's employment is terminated with the Company and all Subsidiaries for any reason other than death, Disability or Retirement, or a Participant is in the employ of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Participant continues in the employ of the Company or another Subsidiary): (a) All outstanding Options then held by the Participant will, to the extent exercisable as of such termination, remain exercisable in full for a period of three months after such termination (but in no event after the expiration date of any such Option). Options not exercisable as of such termination will be forfeited and terminate. (b) All Restricted Stock Awards then held by the Participant that have not vested as 9 of such termination will be terminated and forfeited; and (c) Any assignment or transfer restrictions with respect to Performance Stock Awards that have not lapsed will continue in effect in accordance with their terms unless otherwise provided in the agreement evidencing such Performance Stock Awards. 9.4 TERMINATION OF SERVICE AS A NON-EMPLOYEE CONSULTANT OR ADVISOR. In the event a Participant's service as a non-employee consultant or advisor is terminated with the Company and all Subsidiaries for any reason, or a Participant is in the service of a Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless the Participant continues in the service of the Company or another Subsidiary), all rights of the Participant under the Plan and any agreements evidencing an Incentive Award will immediately terminate without notice of any kind, and (i) no Options then held by the Participant will thereafter be exercisable, (ii) all Restricted Stock Awards then held by the Participant that have not vested will be terminated and forfeited, and (iii) any assignment or transfer restrictions with respect to Performance Stock Awards that have not lapsed will continue in effect in accordance with their terms unless otherwise provided in the agreement evidencing such Performance Stock Awards; provided, however, that if such termination is due to any reason other than termination by the Company or any Subsidiary for Cause (as defined in Section 2.3 of the Plan), all outstanding Options then held by such Participant will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event after the expiration date of any such Option). 9.5 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other provisions of this Section 9, upon a Participant's termination of employment or other service with the Company and all Subsidiaries, the Committee may, in its sole discretion (which may be exercised at any time on or after the date of grant, including following such termination), cause Options (or any part thereof) then held by such Participant to become or continue to become exercisable and/or remain exercisable following such termination of employment or other service, and Restricted Stock Awards and Performance Stock Awards then held by such Participant to vest and/or continue to vest or become free of transfer restrictions, as the case may be, following such termination of employment or other service, in each case in the manner determined by the Committee; provided, however, that (a) no Incentive Award will become exercisable or vest prior to six months from its date of grant (unless such exercisability or vesting is by reason of death or Disability), and (b) no Incentive Award may remain exercisable or continue to vest for more than two years beyond the date such Incentive Award would have terminated if not for the provisions of this Section 9.5 but in no event beyond its expiration date. 9.6 EFFECTS OF ACTIONS CONSTITUTING CAUSE. Notwithstanding anything in the Plan to the contrary, in the event that a Participant is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause as defined in Section 2.3, irrespective of whether such action or the Committee's determination occurs before or after termination of such Participant's employment or other service with the Company or any Subsidiary, all rights of the Participant under the Plan and any agreements evidencing an Incentive Award then held by the 10 Participant shall terminate and be forfeited without notice of any kind. 9.7 DETERMINATION OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. (a) The change in a Participant's status from that of an employee of the Company or any Subsidiary to that of a non-employee consultant or advisor of the Company or any Subsidiary will, for purposes of the Plan, be deemed to result in a termination of such Participant's employment with the Company and its Subsidiaries, unless the Committee otherwise determines in its sole discretion. (b) The change in a Participant's status from that of a non-employee consultant or advisor of the Company or any Subsidiary to that of an employee of the Company or any Subsidiary will not, for purposes of the Plan, be deemed to result in a termination of such Participant's service as a non-employee consultant or advisor with the Company and its Subsidiaries, and such Participant will thereafter be deemed to be an employee of the Company or its Subsidiaries until such Participant's employment is terminated, in which event such Participant will be governed by the provisions of this Plan relating to termination of employment. (c) Unless the Committee otherwise determines in its sole discretion, a Participant's employment or other service will, for purposes of the Plan, be deemed to have terminated on the date recorded on the personnel or other records of the Company or the Subsidiary for which the Participant provides employment, as determined by the Committee in its sole discretion based upon such records. 10. PAYMENT OF WITHHOLDING TAXES. 10.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct from future wages of the Participant (or from other amounts that may be due and owing to the Participant from the Company or a Subsidiary), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any and all federal, state and local withholding and employment-related tax requirements attributable to an Incentive Award, including, without limitation, the grant, exercise or vesting of, or payment of dividends with respect to, an Incentive Award or a disqualifying disposition of stock received upon exercise of an Incentive Stock Option, or (b) require the Participant promptly to remit the amount of such withholding to the Company before taking any action, including issuing any shares of Common Stock, with respect to an Incentive Award. 10.2 SPECIAL RULES. The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require a Participant to satisfy, in whole or in part, any withholding or employment-related tax obligation described in Section 10.1 of the Plan by electing to tender, or by attestation as to ownership of, Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company's earnings for financial reporting purposes and that are otherwise acceptable to the Committee, by delivery of a Broker 11 Exercise Notice or a combination of such methods. For purposes of satisfying a Participant's withholding or employment-related tax obligation, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value. 11. CHANGE IN CONTROL. 11.1 A "Change in Control" shall be deemed to have occurred if the event set forth in any one of the following paragraphs shall have occurred: (a) any "person" as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any trustee or other fiduciary holding securities under any employee benefit plan of the Company, or any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), is or becomes, including pursuant to a tender or exchange offer for shares of Common Stock pursuant to which purchases are made, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding securities, other than in a transaction arranged or approved by the Board prior to its occurrence; provided, however, that if any such person will become the beneficial owner, directly or indirectly, of securities of the Company representing 34% or more of the combined voting power of the Company's then outstanding securities, a Change in Control will be deemed to occur whether or not any or all of such beneficial ownership is obtained in a transaction arranged or approved by the Board prior to its occurrence, and other than in a transaction in which such person will have executed a written agreement with the Company (and approved by the Board) on or prior to the date on which such person becomes the beneficial owner of 25% or more of the combined voting power of the Company's then outstanding securities, which agreement imposes one or more limitations on the amount of such person's beneficial ownership of shares of Common Stock, if, and so long as, such agreement (or any amendment thereto approved by the Board provided that no such amendment will cure any prior breach of such agreement or any amendment thereto) continues to be binding on such person and such person is in compliance (as determined by the Board in its sole discretion) with the terms of such agreement (including such amendment); provided, however, that if any such person will become the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities, a Change in Control will be deemed to occur whether or not such beneficial ownership was held in compliance with such a binding agreement, and provided further that the provisions of this subparagraph (a) shall not be applicable to a transaction in which a corporation becomes the owner of all the Company's outstanding securities in a transaction which complies with the provisions of subparagraph (c) of this Section 11.1 (e.g., a reverse triangular merger); or (b) the following individuals cease for any reason to constitute a majority of the number of directors then serving: individuals who, on August 18, 2000, constitute the Board 12 and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on August 18, 2000, or whose appointment, election or nomination for election was previously so approved or recommended; or (c) there is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) more than 50% of the combined voting power of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, and in which no "person" (as defined under subparagraph (a) above) acquires 50% or more of the combined voting power of the securities of the Company or such surviving entity or parent thereof outstanding immediately after such merger or consolidation; or (d) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, more than 50% of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale. 11.2 ACCELERATION OF VESTING. Without limiting the authority of the Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the Company occurs, then, if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award, (a) all Options that have been outstanding for at least six months will become immediately exercisable in full and will remain exercisable in accordance with their terms; (b) all outstanding Restricted Stock Awards that have been outstanding for at least six months will become immediately fully vested and non-forfeitable; and (c) any transfer restrictions with respect to Performance Stock Awards will lapse. 11.3 CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company occurs, then the Committee, if approved by the Committee in its sole discretion either in an agreement evidencing an Incentive Award at the time of grant or at any time after the grant of an Incentive Award, and without the consent of any Participant affected thereby, may determine that some or all Participants holding outstanding Options will receive, with respect to some or all of the shares of Common Stock subject to such Options, as of the effective date of any such Change in Control of the Company, cash 13 in an amount equal to the excess of the Fair Market Value of such shares immediately prior to the effective date of such Change in Control of the Company over the exercise price per share of such Options. 11.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything in Section 11.2 or 11.3 of the Plan to the contrary, if, with respect to a Participant, any of the payments to be made in connection with Section 11.2 or 11.3 of the Plan, together with any other payments or benefits which a Participant has the right to receive from the Company or any corporation which is a member of an "affiliated group" (as defined in section 1504(a) of the Code without regard to section 1504(b) of the Code) of which the Company is a member, constitute an "excess parachute payment" (as defined in section 280G(b) of the Code), the payments to be made in connection with Section 11.2 or 11.3 of the Plan shall be reduced to the extent necessary to prevent any portion of such payments or benefits from becoming subject to the excise tax imposed under section 4999 of the Code; provided, however, that if a Participant is subject to a separate agreement with the Company or a Subsidiary that expressly addresses the potential application of Sections 280G or 4999 of the Code (including, without limitation, that "payments" under such agreement or otherwise will be reduced, that such payments will not be reduced or that the Participant will have the discretion to determine which "payments" will be reduced), then this Section 11.4 will not apply, and any "payments" to a Participant pursuant to Section 11.2 or 11.3 of the Plan will be treated as "payments" arising under such separate agreement. 12. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY. 12.1 EMPLOYMENT OR OTHER SERVICE. Nothing in the Plan will interfere with or limit in any way the right of the Company or any Subsidiary to terminate the employment or Other Service of any Eligible Recipient or Participant at any time, nor confer upon any Eligible Recipient or Participant any right to continue in the employ or Other Service of the Company or any Subsidiary. 12.2 RIGHTS AS A STOCKHOLDER. As a holder of Incentive Awards (other than Restricted Stock Awards and Performance Stock Awards), a Participant will have no rights as a stockholder unless and until such Incentive Awards are exercised for, or paid in the form of, shares of Common Stock and the Participant becomes the holder of record of such shares. Except as otherwise provided in the Plan, no adjustment will be made for dividends or distributions with respect to such Incentive Awards as to which there is a record date preceding the date the Participant becomes the holder of record of such shares, except as the Committee may determine in its discretion. 12.3 RESTRICTIONS ON TRANSFER. (a) Except pursuant to testamentary will or the laws of descent and distribution or as otherwise expressly permitted by subsections (b) and (c) below, no right or interest of any Participant in an Incentive Award prior to the exercise or vesting of such Incentive Award will be assignable or transferable, or subjected to any lien, during the lifetime of the Participant, either voluntarily or involuntarily, directly or indirectly, by operation of law or 14 otherwise. (b) A Participant will be entitled to designate a beneficiary to receive an Incentive Award upon such Participant's death, and in the event of a Participant's death, payment of any amounts due under the Plan will be made to, and exercise of any Options (to the extent permitted pursuant to Section 9 of the Plan) may be made by, the Participant's legal representatives, heirs and legatees. (c) Upon a Participant's request, the Committee may, in its sole discretion, permit a transfer of all or a portion of a Non-Statutory Stock Option, other than for value, to such Participant's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing such Participant's household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent of the beneficial interests, a foundation in which any of the foregoing (or the Participant) control the management of assets, and any other entity in which these persons (or the Participant) own more than fifty percent of the voting interests. Any permitted transferee will remain subject to all the terms and conditions applicable to the Participant prior to the transfer except that a transferee will have no rights to receive a grant of Reload Options under Section 6.6 of the Plan. A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including, but not limited to execution and/or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee. 12.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is intended to modify or rescind any previously approved compensation plans or programs of the Company or create any limitations on the power or authority of the Board to adopt such additional or other compensation arrangements as the Board may deem necessary or desirable. 13. SECURITIES LAW AND OTHER RESTRICTIONS. Notwithstanding any other provision of the Plan or any agreements entered into pursuant to the Plan, the Company will not be required to issue any shares of Common Stock under this Plan, and a Participant may not sell, assign, transfer or otherwise dispose of shares of Common Stock issued pursuant to Incentive Awards granted under the Plan, unless (a) there is in effect with respect to such shares a registration statement under the Securities Act and any applicable securities laws of a state or foreign jurisdiction or an exemption from such registration under the Securities Act and applicable state or foreign securities laws, and (b) there has been obtained any other consent, approval or permit from any other regulatory body which the Committee, in its sole discretion, deems necessary or advisable. The Company may condition such issuance, sale or transfer upon the receipt of any representations or agreements from the parties involved, and the placement of any legends on certificates representing shares of Common Stock, as may be deemed necessary or advisable by the Company in order to comply with such securities law or other restrictions. 15 14. PLAN AMENDMENT, MODIFICATION AND TERMINATION. The Board may suspend or terminate the Plan or any portion thereof at any time, and may amend the Plan from time to time in such respects as the Board may deem advisable in order that Incentive Awards under the Plan will conform to any change in applicable laws or regulations or in any other respect the Board may deem to be in the best interests of the Company; provided, however, that no amendments to the Plan will be effective without approval of the stockholders of the Company if stockholder approval of the amendment is then required pursuant to Section 422 of the Code or the rules of the New York Stock Exchange. No termination, suspension or amendment of the Plan may adversely affect any outstanding Incentive Award without the consent of the affected Participant; provided, however, that this sentence will not impair the right of the Committee to take whatever action it deems appropriate under Sections 3.2, 4.3 and 11 of the Plan. 15. EFFECTIVE DATE AND DURATION OF THE PLAN. The Plan is effective, as amended and restated, as of August 18, 2000, and shall apply to Incentive Awards granted on or after such effective date. The Plan will terminate at midnight on June 30, 2005, and may be terminated prior to such time by Board action, and no Incentive Award will be granted after such termination. Incentive Awards outstanding upon termination of the Plan may continue to be exercised, or become free of restrictions, in accordance with their terms. 16. MISCELLANEOUS. 16.1 GOVERNING LAW. The validity, construction, interpretation, administration and effect of the Plan and any rules, regulations and actions relating to the Plan will be governed by and construed exclusively in accordance with the laws of the State of Minnesota, notwithstanding the conflicts of laws principles of any jurisdictions. 16.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to the benefit of the successors and permitted assigns of the Company and the Participants. 16 EX-15 3 a2029351zex-15.txt EXHIBIT 15 Exhibit (15) Securities and Exchange Commission 450 Fifth Street N.W. Washington, DC 10549 RE: Ecolab Inc. Registration Statements on Form S-8 (Registration Nos. 2-60010; 2-74944; 33-1664; 33-41828; 2-90702; 33-18202; 33-55986; 33-56101; 333-95043; 33-26241; 33-34000; 33-56151; 333-18627; 33-39228; 33-56125; 333-70835; 33-60266; 333-95041; 33-65364; 33-59431; 333-18617; 333-79449; 333-21167; 333-79449; 333-35519; 333-40239; 333-95037; 333-50969; and 333-62183) and Registration Statements on Form S-3 of Ecolab Inc. (Registration Nos. 333-14771 and 333-35378). Commissioners: We are aware that our report, dated October 19, 2000, on our reviews of the consolidated interim financial information of Ecolab Inc. for the periods ended September 30, 2000 and 1999 and included in the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2000, is incorporated by reference in Ecolab Inc.'s Registration Statements listed above. Yours very truly, /s/PricewaterhouseCoopers LLP PRICEWATERHOUSECOOPERS LLP November 6, 2000 EX-27 4 a2029351zex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 2000 AND THE RELATED STATEMENTS OF INCOME AND CASH FLOWS FOR THE NINE MONTH PERIOD THEN ENDED AND IS QUALIFIED BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 45,075 0 374,023 15,923 183,487 644,608 1,032,074 549,158 1,724,379 634,737 161,717 0 0 147,043 598,169 1,724,379 1,697,637 1,697,637 762,817 762,817 685,771 0 18,718 231,919 93,927 151,359 0 0 0 151,359 1.18 1.14 THE AMOUNT OF "LOSS PROVISION" IS NOT SIGNIFICANT AND HAS BEEN INCLUDED IN "OTHER EXPENSES."
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