10-K405

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2001 Commission File No. 1–9328

oTRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to              

ECOLAB INC.

(Exact name of registrant as specified in its charter)

Delaware	41-0231510
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
370 Wabasha Street North, St. Paul, Minnesota	55102
(Address of principal executive offices)	(Zip Code)
Registrant’s telephone number, including area code: (651) 293-2233

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which  Registered
Common Stock, $1.00 par value	New York Stock Exchange, Inc. Pacific Exchange, Inc.
Preferred Stock Purchase Rights	New York Stock Exchange, Inc. Pacific Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act: 
None

                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  ý  NO  o

                Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý

                Aggregate market value of voting stock held by non–affiliates of Registrant on February 28, 2002:  $5,958,585,675 (see Item 12, under Part III hereof).  The number of shares of Registrant’s Common Stock, par value $1.00 per share, outstanding as of February 28, 2002:  128,585,276 shares.

TABLE OF CONTENTS

REPORT OF INDEPENDENT ACCOUNTANTS ON THE COMBINED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE OF HENKEL-ECOLAB

DOCUMENTS INCORPORATED BY REFERENCE

1.Portions of Registrant’s Annual Report to Stockholders for the year ended December 31, 2001 (hereinafter referred to as “Annual Re­port”) are incorporated by reference into Parts I, II and IV.

2.Portions of the Proxy Statement for the Annual Meeting of Stock­holders to be held May 10, 2002 and to be filed within 120 days after the Registrant’s fiscal year ended December 31, 2001 (herein­after referred to as “Proxy Statement”) are incorporated by reference into Part III.

PART I

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-K (including Management’s Discussion and Analysis of Financial Condition and Results of Operations incorporated into Item 7 hereof), Management discusses expectations regarding future performance of the Company which include anticipated financial performance, business progress and expansion, business acquisitions, global economic conditions, liquidity requirements, the effect of new accounting pronouncements and one-time accounting charges and credits, 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-K to identify risk factors related to other forward looking statements made 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 on Form 10-K containing the forward-looking statement.

Risks and uncertainties that may affect operating results and business performance include:  the vitality of the hospitality and travel industries; restraints on pricing flexibility due to competitive factors and customer consolidations; changes in oil or raw material prices or unavailability of adequate and reasonably priced raw materials; the occurrence of capacity constraints or the loss of a key supplier; the effect of future acquisitions or divestitures or other corporate transactions and the Company’s ability to achieve plans for past acquisitions; the costs and effects of complying with laws and regulations relating to the environment and to the manufacture, storage, distribution and labeling of the Company’s products; changes in tax, fiscal, governmental and other regulatory policies; economic factors such as the worldwide economy, interest rates, and currency movements

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including, in particular, the Company’s greater exposure to foreign currency risk due to the recent acquisition of Henkel-Ecolab, and changes in the capital markets affecting the Company’s ability to raise capital; the occurrence of (a) litigation or claims, (b) the loss or insolvency of a major customer or distributor, (c) natural or manmade disasters (including material acts of terrorism or hostilities which impact the Company’s markets) and (d) severe weather conditions affecting the food service and the hospitality industries; 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.  There can be no assurances that the Company’s earnings levels will meet investors’ expectations.

Item 1.  Business

Item 1(a) General Development of Business

Except where the context otherwise requires, the terms “Company” and “Ecolab,” as used herein, include Ecolab Inc. and its subsidiaries.  Ecolab Inc. was incorporated as a Delaware corporation in 1924.  The Company’s fiscal year is the calendar year ending December 31.

On November 30, 2001, the Company acquired the 50 percent of the Henkel-Ecolab joint venture (“Henkel-Ecolab”) which the Company did not own, from its joint venture partner, Henkel KGaA, Düsseldorf, Germany (“Henkel”) for a purchase price of 483,631,000 Euro (approximately $433,000,000 at November 30, 2001 exchange rates), subject to adjustment for post-closing adjustments and indemnity claims.  The Company and Henkel had jointly operated Henkel-Ecolab since July 1991.  The acquisition is referred to in this Item 1(a) as the “Transaction.”

Henkel-Ecolab provides cleaning and sanitizing systems and service solutions to hospitality, institutional and industrial customers throughout Europe.

Prior to the Transaction, the Company accounted for its interest in Henkel-Ecolab under the equity method of accounting.  As a result of the Transaction, the legal entities constituting Henkel-Ecolab became wholly-owned entities of the Company.  Following the Transaction, the assets, liabilities, revenues, expenses and cash flows of Henkel-Ecolab will be reflected in the Company’s consolidated financial statements as a part of the Company’s International Cleaning & Sanitizing reporting segment.

Financial statements of Henkel-Ecolab, in respect of certain periods prior to the November 30, 2001 date of the Transaction as listed under Item 14.I(3) of Part IV hereof, are included as a part of this Report and a review of Henkel-Ecolab financial performance is found under the heading “Henkel-Ecolab” contained in the Financial Discussion which is incorporated from the Annual Report into Item 7 hereof.

During 2001, the Company continued to make business acquisitions which broadened its product and service offerings in line with its “Circle the Customer — Circle the Globe” strategy.  In January 2001, Ecolab purchased a 25 percent equity interest in Randall International LLC (“Randall”).  Randall is a privately-held manufacturer of luxury personal care items for the lodging and resort industry.  Under certain circumstances, the Company has the right to purchase the remaining 75 percent of Randall based upon its then fair market value.

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In July 2001, Ecolab purchased Microbiotecnica Saneamento Ltda., a leading provider of commercial pest elimination services in Brazil.

In October 2001, the Company expanded the geographic coverage of its GCS commercial kitchen equipment parts and repair business with the acquisition of Commercial Parts & Services, Inc., which provides customized maintenance and repair services for commercial kitchens with branches in Indiana, Kentucky, Tennessee and Mississippi.

Details of these acquisitions are found under the heading “Other Business Acquisitions and Divestitures” in Note 5, located on page 38 of the Annual Report and incorporated into Item 8 hereof.

In January 2002,  the Company acquired certain operations of Kleencare Hygiene located in the United Kingdom, France, Switzerland and the Netherlands.  These operations provide products, systems and services for the food and beverage industry.  This acquisition represents the Company’s first step to leverage and expand its new wholly-owned operations in Europe.  In January 2002, the Company also purchased Audits International, a Chicago, Illinois-based provider of food safety services in the United States.

Item 1(b) Financial Information About Operating Segments

The financial information about reportable segments appearing under the heading “Operating Segments” in Note 15, located on pages 46 and 47 of the Annual Report, is incorporated herein by reference.

Item 1(c) Narrative Description of Business

General:  The Company is engaged in the development and marketing of premium products and services for the hospitality, institutional and industrial markets.  The Company provides cleaning, sanitizing, pest elimination, maintenance and repair products, systems and services primarily to hotels and restaurants, foodservice, healthcare and educational facilities, quick-service (fast food and other convenience store) units, grocery stores, commercial and institutional laundries, light industry, dairy plants and farms, food and beverage processors, pharmaceutical and cosmetics facilities and the vehicle wash industry.  A strong commitment to customer support is a distinguishing characteristic of the Company.  Additional information on the Company’s business philosophy is found below under the heading “Additional Information — Competition” of this Item 1(c).

The following description of business is based upon the Company’s three reportable segments (“segments”) as reported in the Company’s consolidated financial statements.  However, the Company pursues a “Circle the Customer — Circle the Globe” strategy by providing products, systems and services which serve the Company’s customer base, and does so on a global basis to meet the needs of its customer’s various operations around the world.  Therefore, one customer may utilize the services of all three of the segments.  Thus, there is a degree of interdependence among the operating segments—particularly between the International Cleaning & Sanitizing and the United States Cleaning & Sanitizing businesses.

United States Cleaning & Sanitizing Segment

The “United States Cleaning & Sanitizing” segment is comprised of seven divisions which provide cleaning and sanitizing services to United States markets.

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Institutional:  The Institutional Division is the Company’s largest division and sells specialized cleaners and sanitizers for washing dishes, glassware, flatware, foodservice utensils and kitchen equipment (“warewashing”), for on–premise laundries (typically used by hotel and health care customers) and for general housekeeping functions, as well as dishwasher racks and related kitchen sundries to the foodservice, lodging, educational and healthcare industries and water filters to the foodservice industry.  The Division also provides rooftop grease filter products and kitchen exhaust cleaning services for restaurants and other food service operations as well as pool and spa treatment programs for commercial and hospitality customers.  The Institutional Division also manufactures and markets various chemical dispensing device systems, which are made available to customers, to dispense the Company’s cleaners and sanitizers.  In addition, the Division markets primarily to smaller and mid-size customer units, a program comprised of energy-efficient dishwashing machines, detergents, rinse additives and sanitizers, including full machine maintenance.

The Company believes it is the leading supplier of chemical warewashing products to institutions in the United States.

The Institutional Division sells its products and services primarily through Company–employed field sales-and-service personnel.  However, the Company, to a significant degree, also utilizes independent, third-party foodservice distributors to market and sell its products to smaller accounts or accounts which purchase through food distrib­utors and the Company provides the same service to accounts served by food distrib­utors as to direct customers.

Kay:  The Kay Division (which consists of certain wholly-owned subsidiaries of the Company) supplies chemical cleaning and sanitizing products primarily to the quick-service restaurant industry. This includes traditional fast food restaurants but also other retail

locations where “fast food” is prepared and served, such as convenience stores, airport and shopping center kiosks and other public venues typically serviced by national or regional restaurant chains.  Kay also sells cleaning and sanitizing products, to the food retail (i.e., grocery store) industry.  Kay’s products include specialty and general purpose hard surface cleaners, degreasers, sanitizers, polishes, hand care products and assorted cleaning tools.  Products are sold under the “Kay” brand or the customer’s private label. In addition, Kay supports its product sales with employee training programs and technical support designed to meet the special needs of its customers.  Kay’s customized cleaning and sanitation programs are designed to reduce labor costs and product usage while increasing sanitation levels, cleaning performance, equipment life and safety levels.

Kay employs a direct field sales force which primarily calls upon national and regional quick-service restaurant and food retail chains and franchisees, although the sales are made to distributors who supply the chain or franchisee’s units.

The Company believes that its Kay Division is the leading supplier of chemical cleaning and sanitizing products to the traditional quick-service restaurant industry in the United States.  While Kay’s customer base has been growing, Kay’s business is largely dependent upon a limited number of major quick-service restaurant chains and franchisees.

Food & Beverage:  The Food & Beverage Division addresses cleaning and sanitation at the start of the food chain to facilitate the production of products for human consumption.  The Division provides detergents, cleaners, sanitizers, lubricants and animal health products, as well as cleaning systems, electronic dispensers and chemical injectors for the application of chemical products, primarily to dairy plants, dairy farms, breweries, soft-drink bottling plants, and meat, poultry and other food processors as well as to pharmaceutical and cosmetic plants. The division also markets

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food irradiation services through an alliance with Ion Beam Applications (IBA).  The Food & Beverage Division also designs, engineers and installs CIP (“clean–in–place”) process control systems and facility cleaning systems for its customer base.  Farm products are sold through dealers and independent, third-party distributors, while plant products are sold primarily by the Company’s field sales personnel.  The Company believes that it is one of the leading suppliers of cleaning and sanitizing products to the dairy plant, dairy farm and beverage processor industries in the United States.

Textile Care: The Textile Care Division provides chemical laundry products and proprietary dispensing systems, as well as related services, to large institutional and commercial laundries.  Typically these customers process a minimum of 1,000,000 pounds of linen each year and include free-standing laundry plants used by institutions such as hotels, restaurants and healthcare facilities as well as industrial and textile rental laundries.  The Division also serves the shirt laundry market, typically comprised of smaller laundry units.  Products and services include laundry cleaning and specialty products and related dispensing equipment, which are marketed primarily through a Company–employed sales force and, to a lesser extent, through independent, third-party distributors. The Division’s programs are designed to meet the customer’s need for exceptional cleaning, while extending the useful life of linen and reducing the customer’s overall operating cost.  Textile Care offerings complement the Institutional Division’s offerings to on-premise laundry facilities.

Professional Products:  The Professional Products Division provides a broad range of janitorial and infection prevention/health care offerings to the janitorial and medical markets in the United States. Its proprietary janitorial products (detergents, general purpose cleaners, carpet care, furniture polishes, disinfectants, floor care products, hand soaps and odor counteractants) are sold primarily under the brand name “Airkem,” and proprietary infection prevention/health care products (skin care, disinfectants and instrument sterilants) are sold primarily under the “Huntington” brand name.  These products are sold primarily through a network of independent, third-party distributors, supported by a Company-employed sales force.

The Division also sells certain specialty chemical products which are manufactured for third parties. These offerings include the manufacture of a small line of private label products and house brand products for third parties.

Vehicle Care:  The Company’s Vehicle Care Division provides vehicle appearance products which include soaps, polishes, wheel and tire treatments and air fresheners.  Products are sold to vehicle rental, fleet and consumer car wash and detail operations.  Brand names utilized by the vehicle care division include Blue CoralÒ, Black MagicÒ and Rain-XÒ.

Water Care Services:  The Water Care Services Division supplements the Company’s “Circle the Customer - Circle the Globe” strategy by adding an offering which is critical to companies in the Company’s customer base—water treatment programs.  The Division provides water and wastewater treatment products, services and systems for commercial/institutional customers (full service hotels, cruise ships, hospitals, healthcare, commercial real estate, government, and commercial laundries), food and beverage customers (dairies, meat, poultry, food processing and beverage) and other light industry.  Water Care Services works closely with the Company’s Institutional, Textile Care and Food & Beverage divisions to offer customized water care strategies to their accounts that have water care needs, primarily to treat water used in heating and cooling systems and manufacturing processes and to treat wastewater.

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United States Other Services Segment

The “United States Other Services” segment is comprised of two business units:  Pest Elimination and GCS Service.  In general, both businesses provide service or equipment which can augment or extend the Company’s product offering to its business customers as a part of the “Circle the Customer” approach.

Pest Elimination:  The Pest Elimination Division provides services for the detection, elimination and prevention of pests to restaurants, food and beverage processors, educational and healthcare facilities, hotels, quick-service restaurant and grocery operations and other institutional and commercial customers.  These services are sold and performed by Company–employed sales and service personnel.

GCS Service:  GCS provides commercial kitchen parts and equipment repair services including parts distribution.  GCS offers both chain account customers of the Company and equipment manufacturers the benefits of working with a single equipment repair service provider with a nationally based capability.

International Cleaning & Sanitizing Segment

The Company conducts business in approximately 70 countries outside of the United States through wholly-owned subsidiaries or, in the case of China, Israel and Venezuela, through majority-owned joint ventures with local partners.  In other countries, selected products are sold by the Company’s export operations to distributors, agents or licensees, although the volume of those sales is not significant in terms of the Company’s overall revenues.  The largest International operations are located in Europe, Asia Pacific, Latin America and Canada with smaller operations in Africa.

In general, the businesses conducted internationally are similar to those conducted in the United States, although the Company customizes its products and services to meet unique local requirements.  The businesses which are similar to the United States’ Institutional and Food & Beverage businesses, are the largest businesses in international operations.  They are conducted in virtually all international locations, and compared to the United States, constitute a larger portion of the overall business.  Kay has sales in a number of International locations.  A significant portion of its international sales are to non-United States units of United States-based quick-service restaurant chains.  Consequently, a substantial portion of Kay’s international sales are made either to domestic or internationally-located independent, third-party distributors who serve these chains. The other businesses are conducted less extensively in international locations. However, in general, all of the businesses conducted in the United States are operated in Canada.

International businesses are subject to the usual risks of foreign operations including possible changes in trade and foreign investment laws, tax laws, currency exchange rates and economic and political conditions abroad.  The profitability of International operations has historically been lower than the profitability of businesses in the United States.  This has been attributable to lower International operating income margins caused by the difference in scale of International operations where operating locations are smaller in size as well as to the additional cost of operating in numerous and diverse foreign jurisdictions.  Proportionately larger investments in sales, administrative and technical personnel are also necessary in order to facilitate growth in International operations.

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Additional Information

Competition:  The Company’s business units have two significant classes of competitors.  First, each business unit competes with a small number of large companies selling directly or through distributors on a national or international scale.  Second, all of the Company’s business units have numerous smaller regional or local competitors which focus on more limited geographies, product lines and/or end-user segments.

The Company’s objective is to achieve a significant presence in each of its business markets.  In general, competition is based on service, product performance and price.  The Company believes it competes principally by providing superior value and differentiated products.  Value is provided by state-of-the-art cleaning, sanitation and maintenance products and systems coupled with high customer support standards and dedication to customer satisfaction after the initial sale.  This is made possible, in part, by the Company’s significant on-going investment in training and technology development and by the Company’s standard practice of advising customers on means to lower operating costs and comply with safety, environmental and sanitation regulations. In addition, the Company emphasizes its ability to uniformly provide a variety of related premium cleaning and sanitation services to its customers and to provide that level of service to multiple locations of chain customer organizations worldwide.  This approach is succinctly stated in the Company’s “Circle the Customer - Circle the Globe” strategy which is discussed above in this Item 1(c) under the heading “General.”

Sales and Service: Products, systems and services are primarily marketed in domestic and international markets by Company–trained sales and service personnel who also advise and assist customers in the proper and efficient use of the products and systems in order

to meet a full range of cleaning and sanitation needs.  Independent, third-party distributors are utilized in several markets, as described in the business unit descriptions found under the discussion of the three reportable segments above.

Customers and Classes of Service:  The Company believes that its business is not materially dependent upon a single customer although, as described above in this Item 1(c) under the description of the Kay business, Kay is largely dependent upon a limited number of national and international quick-service chains and franchisees.  Additionally, although the Company has a diverse customer base and no customer or distributor constitutes ten percent or more of the Company’s consolidated revenues, the Company does have customers and independent, third-party distributors, the loss of which could have a negative effect on results of operations for the affected earnings periods.  No material part of the Company’s business is subject to renegotiation or termination at the election of a governmental unit. The Company sells two classes of products which each constitute 10 percent or more of its sales.  Worldwide sales of warewashing products in 2001, 2000 and 1999 approximated 25, 26 and 27 percent, respectively, of the Company’s consolidated net sales.  In addition, the Company, through its Institutional and Textile Care businesses, sells laundry products and services to a broad range of laundry customers. Worldwide laundry sales in 2001, 2000 and 1999 approximated 11, 11 and 12 percent, respectively, of the Company’s consolidated net sales.

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Patents and Trademarks:  The Company owns a number of patents and trademarks.  While the Company has an active program to protect its intellectual property by filing for patents or trademarks, and pursuing legal action, when appropriate, to prevent infringement, Management does not believe that the Company’s overall business is materially dependent on any individual patent or trademark.

Seasonality:  Overall the Company’s business does not have a significant degree of seasonality.

Working Capital:  The Company has invested in the past, and will continue to invest in the future, in merchandising equipment consisting primarily of systems used by customers to dispense the Company’s cleaning and sanitizing products.  The Company, otherwise, has no unusual working capital requirements.  The investment in merchandising equipment is discussed under the heading “Cash Flows” located on page 28 of the Annual Report and incorporated into Item 7 hereof.

Manufacturing and Distribution: The Company manufactures most of its prod­ucts and related equipment in Company–owned manufacturing facilities.  Some are also produced for the Company by third-party contract manufacturers.  Other products and equipment are purchased from third-party suppliers.  Additional information on product/equipment sourcing is found in the segment discussions above and additional information on the Company’s manufacturing facilities is located beginning at page 14 hereof under the heading “Properties.”

Deliveries to customers are made from the Company’s manufacturing plants and a network of distribution centers and public ware­houses.  The Company uses common carriers, its own deliv­ery vehicles and distributors.  Additional information on the Company’s plant and distribution facilities is located beginning at page 14 hereof under the heading “Properties.”

Raw Materials:  Raw materials purchased for use in manufacturing products for the Company are inorganic chemicals, including phosphates, silicates, alkalies, salts and organic chemicals, including surfactants and solvents.  These materials are generally purchased on an annual contract basis from a diverse group of chemical manufacturers.  Pesticides used by the Pest Elimination Division are purchased as finished products under contract or purchase order from the producers or their distributors.  The Company also purchases packaging materials for its manufactured products and components for its specialized cleaning equipment and systems.  Most raw materials, or substitutes for those materials, used by the Company, with the exception of a few specialized chemicals which the Company manufactures, are available from several suppliers.

Research and Development:  The Company’s research and development program consists principally of devising and testing new products, processes, techniques and equipment, improving the efficiency of existing ones, improving service program content, and evaluating the environmental compatibility of products.  Key disciplines include analytical and formulation chemistry, microbiology, process and packaging engineering and product dispensing technology.  Substantially all of the Company’s principal products have been developed by its research, development and engineering personnel. At times, technology may be licensed from outside the Company to develop offerings.  Note 12, entitled “Research Expenditures” located on page 43 of the Annual Report, is incorporated herein by reference.

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Environmental and Regulatory Considerations:  This discussion of Environmental and Regulatory Considerations should be read in light of the Forward-Looking Statements and Risk Factors discussion found under Part I at the beginning of this Report.  The Company’s businesses are subject to various legislative enactments and regulations relating to the protection of the environment and public health.  While the Company cooperates with governmental authorities and takes commercially practicable measures to meet regulatory requirements and avoid or limit environmental effects, some risks are inherent in the Company’s businesses.  Among the risks are costs associated with managing hazardous substances, waste disposal or plant site clean–up, fines and penalties if the Company were found in violation of law, as well as modifications, disruptions or discontinuation of certain operations or types of operations including product recalls.  Additionally, although the Company is not currently aware of any such circumstances, there can be no assurance that future legislation or enforcement policies will not have a material adverse effect on the Company’s consolidated results of operations, financial condition or liquidity.  Environmental and regulatory matters most significant to the Company are discussed below.

Ingredient Legislation:  Various laws and regulations have been enacted by state, local and foreign jurisdictions pertaining to the sale of products which contain phosphorous or other ingredients that may impact human health or the environment. Under California Proposition 65, label disclosures are required for certain products containing chemicals listed by California.  To date, the Company has been able to comply with such legislative requirements and, in the case of phosphate regulation, has where necessary, developed products which contain no phosphorous or lower amounts of phosphorous. Such legislation has not had a material negative effect on the Company’s consolidated results of operations, financial condition or liquidity to date.

Pesticide Legislation:  Various federal and state environmental laws and regulations govern the manufacture and/or use of pesticides.  The Company manufactures and sells certain disinfecting and sanitizing products which kill microorganisms (bacteria, viruses, fungi) on environmental surfaces. Such products constitute “pesticides” or “antimicrobial pesticides” under the current definitions of the Federal Insecticide Fungicide and Rodenticide Act (“FIFRA”), as amended by the Food Quality Protection Act of 1996, the principal federal statute governing the manufacture, labeling, handling and use of pesticides.  The Company maintains approximately 400 product registrations with the United States Environmental Protection Agency (“EPA”).  Registration entails the necessity to meet certain efficacy, toxicity and labeling requirements and to pay initial and on-going registration fees.  In addition, each state in which these products are sold requires registration and payment of a fee. In general, the states impose no substantive requirements different from those required by FIFRA.  However, California does have its own regulatory scheme and certain other states have regulatory schemes under consideration.  In addition, California imposes a tax on total pesticide sales in that State.  While the cost of complying with rules as to pesticides has not had a material adverse effect on the Company’s financial condition, liquidity or the results of its operations to date, the costs and delays in receiving necessary approvals for these products have increased in recent years.  Total fees paid to the EPA and the states to obtain or maintain pesticide registrations, and for the California tax, were approximately $2,200,000 in 2001.  Such costs will likely increase in 2002, but, based on the Company’s best information, not in amounts which are expected to significantly affect the Company’s consolidated results of operations, financial condition or liquidity.

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In addition, the Company’s Pest Elimination Division applies restricted-use pesticides which it generally purchases from third parties.  That Division must comply with certain standards pertaining to the use of such pesticides and to the licensing of employees who apply such pesticides.  Such regulations are enforced primarily by the states or local jurisdictions in conformity with federal regulations.  The Company has not experienced material difficulties in complying with these requirements.

FDA Antimicrobial Product Requirements:  Various laws and regulations have been enacted by federal, state, local and foreign jurisdictions regulating certain products manufactured and sold by the Company for controlling microbial growth on humans, animals, processed foods, and medical devices.   In the United States, these requirements generally are administered by the U.S. Food and Drug Administration (FDA).   The FDA has been expanding requirements applicable to such products, including proposing regulations in a Tentative Final Monograph for Healthcare Antiseptic Drug Products dated June 17, 1994 that may impose additional requirements and associated costs when finalized by FDA.  To date, such requirements have not had a material negative effect on the Company’s consolidated results of operations, financial condition or liquidity.

Other Environmental Legislation:  The Company’s manufacturing plants are subject to federal, state, local or foreign jurisdiction laws and regulations relating to discharge of hazardous substances into the environment and to the transportation, handling and disposal of such substances.  The primary federal statutes that apply to the Compa­ny’s activities are the Clean Air Act, the Clean Water Act and the Resource Conservation and Recovery Act (“RCRA”).  The Company is also subject to the Superfund Amendments and Reauthorization Act of 1986, which imposes certain reporting requirements as to emissions of toxic substances into the air, land and water.  The Company makes capital investments and expenditures to comply with environmental laws and regulations, to ensure employee safety and to carry out its announced environmental stewardship principles.  To date, such expenditures have not had a significant adverse effect on the Company’s consolidated results of operations, financial condition or liquidity.  The Company’s capital expenditures for environmental control projects incurred for 2001 were approximately $1,540,000 and approximately $1,560,000 has been budgeted for 2002.

Environmental Remediation and Proceedings:  Along with numerous other potentially responsible parties (“PRPs”), the Company is currently involved with waste disposal site clean–up activities imposed by the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or state equivalents at approximately 18 sites in the United States.  Additionally, the Company has similar liability at four sites outside the United States.  In general, under CERCLA, the Company and each other PRP which actually contributes hazardous substances to a Superfund site are jointly and severally liable for the costs associated with cleaning up the site.  Customarily, the PRPs will work with the EPA to agree and implement a plan for site remediation.

Based on an analysis of the Company’s experience with such environmental proceedings, the Company’s estimated share of all hazardous materials deposited on the sites referred to in the preceding paragraph, and the Company’s estimate of the contribution to be made by other PRPs which the Company believes have the

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financial ability to pay their shares, the Company has accrued its best estimate of the Company’s probable future costs relating to such known sites.  Unasserted claims are not reflected in the accrual.   In establishing accruals, potential insurance reimbursements are not included.  The accrual is not discounted.  It is not feasible to predict when the amounts accrued will be paid due to the uncertainties inherent in the environmental remediation and associated regulatory processes.

During 2001, the Company’s net expenditures for contamination remediation were approximately $500,000.  The accrual at December 31, 2001 for probable future remediation expenditures was approximately $2,800,000.  The Company reviews its exposure for contamination remediation costs periodically and its accruals are adjusted as considered appropriate. While the final resolution of these issues could result in costs below or above current accruals and, therefore, have an impact on the Company’s consolidated financial results in a future reporting period, the Company believes the ultimate resolution of these matters will not have a material effect on the Company’s results of operations, financial position or liquidity.  In addition, the Company has retained responsibility for certain sites where the Company’s former ChemLawn business is a PRP.  Currently there are five such locations and, at each, ChemLawn is a de minimis party.  Anticipated costs currently accrued for these matters were included in the Company’s loss from its discontinued ChemLawn operations in 1991.  The accrual remaining reflects management’s best estimate of probable future costs.

Number of Employees:  The Company currently has approximately 19,300 employees.

Item 1(d) Financial Information About Geographic Areas

The financial information about geographic areas appearing under the heading “Operating Segments” in Note 15, located on pages 46 and 47 of the Annual Report, is incorporated herein by reference.

Executive Officers of the Company

The persons listed in the following table are the current executive officers of the Company.  Officers are elected annually.  There is no family relation­ship among any of the directors or executive officers, and none of such persons has been involved during the past five years in any legal proceedings described in applicable Securities and Exchange Commission regulations.

Name	Age	Office	Positions Held Since Jan. 1, 1997
A. L. Schuman	67	Chairman of the Board President and Chief Executive Officer	March 2002 — Present
		Chairman of the Board and Chief Executive Officer	Jan. 2001 — Feb. 2002

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Name	Age	Office	Positions Held Since Jan. 1, 1997
A. L. Schuman (con't)		Chairman of the Board, President and Chief Executive Officer	Jan. 2000 — Dec. 2000
		President and Chief Executive Officer	Jan. 1997 — Dec. 1999
D. M. Baker, Jr.	43	President — Institutional Sector	Mar. 2002 — Present
		Senior Vice President — Institutional Sector	Jan. 2001 — Feb. 2002
		Vice President and General Manager, Kay Chemical Company	Apr. 1998 — Dec. 2000
		Vice President — Sales and Marketing, Kay Chemical Company	Jan. 1997 — Mar. 1998
L. T. Bell	54	Senior Vice President — Law and General Counsel	Jan. 2001 — Present
		Vice President — Law and General Counsel	Jan. 1998 — Dec. 2000
		Vice President, Assistant General Counsel and Assistant Secretary	Jan. 1997 — Dec. 1997
S. L. Fritze	47	Senior Vice President and Chief Financial Officer	Mar. 2002 — Present
		Senior Vice President — Finance and Controller	May 2001 — Feb. 2002
		Vice President and Controller	Jul. 1999 — Apr. 2001
		Vice President and Treasurer	Jan. 1997 — Jun. 1999
D. D. Lewis	55	Senior Vice President — Human Resources	Jan. 2001 — Present
		Vice President — Human Resources	Jan. 1997 — Dec. 2000

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Name	Age	Office	Positions Held Since Jan. 1, 1997
R. L. Marcantonio	52	President — Industrial and Service Sectors	Mar. 2002 — Present
		Executive Vice President — Industrial and Service Sectors	Jan. 2001 — Feb. 2002
		Executive Vice President — Industrial Group	Jan. 1999 — Dec. 2000
		Senior Vice President—Industrial	Mar. 1997 — Dec. 1998
M. Nisita	61	Senior Vice President — Global Operations	Jan. 1997 — Present
M. J. Schumacher	45	Senior Vice President and Chief Technical Officer	Jan. 2001 — Present
		Vice President and Chief Technical Officer	May 1999 — Dec. 2000
		Vice President — Marketing and New Business Development	May 1998 — Apr. 1999
		Vice President — Marketing	Jan. 1997 — Apr.1998
J. P. Spooner	55	President — International Sector	Mar. 2002 — Present
		Executive Vice President - International	Dec. 2001 — Feb. 2002
		Chief Executive Officer — Henkel — Ecolab	Jan. 2001 — Nov. 2001
		Executive Vice President — International Group	Jan. 1999 — Dec. 2000
		Senior Vice President —  International	Jan. 1997 — Dec. 1998

Item 2.  Properties

The Company’s manufacturing facilities produce chemical products or equipment for all the Company’s businesses, although the Pest Elimination Division, GCS and the Facilitec businesses purchase most of their products and equipment from outside suppliers.  The Company’s chemical production process consists primarily of blending and packaging powders and liquids and casting solids.  The Company’s equipment manufacturing operations consist primarily of producing

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chemical product dispensers and ejectors and other mechanical equipment (South Beloit, Illinois) and dishwasher racks and related sundries (Elk Grove Village, Illinois).  The Company’s philosophy is to manufacture products wherever an economic, process or quality assurance advantage exists or where proprietary manufacturing techniques dictate internal production processes.  Currently, most products sold by the Company are manufactured at Company facilities.

The following chart profiles the Company’s manufacturing facilities which are approximately 50,000 square feet or larger in size.

In general, manufacturing facilities located in the United States serve the “United States Cleaning & Sanitizing” segment and facilities located outside of the United States serve the “International Cleaning & Sanitizing” segment.  However, certain of the United States

facilities do manufacture products for export and which are used by the International segment.  The facilities having export involvement are marked with an asterisk(*).

ECOLAB OPERATIONS PLANT PROFILES

Location	Size (Sq. Ft.)	Types of Products	Owned/Leased
UNITED STATES
*Joliet, IL	610,000	Solids, Liquids, Powders	Owned
Woodbridge, NJ	248,000	Liquids	Owned
*Garland, TX	239,000	Solids, Liquids	Owned
Martinsburg, WV	228,000	Liquids	Owned
*South Beloit, IL	219,000	Equipment	Owned
*Greensboro, NC	193,000	Liquids, Powders	Owned
Hebron, OH	192,000	Liquids	Owned
San Jose, CA	175,000	Liquids	Owned
McDonough, GA	141,000	Solids, Liquids	Owned
* Eagan, MN (pilot plant)	133,000	Solids, Liquids, Emulsions, Powders	Owned
City of Industry, CA	125,000	Liquids	Owned
*Elk Grove Village, IL	105,000	Equipment	Leased
*Huntington, IN	90,000	Liquids, Powders	Owned
Carrollton, TX	70,000	Liquids	Owned
INTERNATIONAL
Chalons, FRANCE	280,000	Liquids, Powders	Owned
Nieuwegein, NETHERLANDS	168,000	Powders	Owned
Tessenderlo, BELGIUM	153,000	Solids, Liquids, Powders	Owned
Santa Cruz, BRAZIL	142,000	Liquids, Powders	Owned
Melbourne, AUSTRALIA	130,000	Liquids, Powders	Owned

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ECOLAB OPERATIONS PLANT PROFILES

Rozzano, ITALY	126,000		Liquids, Powders		Owned
Johannesburg, SOUTH AFRICA	100,000		Liquids, Powders		Owned
Botany, AUSTRALIA	97,000		Liquids, Powders		Owned
Toronto, CANADA	88,000		Liquids		Leased
Valby, DENMARK		70,000		Liquids, Powders	Owned
Cheadle (Manchester), UK		62,000		Liquids	Leased
Santiago, CHILE		60,000		Liquids, Powders	Leased
Shika, JAPAN		60,000		Liquids	Owned
Hamilton, NEW ZEALAND		58,000		Solids, Liquids, Powders	Owned
Revesby, AUSTRALIA		51,000		Liquids, Powders	Owned

Smaller United States manufacturing facilities operated by the Company are located in North Kansas City, Missouri (owned); Grand Forks, North Dakota (leased), Memphis, Tennessee (leased) and Baldwin Park, California (leased).   The Company also owns or leases smaller international manufacturing facilities in Argentina, Australia, Costa Rica, Fiji, Greece, Iceland, Indonesia, Japan, Kenya, Mexico, Netherlands, Papua New Guinea, People’s Republic of China, Philippines, Puerto Rico, Singapore, Slovenia, South Korea, Spain, Tanzania and Thailand.

The Company believes its manufacturing facilities are in good condition and are adequate to meet existing production needs.

Most of the Company’s manufacturing plants also serve as distribution centers.  In addition, around the world, the Company operates distribution centers, all of which are leased, and utilizes various public warehouses to facilitate the distribution of its products and services.  In the United States, Company sales associates are located in approximately 65 leased offices. Additional sales offices are located internationally.

The Company’s corporate headquarters is comprised of three adjacent multi-storied buildings located in downtown St. Paul, Minnesota.  The main 19-story building was constructed to the Company’s specifications and is leased through 2008.   Thereafter, it is subject to multiple renewals at the Company’s option.  The second building is also subject to a long–term lease by the Company and the third building is owned.  The corporate headquarters includes a state–of–the–art training center.  The Company also owns a computer center in St. Paul and a research facility located in a suburb of St. Paul.

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Item 3.  Legal Proceedings

Proceedings arising under laws relating to protection of the environment are discussed at Item 1(c) above, under the heading “Environmental Considerations.”

Lubricant Litigation Update - Previous Status:  As previously reported in the Company’s periodic reports, Diversey Lever, Inc. filed suit against the Company in Federal District Court, Eastern District of Michigan, Southern Division on July 1, 1996.  The suit alleges that two Company products, which lubricate plastic beverage bottles, infringe two patents held by Diversey Lever.  Diversey Lever requested damages for the infringement in a range of $3,000,000 to $5,000,000 and that damages be enhanced up to three times if willful infringement is found (“Original Damage Claim”).

In 1998 the District Court found that the Company had infringed the two patents held by Diversey Lever, and in 1999 the Federal Court of Appeals affirmed and remanded the case back to the District Court for trial on the issue of damages.

In July 2000, Diversey Lever asserted an additional claim that the Company’s patent infringement caused permanent loss to the value of Diversey Lever’s business and sought additional damages, which amount was filed under seal.  The Company filed a motion for summary judgment to strike the additional claim.  In September 2001 the District Court granted the Company’s motion for summary judgment to strike this additional claim.

A date for trial of Diversey Lever’s Original Damage Claim has not been set.  The Company has accrued its best estimate of its potential liability related to this matter.

Other Litigation:  The Company and certain of its subsidiaries are defendants in various other lawsuits and claims arising out of the normal course of business.  Accruals have been established reflecting management’s best estimate of probable future costs relating to such matters.

The estimated effects of the future results of existing litigation is subject to certain estimates, assumptions and uncertainties and should be considered in light of the discussion of Forward-Looking Statements and Risk Factors found under Part I at the beginning of this Report.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the security holders, through the solicitation of proxies, or otherwise, during the fourth quarter of 2001.

PART II

Item 5.  Market for the Company’s Common Equity and Related Stockholder Matters

Item 5(a) Market Information

The Company’s Common Stock is listed on the New York Stock Exchange and the Pacific Exchange, Inc. under the symbol “ECL.”  The Common Stock is also traded on an unlisted basis on certain other United States exchanges.  The high and low sales prices of the Company’s Common Stock on the consolidated transaction reporting system during 2001 and 2000 were as follows:

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	2001				2000
Quarter	High		Low		High		Low
First	$	44.19	$	37.88	$	40.75	$	28.00
Second	$	43.20	$	36.35	$	41.25	$	34.94
Third	$	42.00	$	28.50	$	40.00	$	33.25
Fourth	$	41.05	$	34.20	$	45.69	$	34.06

The closing stock price on February 28, 2002 was $46.83.

Item 5(b) Holders

On February 28, 2002, the Company had 5,215 holders of Common Stock of record.

Item 5(c) Dividends

The Company has paid common stock dividends for 65 consecutive years.  Quarterly cash dividends of $0.12 per share were paid in January, April, July and October of 2000.  Dividends of $0.13 per share were paid in January, April, July and October 2001.

Item 6.  Selected Financial Data

The comparative data for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 inclusive, which are set forth under the heading entitled “Summary Operating and Financial Data” located on pages 50 and 51 of the Annual Report, are incor­porated herein by reference.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The material appearing under the heading entitled “Financial Discussion,” located on pages 20 through 49 of the Annual Report, is incorporated herein by reference.

Item 7(a) Quantitative and Qualitative Disclosures about Market Risk

The material appearing under the heading entitled “Market Risk,” located on page 29 of the Annual Report, is incorporated herein by reference.

Item 8.  Financial Statements and Supplementary Data

The financial statements and material which are an integral part of the financial statements listed under Item 14.I(1). below and located on pages 30 through 49 of the Annual Report, are filed as a part of this Report and are incorporated herein by reference.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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PART III

Item 10.  Directors and Executive Officers of the Company

The biographical material regarding directors and the paragraph relating to understandings concerning the election of directors between Henkel KGaA and the Company located in the Proxy Statement appearing under the heading entitled “Election of Directors,” is incorporated herein by reference.  Information regarding executive officers is presented under the heading “Executive Officers of the Company” in Part I of this Report on pages 12 through 14 hereof.

Item 11.  Executive Compensation

The material appearing under the heading entitled “Executive Compensation” located in the Proxy Statement is incorporated herein by reference.  However, pursuant to Securities and Exchange Commission Regulation S-K, Item 402(a)(9), the material appearing under the headings entitled “Report of the Compensation Committee on Executive Compensation” and “Comparison of Five Year Cumulative Total Return” located in the Proxy Statement is not incorporated herein.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

The material appearing under the headings entitled “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” located in the Proxy Statement is incorporated herein by reference.  The holdings of Henkel KGaA and HC Investments, Inc. are subject to certain limitations with respect to the Company’s voting securities as more fully described in the Company’s Proxy Statement under the heading “Stockholder Agreement,” which is incorporated herein by reference.

A total of 636,260 shares of Common Stock held by the Company’s current directors and executive officers, some of whom may be affiliates of the Company, have been excluded from the computation of market value of the Company’s Common Stock on the cover page of this Report.  This total represents that portion of the shares reported as beneficially owned by directors and executive officers of the Company as of February 28, 2002, which are actually issued and outstanding.

Item 13.  Certain Relationships and Related Transactions

The material appearing under the headings entitled “Certain Transactions,” “Stockholder Agreement” and “Company Transactions” located in the Proxy Statement, as well as the paragraph relating to understandings concerning the election of directors between Henkel KGaA and the Company and the biographical material pertaining to Messrs. Stefan Hamelmann, Jochen Krautter and Ulrich Lehner, both located in the Proxy Statement appearing under the heading “Election of Directors,” are incorporated herein by reference.

PART IV

Item 14.  Exhibits, Financial Statements, Schedules, and Reports on Form 8-K

I(1).         The following financial statements of the Company, included in the Annual Report, are incorporated into Item 8 hereof.

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(i)Consolidated Statement of Income for the years ended December 31, 2001, 2000 and 1999, Annual Report page 30.

(ii)           Consolidated Balance Sheet at December 31, 2001, 2000 and 1999, Annual Report page 31.

(iii)Consolidated Statement of Cash Flows for the years ended December 31, 2001, 2000 and 1999, Annual Report page 32.

(iv)Consolidated Statement of Comprehensive Income and Shareholders’ Equity for the years ended December 31, 2001, 2000 and 1999, Annual Report page 33.

(v)Notes to Consolidated Financial Statements, Annual Report pages 34 through 48.

(vi)Report of Independent Accountants, Annual Report page 49.

I(2).The following financial statement schedule to the Company’s financial statements listed in Item 14.I(1). for the years ended December 31, 2001, 2000 and 1999 located on page 33 hereof, and the Report of Indepen­dent Accountants on Financial Statement Schedule at page 31 hereof, are filed as part of this Report.

(i)Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2001, 2000 and 1999.

All other schedules, for which provision is made in the applicable regulations of the Securities and Exchange Commission, are not required under the related instructions or are inapplicable and therefore have been omitted.  All significant majority–owned subsidiaries are included in the filed consolidated financial statements.

I(3).The following financial statements of the Henkel-Ecolab Joint Venture located on pages 34 to 57 hereof, are filed as part of this Report.

(i)Report of Independent Accountants on the combined financial statements and financial statement schedule (referred to under I(4).(i)) — PricewaterhouseCoopers Gesellschaft mit beschränkter Haftung Wirtschaftsprüfungsgesellschaft.

(ii)Combined Statements of Income and Comprehensive Income for the years ended November 30, 2001, 2000 and 1999.

(iii)Combined Balance Sheets as of November 30, 2001 and 2000.

(iv)Combined Statements of Cash Flows for the years ended November 30, 2001, 2000 and 1999.

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(v)Combined Statements of Equity for the years ended November 30, 2001, 2000 and 1999.

(vi)Notes to Combined Financial Statements.

I(4).The following financial statement schedule to the Henkel-Ecolab Joint Venture financial statements listed in Item 14.I(3). for the years ended November 30, 2001, 2000 and 1999 located on page 58 hereof, and the Report of the Independent Accountants on page 34 hereof are filed as part of this Report.

(i)Schedule - - Valuation and Qualifying Accounts and Reserves for the years ended November 30, 2001, 2000 and 1999.

All other schedules, for which provision is made in the applicable regulations of the Securities and Exchange Commission, are not required under the related instructions or are inapplicable and therefore have been omitted.  All entities of the Henkel-Ecolab Joint Venture are included in the filed combined financial statements.

II.The following documents are filed as exhibits to this Report.  The Company will, upon request and payment of a fee not exceeding the rate at which copies are available from the Securities and Exchange Commis­sion, furnish copies of any of the following exhibits to stock­holders.

(3)A.Restated Certificate of Incorporation - Incorporated by reference to Exhibit (3) to the Company’s Current Report on Form 8-K dated October 22, 1997.

B.By-Laws, as amended through February 18, 1999 - Incorporated by reference to Exhibit (3)B of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

(4)A.Common Stock – see Exhibits (3)A and (3)B.

B.Form of Common Stock Certificate - Incorporated by reference to Exhibit (4)B of the Company’s Form 10-K Annual Report for the year ended December 31, 1995.

C.(i)Rights Agreement dated as of February 24, 1996 – Incorporated by reference to Exhibit (4) of the Company’s Current Report on Form 8-K dated February 24, 1996.

(ii)Amendment, dated November 5, 2001 to the Rights Agreement dated as of February 24, 1996 - Incorporated by reference to Exhibit (1) of the Company’s Form 8A/A filed November 6, 2001.

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D.Second Amended and Restated Stockholder’s Agreement between Henkel KGaA and Ecolab Inc., dated November 30, 2001 - Incorporated by reference to Exhibit (10) of the Company’s Current Report on Form 8-K dated November 30, 2001.

E.Amended and Restated Indenture, dated as of January 9, 2001, between Ecolab Inc. and Bank One, NA (formerly known as The First National Bank of Chicago) as Trustee - - Incorporated by reference to

Exhibit (4)(A) of the Company’s Current Report on Form 8-K dated January 23, 2001.

F.Officer’s Certificate establishing terms and conditions of 6.875% Notes due February 1, 2011 - Incorporated by reference to Exhibit 4(B) of the Company’s Current Report on Form 8-K dated January 23, 2001.

G.Form of 6.875% Note due February 2, 2011 - Incorporated by reference to Exhibit 4(c) of the Company’s Current Report on Form 8-K dated January 23, 2001.

H.(i)Trust Deed, dated 7 February 2002, constituting €300,000,000 5.375% Notes due 2007 between the Company and JPMorgan Chase Bank, London Branch.

(ii)Paying Agency Agreement, dated 7 February 2002, relating to €300,000,000 5.375% Notes due 2007 among the Company, JPMorgan Chase Bank, London Branch, J. P. Morgan Bank Luxembourg S.A.and others.

Copies of other constituent instruments defining the rights of holders of long–term debt of the Company and its subsidiaries are not filed herewith, pursuant to Section (b)(4)(iii) of Item 601 of Regulation S–K, because the aggregate amount of securities authorized under each of such instruments is less than 10% of the total assets of the Company and its subsidiaries on a consolidated basis.  The Company hereby agrees that it will, upon request by the Securities and Exchange Commission, furnish to the Commission a copy of each such instrument.

(10)A.(i)Multicurrency Credit Agreement (“Credit Agreement”) dated as of September 29, 1993, as Amended and Restated as of December 13, 2000, among the Company, the financial institutions party thereto from time to time, Citicorp USA, Inc. as Administrative Agent, Citibank International Plc, as Euro-Agent and Bank One, NA and Credit Suisse First Boston as Co-Agents - Incorporated by reference to Exhibit (10)A of the Company’s Current Report on Form 8-K dated January 23, 2001.

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(ii)Australian Dollar Local Currency Addendum to the Credit Agreement, dated October 17, 1997 - - Incorporated by reference to Exhibit (4)B of the Company’s Form 10-Q for the quarter ended September 30, 1997.

(iii)Australian Dollar Local Currency Addendum dated as of June 23, 1998 among Ecolab Finance PTY Limited, Ecolab Inc., Citibank, N.A., the Local Currency Agent named therein and the Local Currency Banks party thereto — Incorporated by reference to Exhibit (4)B of the Company’s Form  10-Q for the quarter ended June 30, 1998.

B.Credit Agreement (364 Day Facility) dated December 7, 2001, among the Company, the banks parties thereto (the “Banks”) and Citicorp USA, Inc. as Agent for the Banks - Incorporated by reference to Exhibit (99)B of  the Company’s Current Report on Form 8-K dated November 30, 2001.

C.Ecolab Inc. 1977 Stock Incentive Plan, as Amended and Restated through May 12, 2000 - Incorporated by reference to Exhibit (10)A of the Company’s Form 10-Q  for the quarter ended June 30, 2000.

D.Ecolab Inc. 1993 Stock Incentive Plan - Incorporated by reference to Exhibit (10)B of the Company’s Form 10-K Annual Report for the year ended December 31, 1992.

E.(i)Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000 - Incorporated by reference to Exhibit (10) of the Company’s Form 10-Q for the quarter ended September 30, 2000.

(ii)Non-Statutory Stock Option Agreement between the Company and Allan L. Schuman with respect to premium-priced option grant effective February 20, 1998 under the Ecolab Inc. 1997 Stock Incentive Plan.  Similar option grants were made to each of the named executive officers of the Company covering varying, but smaller number of shares — Incorporated by reference to Exhibit (10) of the Company’s Form 10-Q for the quarter ended June 30, 1998.

F.1988 Non–Employee Director Stock Option Plan as amended through February 23, 1991 - Incorporated by reference to Exhibit (10)D of the Company’s Form 10-K Annual Report for the year ended December 31, 1990.

G.(i)1995 Non-Employee Director Stock Option Plan - Incorporated by reference to Exhibit (10)D of the Company’s Form 10-K Annual Report for the year ended December 31, 1994.

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ii)Amendment No. 1 to 1995 Non-Employee Director Stock Option Plan effective February 25, 2000 - Incorporated by reference to Exhibit (10)E(ii) of the Company’s Form 10-K for the year ended December 31, 1999.

H.Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan.  Incorporated by reference to Exhibit (10) of the Company’s Form 10-Q for the quarter ended March 31, 2001.

I.Form of Director Indemnification Agreement dated August 11, 1989 – Incorporated by reference to Exhibit (19)A of the Company’s Form 10-Q for the quarter ended September 30, 1989.  Substantially identical agreements are in effect as to each director of the Company.

J.(i)Ecolab Executive Death Benefits Plan, as amended and restated effective March 1, 1994 - - Incorporated by reference to Exhibit (10)J of the Company’s Form 10-K Annual Report for the year ended December 31, 1994.  See also Exhibit (10)P hereof.

(ii)Amendment No. 1 to Ecolab Executive Death Benefits Plan — Incorporated by reference to Exhibit (10)H(ii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

(iii)Second Declaration of Amendment to Ecolab Executive Death Benefits Plan, effective March 1, 1998 - Incorporated by reference to Exhibit (10)H(iii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

K.Ecolab Executive Long-Term Disability Plan, as amended and restated effective January 1, 1994 - Incorporated by reference to Exhibit (10)K of the Company’s 10-K Annual Report for the year ended December 31, 1994.  See also Exhibit (10)P hereof.

L.Ecolab Executive Financial Counseling Plan - Incorporated by reference to Exhibit (10)K of the Company’s Form 10-K Annual Report for the year ended December 31, 1992.

M.(i)Ecolab Supplemental Executive Retirement Plan, as amended and restated effective July 1, 1994 - Incorporated by reference to Exhibit (10)M(i) of the Company’s 10-K Annual Report for the year ended December 31, 1994.  See also Exhibit (10)P hereof.

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(ii)First Declaration of Amendment to Ecolab Supplemental Executive Retirement Plan effective as of July 1, 1994 - Incorporated by reference to Exhibit (10)M(ii) of the Company’s 10-K Annual Report for the year ended December 31, 1994.

(iii)Second Declaration of Amendment to Ecolab Supplemental Executive Retirement Plan effective as of July 1, 1994 - Incorporated by reference to Exhibit (10)M(iii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1995.

(iv)Third Declaration of Amendment to Ecolab Supplemental Executive Retirement Plan, effective March 1, 1998 - Incorporated by reference to Exhibit (10)K(iv) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

(v)Fourth Declaration of Amendment to Ecolab Supplemental Executive Retirement Plan, effective February 22, 2002.

N.(i)            Ecolab Mirror Savings Plan, as amended and restated effective September 1, 1994 - Incorporated by  reference to Exhibit (10)N of the Company’s 10-K Annual Report for the year ended December 31, 1994.  See also Exhibit (10)P hereof.

(ii)First Declaration of Amendment to Ecolab Mirror Savings Plan effective as of January 1, 1995 - Incorporated by reference to Exhibit (10)N(ii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1995.

(iii)Second Declaration of Amendment to Ecolab Mirror Savings Plan effective January 1, 1997 - Incorporated by reference to Exhibit (10)O(iii) of the Company’s Form 10–K Annual Report for the year ended December 31, 1996.

(iv)Third Declaration of Amendment to Ecolab Mirror Savings Plan effective November 13, 1997 - Incorporated by reference to Exhibit (10)L(iv) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

(v)Fourth Declaration of Amendment to Ecolab Mirror Savings Plan, effective September 1, 1998 - Incorporated by reference to Exhibit (10)L(v) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

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(vi)Fifth Declaration of Amendment to Ecolab Mirror Savings Plan, effective February 22, 2002.

O.(i)Ecolab Mirror Pension Plan effective July 1, 1994 - Incorporated by reference to Exhibit (10)O(i) of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994.  See also Exhibit (10)P hereof.

(ii)First Declaration of Amendment to Ecolab Mirror Pension Plan effective as of July 1, 1994 - Incorporated by reference to Exhibit (10)O(ii) of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994.

(iii)Second Declaration to Amendment to Ecolab Mirror Pension Plan effective as of July 1, 1994 - Incorporated by reference to Exhibit (10)O(iii) of the Company’s Form 10–K Annual Report for the year ended December 31, 1995.

(iv)Third Declaration of Amendment to Ecolab Mirror Pension Plan, effective March 1, 1998 - - Incorporated by reference to Exhibit (10)M(iv) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

(v)Fourth Declaration of Amendment to Ecolab Mirror Pension Plan, effective February 22, 2002.

P.(i)Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans - Incorporated by reference to Exhibit (10)N of the Company’s 10-K Annual Report for the year ended December 31, 1994.

(ii) Amendment No. 1 to the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans effective July 1, 1997 - Incorporated by reference to Exhibit (10)N(ii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

(iii)First Declaration of Amendment to the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans effective November 13, 1997 - Incorporated by reference to Exhibit (10)N(iii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

(iv)Third Declaration of Amendment to the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans effective July 1, 1999 -Incorporated by reference to Exhibit (10)N(iv) of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.

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(v)Fourth Declaration of Amendment to Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans, effective February 22, 2002.

Q.1999 Ecolab Inc. Management Performance Incentive Plan - Incorporated by reference to Exhibit (10)O of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

R.Ecolab Inc. Change in Control Severance Compensation Policy, effective February 22, 2002.

S.(i)Master Agreement, dated as of December 7, 2000, between Ecolab Inc. and Henkel KGaA - Incorporated by reference to Exhibit 18 of HC Investments, Inc.’s and Henkel KGaA’s Amendment No. 5 to Schedule 13D dated July 16, 1991.

(ii)Amendment No. 1 to the Master Agreement, dated December 7, 2000, between Ecolab Inc. and Henkel KGaA-Incorporated by reference to Exhibit (10) of the Company’s Form 10-Q for the quarter ended September 30, 2001.

(iii)Intellectual Property Agreement dated November 30, 2001, between Ecolab and Henkel KGaA-Incorporated by reference to Exhibit (10) of the Company’s Current Report on Form 8-K dated November 30, 2001.

T.Description of Ecolab Management Incentive Plan - Incorporated by reference to Exhibit (10)R of the Company’s Form 10-K for the year ended December 31, 2000.

U.Hiring Letter of Bruno Deschamps - Incorporated by reference to Exhibit (10)T of the Company’s Form 10-K for the year ended December 31, 2000.

(13)Those portions of the Company’s Annual Report to Stockholders for the year ended December 31, 2001 which are incorporated by reference into Parts I, II and IV hereof.

(21)List of Subsidiaries as of February 28, 2002.

(23)A.Consent of PricewaterhouseCoopers LLP to Incorporation by Reference at page 32 hereof is filed as a part hereof.

B.Consent of PricewaterhouseCoopers Gesellschaft mit beschränkter Haftung Wirschaftsprüfungsgesellschaft.

(24)Powers of Attorney.

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EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

Included in the preceding list of exhibits are the following management contracts or compensatory plans or arrangements:

Exhibit No.	Description
(10)C.	Ecolab Inc. 1977 Stock Incentive Plan.
(10)D.	Ecolab Inc. 1993 Stock Incentive Plan.
(10)E.	Amended and Restated Ecolab Inc. 1997 Stock Incentive Plan.
(10)F.	1988 Non-Employee Director Stock Option Plan.
(10)G.	1995 Non-Employee Director Stock Option Plan.
(10)H.	Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan.
(10)J.	Ecolab Executive Death Benefits Plan.
(10)K.	Ecolab Executive Long-Term Disability Plan.
(10)L.	Ecolab Executive Financial Counseling Plan.
(10)M.	Ecolab Supplemental Executive Retirement Plan.
(10)N.	Ecolab Mirror Savings Plan.
(10)O.	Ecolab Mirror Pension Plan.
(10)P.	The Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans.
(10)Q.	1999 Ecolab Inc. Management Performance Incentive Plan.
(10)R.	Ecolab Inc. Change in Control Severance Compensation Policy.
(10)T.	Ecolab Management Incentive Plan.
(10)U.	Hiring Letter of Bruno Deschamps.

28

III.           Reports on Form 8–K:

The Company filed two Current Reports on Form 8-K during the quarter ended December 31, 2001:  (i) a report dated November 23, 2001 to announce that Henkel KGaA elected to receive payment in cash for the previously announced sale to the Company of Henkel’s 50 percent interest in the Henkel-Ecolab joint venture; and (ii) a report dated November 30, 2001 to report the closing of the Henkel-Ecolab transaction - which report was amended on January 10, 2002 to file certain pro forma financial information pursuant to Item 7(b) of Form 8-K.  In addition, subsequent to the quarter ended December 31, 2001, the Company filed four additional reports:  (i) dated January 10, 2002 to announce that the Company plans to take certain restructuring and other cost savings actions; (ii) dated January 28, 2002 to revise the Company’s expected accounting treatment for a portion of its previously announced restructuring and other cost savings actions; (iii) dated February 7, 2002 to announce that it had closed on the placement of €300,000,000 aggregate principal amount of 5.375% Notes due 2007; and (iv) dated March 1, 2002 to report certain management changes.

29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Ecolab Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 8th day of March, 2002.

ECOLAB INC. (Registrant)
	By	/s/ Allan L. Schuman
		Allan L. Schuman
		President, Chairman of the Board and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Ecolab Inc. and in the capacities indicated, on the 8th day of March, 2002.

/s/ Allan L. Schuman	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer and Director)
Allan L. Schuman
/s/ Steven L. Fritze	Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer)
Steven L. Fritze
/s/ Kenneth A. Iverson	Directors
Kenneth A. Iverson
as attorney-in-fact for Les S. Biller, Stefan Hamelmann, Jerry A. Grundhofer, James J. Howard, William L. Jews, Joel W. Johnson, Jerry W. Levin, Ulrich Lehner, Robert L. Lumpkins and  Hugo Uyterhoeven

30

REPORT OF INDEPENDENT ACCOUNTANTS

ON FINANCIAL STATEMENT SCHEDULE

To the Shareholders and Directors of Ecolab Inc.:

Our audits of the consolidated financial statements referred to in our report dated February 14, 2002 appearing in the 2001 Annual Report to Shareholders of Ecolab Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14.I(2).(i) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Minneapolis, Minnesota

February 14, 2002

31

CONSENT OF PRICEWATERHOUSECOOPERS LLP

TO INCORPORATION BY REFERENCE

                We hereby consent to the incorporation by reference in the Registration Statements of Ecolab Inc. 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; 333-35519; 333-40239; 333-95037; 333-50969; 333-62183; and 333-58360) and Form S-3 (Registration No. 333-14771) of our report dated February 14, 2002 relating to the consolidated financial statements of Ecolab Inc. as of December 31, 2001, 2000 and 1999 and for the years then ended, which appears in the 2001 Annual Report to Shareholders of Ecolab Inc., which is incorporated by reference in this Annual Report on Form 10-K of Ecolab Inc.  We also consent to the inclusion in this Annual Report on Form 10-K of our report dated February 14, 2002 relating to the financial statement schedule of Ecolab Inc. as of December 31, 2001, 2000 and 1999 and for the years then ended, which also appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Minneapolis, Minnesota

March 8, 2002

32

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

ECOLAB INC.

(In Thousands)

COL. A	COL. B		COL. C					COL. D			COL. E
			Additions
Description	Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts (A)			Deductions (B)			Balance at End of Period
Allowance for Doubtful Accounts:
Year Ended December 31, 2001	$	15,330	$	10,941	$	12,527		$	(8,501	)	$	30,297
Year Ended December 31, 2000	$	20,969	$	8,792	$	(236	)	$	(14,195	)	$	15,330
Year Ended December 31, 1999	$	12,893	$	14,385	$	44		$	(6,353	)	$	20,969

(A)Included the effects of changes in currency translation and business

acquisitions, including Henkel-Ecolab in 2001.

(B)Uncollectible accounts charged off, net of recovery of accounts previously written off.

33

Gesellschaft mit beschränkter Haftung Wirtschaftsprüfungsgesellschaft	Moskauer Straße 19 40227 Düsseldorf Postfach 10 50 53 40041 Düsseldorf Tel.: +49 (211) 981-0 Fax: +49 (201) 981-1000 Ein Unternehmen der Gruppe PwC Deutsche Revision

Report of Independent Accountants

To the Board of Directors and Shareholders of Henkel-Ecolab:

In our opinion, the accompanying combined balance sheets and the related combined statements of income and comprehensive income, of equity and of cash flows present fairly, in all material respects, the financial position of Henkel-Ecolab at November 30, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 2001 in conformity with accounting principles generally accepted in the United States of America.  In addition, in our opinion, the accompanying financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related combined financial statements.  These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.  We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers GmbH
PricewaterhouseCoopers
Gesellschaft mit beschränkter Haftung
Wirtschaftsprüfungsgesellschaft
January 11, 2002
	Geschäftsführer: WP RA StB Prof. Rolf Windmöller Sitz: Frankfurt am Main  ·  Amtsgericht: Frankfurt am Main HRB 45604 PwC Deutsche Revision ist Mitglied von PricewaterhouseCoopers International, einer Company limited by guarantee registriert in England und Wales.

34

Henkel-Ecolab

Combined Statements of Income and Comprehensive Income

	Year endedNovember 30, 2001		Year endedNovember 30, 2000		Year ended November 30, 1999
	(Thousands EUR)
Net Sales	970,359		935,230		870,842
Cost of Sales	502,017		473,569		437,829
Selling, General and Administrative Expenses	384,972		365,867		346,849
Royalties to Parents	7,670		7,455		7,648
Operating Income	75,700		88,339		78,516
Other (Expense) Income, net	(604	)	439		(1,934	)
Income before Income Taxes	75,096		88,778		76,582
Provision for Income Taxes	30,406		37,587		33,300
Net Income	44,690		51,191		43,282
Other Comprehensive Income :
Foreign Currency Translation Adjustments	(752	)	6,248		3,850
Minimum Pension Liability Adjustments	(5,122	)	(90	)	518
Income Tax  (Expense) / Benefit Related to Minimum Pension Liability Adjustments	1,538		36		(233	)
Other Comprehensive Income (Loss) net of Tax	(4,336	)	6,194		4,135
Comprehensive Income	40,354		57,385		47,417

See accompanying Notes to Combined Financial Statements

35

Henkel-Ecolab

Combined Balance Sheets

	November 30,		November 30,
	2001		2000
	(Thousands EUR)
Assets
Cash and Cash Equivalents	3,866		7,068
Accounts Receivable, net	226,252		224,093
Accounts Receivable from Related Parties	7,733		8,831
Loans to Related Parties	—		6,039
Inventories	119,142		103,162
Prepaid Expenses and Other Current Assets	33,967		28,966
Deferred Taxes	4,853		6,965
Current Assets	395,813		385,124
Property, Plant and Equipment, net	100,086		96,818
Intangible and Other Assets, net	58,378		67,113
Deferred Taxes	12,382		9,359
Total Assets	566,659		558,414
Liabilities and Equity
Accounts Payable	63,916		67,958
Accounts Payable to Related Parties	11,700		10,838
Accrued Liabilities	119,366		117,975
Income Taxes Payable	26,089		35,626
Deferred Taxes	497		498
Current Portion of Long Term Debt	2,015		84
Short Term Debt	28,832		6,845
Current Portion of Employee Benefit Obligations	5,531		5,042
Current Liabilities	257,946		244,866
Contingent Liabilities
Employee Benefit Obligations, less Current Portion	75,804		69,107
Long Term Debt, less Current Maturities	—		2,017
Deferred Taxes	4,252		4,095
Combined Equity
Contributed Capital	86,785		85,906
Retained Earnings	148,347		154,562
Other Accumulated Comprehensive Income	(6,475	)	(2,139	)
	228,657		238,329
Total Liabilities and Equity	566,659		558,414

See accompanying Notes to Combined Financial Statements

36

Henkel-Ecolab

Combined Statements of Cash Flows

	Year ended November 30, 2001		Year ended November 30, 2000		Year ended November 30, 1999
	(Thousands EUR)
Net Income	44,690		51,191		43,282
Adjustments to Reconcile Net Income to Cash Provided by Operating Activities
Depreciation and Amortization	46,442		43,998		44,833
Equity in Income of Affiliated Company	(1,213	)	(895	)	(292	)
Provision for Doubtful Accounts	5,702		4,008		2,158
Gain on Sale of Property and Equipment	(173	)	(254	)	(629	)
Deferred Income Taxes	667		1,594		(6,112	)
Changes in Operating Assets and Liabilities
Increase in Accounts Receivable	(8,382	)	(32,413	)	(30,751	)
(Increase) Decrease in Accounts Receivable from Related Parties	1,101		(3,102	)	(37	)
Increase in Inventories	(16,193	)	(483	)	(4,829	)
Increase (Decrease) in Accounts Payable and Accrued Liabilities	(3,269	)	16,939		13,181
Increase (Decrease) in Accounts Payable to Related Parties	1,037		2,566		(1,009	)
Increase in Income Taxes Payable	2,403		4,695		13,446
Increase (Decrease) in Prepaid Expenses and Other Current Assets	(2,985	)	(4,797	)	1,537
Increase in Employee Benefit Obligations	1,635		1,882		5,085
Cash Provided by Operating Activities	71,462		84,929		79,863
Investing Activities
Expenditures for Property and Equipment	(42,951	)	(42,023	)	(41,240	)
Expenditures for Intangible and Other Assets	(506	)	(6,164	)	(10,035	)
Proceeds from Investment in Affiliated Company	774		516		292
Purchase of Businesses Net of Cash Acquired	--		--		(7,943	)
Proceeds from Sale of Property and Equipment	2,524		7,633		8,109
Cash Used for Investing Activities	(40,159	)	(40,038	)	(50,817	)
Financing Activities
Proceeds (Repayments) from Bank Debt, net	21,901		(17,741	)	(1,174	)
Proceeds from Capital Contribution, net	879		382		706
(Increase) Decrease in Loans to Related Parties	6,211		(1,024	)	(1,436	)
Dividends paid	(63,512	)	(32,111	)	(34,815	)
Cash Used for Financing Activities	(34,521	)	(50,494	)	(36,719	)
Effect of Exchange Rate Changes	16		6,634		3,293
Increase (Decrease) in Cash and Cash Equivalents	(3,202	)	1,031		(4,380	)
Cash and Cash Equivalents at Beginning of Period	7,068		6,037		10,417
Cash and Cash Equivalents at End of Period	3,866		7,068		6,037

See accompanying Notes to Combined Financial Statements

37

Henkel-Ecolab

Combined Statements of Equity

	Contributed	Retained		Cumulative		Cumulative
	Capital	Earnings		Foreign		Minimum		Total
				Currency		Pension
				Translation		Liability
				Adjustment		Adjustment
	(Thousands EUR)
Balance November 30, 1998	84,818	120,631		(12,087	)	(381	)	192,981
Net Income		43,282						43,282
Dividends		(34,090	)					(34,090	)
Contributions	706							706
Minimum Pension Liability						285		285
Translation Adjustment				3,850				3,850
Balance November 30, 1999	85,524	129,823		(8,237	)	(96	)	207,014
,
Net Income		51,191						51,191
Dividends		(26,452	)					(26,452	)
Contributions	382							382
Minimum Pension Liability						(54	)	(54	)
Translation Adjustment				6,248				6,248
Balance November 30, 2000	85,906	154,562		(1,989	)	(150	)	238,329
Net Income		44,690						44,690
Dividends		(50,905	)					(50,905	)
Contributions	879							879
Minimum Pension Liability						(3,584	)	(3,584	)
Translation Adjustment				(752	)			(752	)
Balance November 30, 2001	86,785	148,347		(2,741	)	(3,734	)	228,657

See accompanying Notes to Combined Financial Statements

38

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

1. DESCRIPTION OF BUSINESS

Henkel-Ecolab (the “Company”) is a leading European company providing total cleaning and hygiene systems and service solutions to institutional and industrial companies. See Basis of Presentation within Note 2 of the combined financial statements. The Company’s offerings include detergents, sanitation cleaners, dosing and measuring equipment, cleaning machines, training and service. Customers include hotels and restaurants; food service, healthcare and educational facilities; commercial laundries; light industry; dairy plants and farms as well as food and beverage processors throughout Europe.

The Company was formed in 1991 by Henkel KGaA (Henkel) and Ecolab, Inc. (Ecolab) as a Company of their respective European institutional and industrial hygiene businesses. Under the terms of the Amended and Restated Company Agreement dated June 26, 1991 (Company Agreement), Henkel and Ecolab have joint control over the activities of the Company. The Company Agreement also provides that both partners will share an equal economic interest in the profits or losses of the Company. On December 1, 2001, Ecolab purchased Henkel´s share of the Company. See note 10 of the combined financial statements.

Acquisitions and Divestiture

Gibson Acquisition: In May 1999, the Company acquired certain assets of Gibson UK Limited for a cash price of approximately TEUR 8,226 from Ecolab. Gibson, located in Reading, England, provides warewashing and surface hygiene products and services for customers in the retail markets. The acquisition has been accounted for as a purchase and, accordingly, the results of operations of Gibson are included in the accompanying financial statements since the date of acquisition. The purchase price has been allocated to assets acquired and liabilities assumed based on their fair value at the date of acquisition. The excess of purchase price over the fair market value of net assets acquired of TEUR 9,028 has been allocated to goodwill and is being amortized over 15 years.

The Company made additional acquisitions during the fiscal years ended November 30, 2001, 2000 and 1999; the aggregate impact of which was immaterial to the combined financial statements.

Waldhausen Divestiture: In June 2000, the Company divested the assets of the Floordress textile and equipment production facility in Waldhausen, Germany in two separate but related transactions for a price equal to the net book value of approximately TEUR 2,249.  Inno Concept, the supplier of plastics to the plant, assumed responsibility of the textile and equipment production (including substantially all the employees and the current production building for textiles).  The Company also entered into a long-term supply agreement for textiles and equipment with Inno Concept.  Grupp, the metal supplier, purchased the equipment production building in a real-estate transaction.  As both transactions were for a price equal to the net book value, no gain or loss was recorded on the books for the sale of the assets related to Waldhausen.

39

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements are presented on a combined basis in accordance with the generally accepted accounting principles in the United States of America. The Company is comprised of various entities. These entities have varying legal structures, including stock corporations, limited liability corporations and partnerships formed under the applicable laws in the jurisdictions in which the Company operates. These entities are owned beneficially by identical shareholders or their wholly- owned subsidiaries and are, therefore, considered entities under common control.  All significant intergroup or affiliated company accounts and transactions have been eliminated in combination. The Company’s fiscal year end has been designated as November 30.

Adoption of New Currency Reporting

Prior to 2001, the Company prepared and reported its combined financial statements in Deutsche Marks (“DM”). Beginning in 2001, the Company presented its combined financial statements in Euro (“EUR”). Accordingly figures for 2000 and 1999 are shown in EUR using the Official Fixed Exchange Rate of 1 EUR = DM 1,95583. Henkel-Ecolab’s 2000 and 1999 Euro combined financial statements depict the same trends as would have been presented if it had continued to present its Combined Financial Statements in Deutsche Marks. The Company’s Combined Financial Statements will however not be comparable to the Euro financial statements of other companies that previously reported their financial information in a currency other than Deutsche Marks.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with a maturity of three months or less when purchased.

Inventories

Inventories are stated at the lower of cost or market with cost determined using the first-in first-out and average cost methods.

40

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

Property, Plant and Equipment, Net

Property, plant and equipment are stated at historical cost. Merchandising equipment consists primarily of various systems for dispensing cleaning and sanitizing products. Depreciation and amortization are charged to operations using the straight-line method over the following estimated useful lives:

Buildings and improvements	up to 50 years
Machinery and equipment	3 to 10 years
Furniture, fixtures and merchandising equipment	3 to 8 years

Leasehold improvements are amortized on a straight-line basis over the lesser of the useful life of the asset or the remaining term of the associated lease. Betterments, renewals and repairs that extend the life of the asset are capitalized; other repairs and maintenance costs are expensed. The cost and accumulated depreciation/amortization applicable to the assets retired or disposed of are removed from the accounts and any gain or loss is reflected in income in the year of disposal.

Total depreciation expense for property, plant and equipment amounted to TEUR 37,766, TEUR 35,753 and TEUR 33,276 for the years ended November 30, 2001, 2000 and 1999, respectively.

Intangible Assets

Intangible assets primarily consist of goodwill, capitalized software, concessions and licenses. These assets are amortized on a straight-line basis over their estimated lives, periods from 3 to 15 years. Total amortization expense for all intangible assets amounted to TEUR 8,676, TEUR 8,245 and TEUR 11,557 for the years ended November 30, 2001, 2000, 1999, respectively.

The Company  capitalizes purchased software which is ready for service and development costs incurred during the application development stage. These costs are amortized using the straight-line method over a maximum of three to five years or the expected life of the product, whichever is less. The carrying value of capitalized software costs are regularly reviewed by the Company and a loss is recognized if the unamortized cost is in excess of the net realizable value.

Long-Lived Assets

The company periodically assesses the recoverability of long-lived and intangible assets based on anticipated future earnings and operating cash flows.

Revenue Recognition

The company recognizes revenue on product sales at the time title transfers to the customer.  The company records estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time of sale.

41

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

Shipping and Handling Costs

In connection with the adoption of Emerging Issues Task Force (“EITF”) Issue No. 00-10, “Accounting for Shipping and Handling Fees and Costs”, the Company has reclassified certain warehousing and transportation expenses from Selling, General and Administrative expenses (“SG&A”) to Cost of Sales. Amounts reported for prior years have been reclassified to conform to the 2001 presentation. The reclassifications had no effect on the Company’s results of operations or financial position.  Expenses reclassified from SG&A to Costs of Sales were TEUR 66,982, TEUR 62,205, and TEUR 55,535 for the years ended November 30, 2001, 2000, and 1999, respectively.  The effect of the reclassification was to reduce gross margin by approximately 6.5 percentage points in each year and reduce SG&A as a percent of sales by a comparable amount.

Advertising Costs

The Company expenses the costs of advertising in the period in which the costs are incurred. Advertising expenses were TEUR 21,696, TEUR 21,093 and TEUR 19,687 for the years ended November 30, 2001, 2000 and 1999, respectively.

Research expenditures

Research expenditures which relate to the development of new products and processes, including significant improvements and refinements to existing products, were approximately TEUR 20,000, TEUR 18,900 and TEUR 18,700 for the years ended November 30, 2001, 2000 and 1999, respectively.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 141, “Business Combinations”, and SFAS No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statements. Other intangible assets will continue to be amortized over their useful lives. The Company will adopt SFAS No. 141 and SFAS No. 142 in the first quarter of fiscal 2002. Upon adoption, the Company will also perform the first of the required impairment tests of goodwill and indefinite-lived intangibles as of December 1, 2001. The Company has not yet determined what impact the adoption of these statements will have on its results of operations and financial position.

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which the asset is placed in service. When the liability is initially recorded, entities capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, entities either settle the obligation for the recorded amount or incur a gain or loss upon settlement. This statement is effective for fiscal years beginning after June 15, 2002, with earlier adoption encouraged. The Company does not believe that the adoption of this statement will have a material impact on its results of operations or financial position.

42

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which replaces SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets to be Disposed Of.” The accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business,” for the disposal of segments of a business. This statement requires that those long-lived assets be measured at the lower of the carrying amount or fair value less costs to sell, whether reported in continuing operations or in discontinued operations. As a result, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. This statement also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. This statement is effective for fiscal years beginning after December 15, 2001. The Company does not believe that the adoption of this statement will have a material impact on its results of operations or financial position.

43

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

3. BALANCE SHEET INFORMATION

	November 30, 2001 TEUR		November 30, 2000 TEUR
Accounts Receivable
Accounts Receivable, Trade	240.126		234.661
Allowance for Doubtful Accounts	(13.874	)	(10.568	)
	226.252		224.093
Inventories
Raw Materials	23.264		20.047
Work in Process	6.541		4.022
Finished Goods	89.337		79.093
	119.142		103.162
Property, Plant and Equipment, net
Land	2.308		2.341
Buildings and Improvements	39.045		38.197
Machinery and Equipment	88.852		85.174
Merchandising Equipment and Other	197.703		175.970
Construction in Progress	3.828		4.407
	331.736		306.089
Accumulated Depreciation and Amortization	(231.650	)	(209.271	)
	100.086		96.818
Intangible and Other Assets, net
Goodwill on Acquisitions prior to July 1,1991	10.707		10.707
Goodwill on Acquisitions after July 1,1991	55.690		55.182
Other Intangible Assets, including Capitalized Computer Software Costs	46.667		47.225
Additional Minimum Pension Liability	1.785		2.059
	114.849		115.173
Accumulated Amortization	(64.592	)	(55.863	)
Total Intangible Assets, net	50.257		59.310
Other Assets, net	8.121		7.803
	58.378		67.113

44

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

4. RELATED PARTY TRANSACTIONS

The Company has entered into various contractual arrangements, including those discussed in the following paragraphs, for the supply of products, the performance of general and administrative services and the transfer of technology.

Certain Company entities purchase institutional and industrial hygiene products (primarily finished goods inventories) from Henkel and its subsidiaries under a variety of supply agreements. The terms of these agreements allow these entities to purchase specified quantities at agreed upon prices as defined by an annual supply plan submitted to the related manufacturing facility. Henkel also provides certain Company entities with elective services which include, but are not limited to, general administration, payroll administration, accounting and research and development. The costs of services are charged by Henkel on a monthly basis and may not reflect the costs which the Company would incur if it were necessary to procure such services from outside sources or if such services were performed internally by the Company. Related party purchases and fees incurred by the Company in consideration for these services totaled TEUR 92,155, TEUR 91,278 and TEUR 118,494 for the years ended November 30, 2001, 2000 and 1999, respectively.

Royalty payments are shared equally by both parent companies based upon a technology transfer agreement which provides for a royalty payment 1 % of third party net sales as defined. Royalty expense related to this technology transfer agreement amounted to TEUR 7,670, TEUR 7,455 and TEUR 7,648 for the years ended November 30, 2001, 2000 and 1999, respectively.  The royalty agreement terminated effective December 1, 2001 when Ecolab acquired the 50% of the Company owned by Henkel.

The Company has entered into agreements with Henkel under which the Company can both borrow from and lend to Henkel both on an overdraft basis and through short term loans of no more than 3 months. There is currently no maximum level of borrowing specified under these agreements. The interest rate basis for both arrangements is the Euro London Interbank Offering Rate (EURO-LIBOR). At November 30, 2001, the interest rates were 4.875 % for EURO overdrafts and 3.53 % for 3 month short term EURO loans. On overdrafts, approximately 50 basis points are paid to compensate Henkel for administration costs.  These agreements terminated effective December 1, 2001 when Ecolab acquired the 50% of the Company owned by Henkel.

At November 30, 2000 the Company had loans receivable from Henkel and its subsidiaries of TEUR 6,039. No loans remain outstanding as of November 30, 2001. The fair values of related party loans receivable and payable approximate book value.

The Company incurs and expenses certain costs on behalf of the parents which by their nature are not arm’s length. The Company charges the parents for these costs and has reflected the reimbursement of such costs, net of tax, in the amount of TEUR 879, TEUR 382 and TEUR 706 as contributed capital for the years ended November 30, 2001, 2000 and 1999, respectively.

45

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

5. INCOME TAXES

The components of income before income taxes and the provision for income taxes for the years ended November 30, 2001, 2000 and 1999, respectively, are as follows:

	2001 TEUR		2000 TEUR	1999 TEUR
Income before income taxes
Domestic (Germany)	11.957		15.670	18.282
Foreign	63.139		73.108	58.300
Total	75.096		88.778	76.582
Income tax provision (benefit)
Current
Domestic (Germany)	5.281		9.862	11.787
Foreign	24.458		26.131	27.547
Total current	29.739		35.993	39.334
Deferred
Domestic (Germany)	(333	)	1,511	(1,711	)
Foreign	1.000		83	(4.323	)
Total deferred	667		1.594	(6.034	)
Total income tax provision	30.406		37.587	33.300

The components of the Company's overall net deferred tax asset at November 30:

	2000 TEUR		2000 TEUR
Deferred tax assets
Tax loss carry forwards	2.030		1.439
Accrued expenses	2.441		5.323
Inventory valuation reserves	1.355		1.973
Accounts receivable reserves	2.943		1.689
Pension provision	6.747		5.156
Depreciation on fixed assets	1.251		569
Other	468		175
Total deferred tax assets	17.235		16.324
Deferred tax liabilities
Amortization on intangible assets	(732	)	(1.040	)
Depreciation on fixed assets	(2.238	)	(2.241	)
Prepaid Pensions	(1.196	)	(930	)
Other	(583	)	(382	)
Total deferred tax liabilities	(4.749	)	(4.593	)
Net deferred tax asset	12.486		11.731

46

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

At November 30, 2001 and 2000, the Company had net foreign operating loss carry forwards for tax purposes of approximately TEUR 6,868 and TEUR 5,010, respectively. A significant portion of these losses have an indefinite carry forward period; the remaining losses have expiration dates up to five years.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences at November 30, 2001, 2000 and 1999. During  2000 and 1999, the valuation allowance decreased by TEUR 694 and TEUR 5,285, respectively.

A reconciliation of the weighted average European effective tax rate to the effective income tax rate is as follows:

	2001 %	2000 %		1999 %
Weighted average European statutory rate	35,6	38,6		39,7
Non deductible items, principally goodwill	4,3	4,3		4,5
Provision for prior years taxes	-	(1,2	)	6,3
Deferred taxes refundable to parent	-	-		1,1
Change in valuation allowance	-	(0,8	)	(6,8	)
Change in tax rates	0,5	-		-
Other	0,1	1,4		(1,3	)
Effective income tax rate	40,5	42,3		43,5

The deferred taxes refundable to parent reflect the Company Agreement in which the partners also agreed that all tax benefits realized after the formation of the Company should be refunded to the respective parents if the benefits relate to temporary differences that originated in periods prior to the formation of the Company.

Cash paid for taxes for the years ended November 30, 2001, 2000 and 1999 was TEUR 27,317, TEUR 31,822 and TEUR 26,577, respectively.

47

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

6. PENSION AND OTHER BENEFIT PLANS

Henkel-Ecolab sponsors several pension plans for its employees throughout Europe including Germany, France, Netherlands, Belgium, Turkey, Greece, the United Kingdom, Italy, Spain, Austria, Slovenia, Norway, Switzerland and Ireland.

The following tables provide a reconciliation of the changes in the plans benefit obligations and fair value of assets over the two year period ended November 30, 2001 and 2000 and a statement of the funded status as of November 30, 2001 and 2000 with the exception of the Italian termination indemnity plan:

	2001 TEUR		2000 TEUR
Reconciliation of benefit obligation
Obligation at December 1, 2000 and 1999, respectively	147.816		129.303
Service cost	6.613		6.057
Interest cost	8.954		7.875
Actuarial (gain) loss	(759	)	7.996
Benefit payments	(3.412	)	(3.415		)
Obligation at November 30	159.212		147.816
	2001 TEUR			2001 TEUR
Reconciliation of fair value of plan assets
Fair value of plan assets at December 1, 2000 and 1999, respectively	84.387			62.102
Actual (loss)/return on plan assets	(6.008	)		18.740
Company contribution	2.960			3.568
Participant contribution	691			992
Benefit payments	(1.059	)		(1.015	)
Fair value of plan assets at November 30	80.971			84.387
	2001 TEUR		2001 TEUR
Funded status
Funded status as of November 30,	(78.241	)	(63.429		)
Unrecognized transition obligation	2.637		2.982
Unrecognized prior service cost	(344	)	(489		)
Unrecognized net loss (gain)	8.097		(4.367		)
Net amount recognized	(67.851	)	(65.303		)

48

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

The following table provides the amounts recognized in the combined balance sheet as of November 30, 2001 and 2000:

	2001 TEUR		2000 TEUR
Accrued benefit liability	(75.012	)	(67.593	)
Italian termination indemnity plan	(6.323	)	(6.556	)
Employee benefit obligation	(81.335	)	(74.149	)
Intangible asset	1.785		2.059
Accumulated other comprehensive income	5.376		231
Additional minimum pension liability	7.161		2.290
Net amount recognized	(74.174	)	(71.859	)

Included within the Employee Benefit Obligations in the combined balance sheet is the Italian termination indemnity plan which provides a benefit that is payable upon termination of employment virtually in all cases of termination. This plan has no assets and is not included within the pension disclosures provided within this footnote with the exception of the information provided above.

The following table provides the components of net periodic pension cost for the plans for the fiscal years ended November 30, 2001, 2000, 1999:

	2001 TEUR		2000 TEUR		1999 TEUR
Service cost	6.613		6.057		5.698
Interest cost	8.954		7.875		6.118
Expected return on plan assets	(6.477	)	(5.834	)	(3.180	)
Amortization of transitional obligation	332		381		373
Amortization of net (gain) loss	(735	)	(554	)	(73	)
Amortization of prior service cost	45		(111	)	51
Net amortization	(358	)	(284	)	351
Net  periodic pension cost	8.732		7.814		8.987

Pursuant to the provisions of Statement Of Financial Accounting Standards No. 87 “Employer`s Accounting for Pensions”, the Company has recorded an additional pension liability adjustment  of TEUR 7,161, and TEUR 2,290 as of November 30, 2001 and 2000, respectively, representing the amount by which the accumulated benefit obligation over the fair value of plan assets exceeded the accrued pension liability for certain plans.

49

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

The following amounts, net of tax, have been included within other comprehensive income arising from a change in the additional minimum pension liability for the year ended November 30, 2001, 2000 and 1999, respectively TEUR (3,584), TEUR (54) and TEUR 285.

The accumulated benefit obligation for these plans was TEUR 61,333 at November 30, 2001 and TEUR 53,304 at November 30, 2000.

The assumptions used in the measurement of the Company`s benefit obligations are shown in the following table:

	2001 %	2000 %	1999 %
Range of rates used throughout Europe
Assumed discount rate	4.0 - 6.25	4.0 - 6.25	4.0 - 6.25
Expected return on plan assets	4.0 - 8.0	4.0 - 8.0	4.0 - 8.0
Rate of increase in future compensation levels	1.75 - 5.0	1.5 - 5.5	1.5 - 5.5

50

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

7. TOTAL INDEBTEDNESS

Short Term Debt

Short term debt of TEUR 28,832 and TEUR 6,845 at November 30, 2001 and 2000, respectively, consists primarily of short term credit facilities and bank overdrafts. The weighted average interest rate on short term debt outstanding (in all borrowing entities across Europe) was 4.45% at November 30, 2001 and 6.0% at November 30, 2000.

At November 30, 2001, the Company had TEUR 71,996 available through multiple bank lines of credit under which the Company may borrow on an overdraft or short term basis. Interest rates are based on local money market rates.

Long Term Debt

Long term debt at November 30, 2001 and 2000 consists of the following:

	2001 TEUR		2000 TEUR
Notes	2.015		2.101
Less current maturities	(2.015	)	(84	)
	0		2.017

The note, which is denominated in Danish Kroni, has a fixed annual interest rate of 10.07 % and is due June 30, 2002.

The fair value of short and long term debt approximates the book value.

51

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

8. FINANCIAL RISK MANAGEMENT

Financial risk factors

The Company´s activities expose it to a variety of financial risks, including the effects of foreign currency exchange rates and interest rates. The Company´s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Company. Henkel-Ecolab uses derivative financial instruments such as foreign exchange contracts to hedge certain exposures.

Risk management is carried out by a central treasury department (Group Treasury) under policies approved by the Board of Directors. Group Treasury identifies, evaluates and hedges financial risks in close co-operation with the operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and investing excess liquidity.

Foreign exchange risk

The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the currencies set out in the table below. The Company uses forward contracts, transacted with Group Treasury, to hedge their exposure to foreign currency risk in the local reporting currency. Group Treasury is responsible for hedging the net position in each currency by using external forward contracts.

At the group level, external foreign exchange contracts are designated as hedges of foreign exchange risk on specific assets, liabilities or future transactions.

Since the Company has subsidiaries not accounting for the results of their operations in Euro, the Euro denominated value of the equity of the Company is also exposed to fluctuations in exchange rates.

The accounts of all foreign subsidiaries and affiliates are generally measured using the local currency as the functional currency, except for two countries where, due to hyperinflation, the functional currency has been changed to the Company´s reporting currency. With the exception of the hyperinflationary countries, assets and liabilities are translated into the Company’s reporting currency, at period-end exchange rates. Income statement accounts are translated to the reporting currency at the average rates of exchange prevailing during the year.

Net unrealized exchange gains or losses resulting from such translation are excluded from net earnings and accumulated in a separate component of combined equity. Gains and losses arising from foreign currency transactions during the year and the translation adjustments from hyperinflationary countries are included in the related income statement category. Total gains and (losses) recognized for the year ended November 30, 2001, 2000 and 1999 were (2,650), 469 and (952) respectively.

52

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

Notional Amounts and Credit Exposures of Derivatives

The notional amounts of derivatives summarized below do not represent amounts exchanged by the parties and, thus, are not a measure of the exposure of the Company through its use of derivatives. The amounts exchanged are calculated on the basis of the notional amounts and the other terms of the derivatives, which relate to exchange rates.

Financial instruments contain an element of risk that the counterparties may not be able to meet the terms of the agreement. However, the Company minimises this risk by limiting its counterparties to major banks and financial institutions. Direct credit risk represents the risk of loss from counterparty default in relation to on-balance sheet products. Management does not expect counterparties to default given their high credit ratings.

Foreign Exchange Risk Management

The Company enters into foreign exchange contracts in managing its foreign exchange rate risks, as indicated in the following table:

	November 30, 2001		November 30, 2000
	Notional Amount TEUR	Credit Exposure TEUR	Notional Amount TEUR	Credit Exposure TEUR
Forward exchange contracts	71,579	-	52,177	-

The purpose of foreign exchange contracts purchased is to hedge various intercompany loans and hedge certain existing and anticipated future net foreign exchange exposures. The anticipated future foreign exchange exposure of the Company is the total of the net balances of all known and planned incoming and outgoing payments of the companies in foreign currencies during a twelve month time horizon.

53

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

The table below summarizes by major currency the contractual amounts of the Company´s forward exchange contracts in EURO. Foreign currency amounts are translated at rates current at the reporting date. The “buy” amounts represent the EURO equivalent of commitments to purchase foreign currencies, and the “sell” amounts represent the EURO equivalent of commitments to sell foreign currencies :

	2001		2000
	Buy TEUR	Sell TEUR	Buy TEUR	Sell TEUR
Pound Sterling/US Dollar	31.618	31.618	32.286	32.286
US Dollar/EURO	11.040	11.040	-	-
Swiss Franc/EURO	8.837	8.837	5.975	5.975
Danish Krona/EURO	5.776	5.776	-	-
Czech Krona/EURO	5.303	5.303	432	432
Pound Sterling/EURO	3.206	3.206	8.147	8.147
Swedish Krona/EURO	2.847	2.847	3.680	3.680
Norwegian Krona/EURO	1.824	1.824	658	658
Slowakian Krona/EURO	576	576	-	-
Hungarian Forint/EURO	552	552	-	-
Polish Zloty/EURO	-	-	1.000	1.000
	71.579	71.579	52.177	52.177

Interest rate risk

The Company is exposed to interest rate risk through changes in the interest expense, which arises through interest bearing liabilities. Estimated future changes in cash flows and balance sheet structure also expose the Company to interest rate risk. The individual entities of the combined company are responsible to manage their short term interest rate exposure through a group cash management system. Long term interest rate exposure is monitored and managed by Group Treasury.

Credit risk

The Company has no significant concentrations of credit risks. The Company has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. Derivative counterparties and cash transactions are limited to high credit quality financial institutions. The Company has policies that limit the amount of credit exposure to any one financial institution.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses. Group Treasury aims at maintaining flexibility in funding by keeping committed credit lines available.

54

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

Accounting for derivative financial instruments and hedging activities

Derivative financial instruments are initially recognized in the balance sheet at cost and subsequently are remeasured at their fair value.

Generally derivative transactions entered into by the Company, while providing effective economic hedges under the Company´s risk management policies, do not qualify for hedge accounting under the specific rules in FAS 133. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting under FAS 133 are recognised immediately in the income statement.

Fair value estimation

The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the balance sheet date.

In assessing the fair value of non-traded derivatives and other financial instruments, the Company uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date.

The face values less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate their fair values.

55

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

9. COMMITMENTS AND CONTINGENCIES

The Company has a number of operating lease agreements primarily involving motor vehicles, computer and other office equipment. The following is a schedule by year of the future minimum lease payments required under the operating leases that have initial or remaining noncancellable lease terms in excess of one year as of November 30, 2001:

	TEUR
2002	17.591
2003	13.899
2004	9.002
2005	6.660
2006	6.067
thereafter	1.844
Total	55.063

Rent expense for the year ended November 30, 2001, 2000 and 1999, was approximately TEUR 14,941, TEUR 14,274 and TEUR 16,039, respectively.

The Company is subject to lawsuits and claims arising out of the conduct of its business, including those relating to commercial transactions and environmental safety. Although the outcomes of such matters are unpredictable, management believes that the final disposition will not have a material adverse effect on the combined financial position or results of operations of the Company.

The Company’s operations and customers are located throughout Europe and operate in the industrial and institutional hygiene business. No single customer accounted for more than 10% of the Company’s sales in 2001, 2000 or 1999, and there were no significant accounts receivable from a single customer at November 30, 2001 and 2000. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.

56

Henkel-Ecolab

Notes to Combined Financial Statements

November 30, 2001 and 2000

10. SUBSEQUENT EVENTS

Change in shareholders

Effective December 1^st, 2001 Ecolab aquired the 50 % of the Company owned by Henkel. After giving effect to this transaction, the Company is a wholly owned subsidiary of Ecolab.

Acquisition of Kleencare Hygiene businesses

In January 2002, the Company acquired the outstanding share of the Kleencare Hygiene operations in the United Kingdom, France, Switzerland and the Netherlands (“Kleencare”) from LHS Holdings Limited of the United Kingdom.  Kleencare specializes in hygiene services, products and systems for the food and beverage industry. The purchase price of .approximately EUR 17.7 million (at the year end exchange rate) was financed by utilizing existing unused credit facilities. The acquisition will be accounted for as a purchase; accordingly, the purchase price will be allocated to the underlying assets and liabilities based on their respective estimated values at the date of the acquisition. Unaudited pro forma information related to this acquisition is not included as the impact of the acquisition is not deemed to be material.

57

HENKEL-ECOLAB

Schedule – Valuation and Qualifying Accounts and Reserves

(Thousands)

Description	Balance, Beg. of Period	Additions (a)	Deductions from Reserve (b)	Balance, Close of Period
Period Ended
November 30, 1999
Allowance for               EUR	8,855	2,158	1,273	9,740
doubtful
Accounts
EUR	8,855	2,158	1,273	9,740
Period Ended
November 30, 2000
Allowance for       EUR	9,740	4,008	3,180	10,568
doubtful
Accounts
EUR	9,740	4,008	3,180	10,568
Period Ended
November 30, 2001
Allowance for       EUR	10,568	5,702	2,396	13,874
doubtful
Accounts
EUR	10,568	5,702	2,396	13,874

(a) Provision for doubtful accounts
(charged to expenses)

(b) Items determined to be uncollectible,
less recovery of amounts previously written off.

58

EXHIBIT INDEX

The following documents are filed as exhibits to this Report.

Exhibit No.	Document	Method of Filing
(3)A.	Restated Certificate of Incorporation.	Incorporated by reference to Exhibit (3) to the Company’s Current Report on Form 8-K dated October 22, 1997.
B.	By-Laws, as amended through February 18, 1999.	Incorporated by reference to Exhibit (3)B of the Company’s Form 10-K Annual Report, for the year ended December 31, 1998.
(4)A.	Common Stock.	See Exhibits (3)A and (3)B.
B.	Form of Common Stock Certificate.	Incorporated by reference to Exhibit (4)B of the Company’s Form 10-K Annual Report for the year ended December 31, 1995.
C. (i)	Rights Agreement dated as of February 24, 1996.	Incorporated by reference to Exhibit (4) of the Company’s Current Report on Form 8-K dated February 24, 1996.
(ii)	Amendment dated November 5, 2001 to the Rights Agreement dated as of February 24, 1996.	Incorporated by reference to Exhibit (1) of the Company’s Form 8A/A filed November 6, 2001.
D.	Second Amended and Restated Stockholder’s Agreement between Henkel KGaA and Ecolab Inc., dated November 30, 2001.	Incorporated by reference to Exhibit (10) of the Company’s Current Report on Form 8-K dated November 30, 2001.

59

E.	Amended and Restated Indenture dated as of January 9, 2001 between Ecolab Inc. and Bank One, N.A.	Incorporated by reference to Exhibit (4)(A) of the Company’s Current Report on Form 8-K dated January 23, 2001.
F.	Officer’s Certificate establishing terms and conditions of 6.875% Notes due February 1, 2011.	Incorporated by reference to Exhibit 4(B) of the Company’s Current Report on Form 8-K dated January 23, 2001.
G.	Form of 6.875% Note due February 2, 2011.	Incorporated by reference to Exhibit 4(c) of the Company’s Current Report on Form 8-K dated January 23, 2001.
H. (i)	Trust Deed dated 7 February 2002, constituting €300,000,000 5.375% Notes due 2007 between the Company and JPMorgan Chase Bank, London Branch.	Filed herewith electronically.
(ii)	Paying Agency Agreement, dated 7 February 2002, relating to €300,000,000 5.375% Note due 2007 among the Company, JPMorgan Chase Bank, London Branch, J.P. Morgan Bank Luxembourg S.A. and others.	Filed herewith electronically.
(10)A.(i)	Multicurrency Credit Agreement (“Credit Agreement”) dated as of September 29, 1993, as Amended and Restated as of December 13, 2000, among the Company, the financial institutions party thereto, Citicorp USA, Inc. as Administrative Agent, Citibank International Plc, as Euro-Agent and Bank One, NA and Credit Suisse First Boston as Co-Agents.	Incorporated by reference to Exhibit (10)A of the Company’s Current Report on Form 8-K dated January 23, 2001.

60

(ii)	Australian Dollar Local Currency Addendum to the Credit Agreement, dated October 17, 1997.	Incorporated by reference to Exhibit (4)B of the Company’s Form 10-Q for the quarter ended September 30, 1997.
(iii)	Australian Dollar Local Currency Addendum dated as of June 23, 1998 among Ecolab Finance PTY Limited, Ecolab Inc., Citibank, N.A., the Local Currency Agent named therein and the Local Currency Banks party thereto.	Incorporated by reference to Exhibit (4)B of the Company’s Form 10-Q for the quarter ended June 30, 1998.
(10) B	Credit Agreement (364 Day Facility) dated December 7, 2001 among the Company, the Banks and Citicorp USA, Inc.	Incorporated by reference to Exhibit (99)B of the Company’s Form 8-K for the quarter ended November 30, 2001.
C.	Ecolab Inc. 1977 Stock Incentive Plan, as amended through May 12, 2000.	Incorporated by reference to Exhibit (10)A of the Company’s Form 10-Q for the quarter ended June 30, 2000.
D.	Ecolab Inc. 1993 Stock Incentive Plan.	Incorporated by reference to Exhibit (10)B of the Company’s Form 10-K Annual Report for the year ended December 31, 1992.
E. (i)	Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000.	Incorporated by reference to Exhibit (10) of the Company’s Form 10-Q for the quarter ended September 30, 2000.

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(ii)	Non-Statutory Stock Option Agreement between the Company and Allan L. Schuman with respect to premium-priced option grant effective February 20, 1998 under the Ecolab Inc. 1997 Stock Incentive Plan.  Similar option grants were made to each of the named executive officers of the Company covering varying, but smaller number of shares.	Incorporated by reference to Exhibit (10) of the Company’s Form 10-Q for the quarter ended June 30, 1998.
F.	1988 Non-Employee Director Stock Option Plan as amended through February 23, 1991.	Incorporated by reference to Exhibit (10)D of the Company’s Form 10-K Annual Report for the year ended December 31, 1990.
G. (i)	1995 Non-Employee Director Stock Option Plan.	Incorporated by reference to Exhibit (10)D of the Company’s Form 10-K Annual Report for the year ended December 31, 1994.
(ii)	Amendment No. 1 to 1995 Non-Employee Director Stock Option Plan effective February 25, 2000.	Incorporated by reference to Exhibit (10)E(ii) of the Company’s Form 10-K for the year ended December 31, 1999.
H.	Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan.	Incorporated by reference to Exhibit (10) of the Company’s Form 10-Q for the quarter ended March 31, 2001.
I.	Form of Director Indemnification Agreement dated August 11, 1989.  Substantially identical agreements are in effect as to each director of the Company.	Incorporated by reference to Exhibit (19)A of the Company’s Form 10-Q for the quarter ended September 30, 1989.

62

J.(i)	Ecolab Executive Death Benefits Plan, as amended and restated effective March 1, 1994.	Incorporated by reference to Exhibit (10)J of the Company’s 10-K Annual Report for the year ended December 31, 1994. See also Exhibit (10)P hereof.
(ii)	Amendment No. 1 to Ecolab Executive Death Benefits Plan.	Incorporated by reference to Exhibit (10)H(ii) of the Company’s 10-K Annual Report for the year ended December 31, 1998.
(iii)	Second Declaration of Amendment to Ecolab Executive Death Benefits Plan, effective March 1, 1998.	Incorporated by reference to Exhibit (10)H(iii) of the Company’s 10-K Annual Report for the year ended December 31, 1998.
K.	Ecolab Executive Long-Term Disability Plan, as amended and restated effective January 1, 1994.	Incorporated by reference to Exhibit (10)K of the Company’s 10-K Annual Report for the year ended December 31, 1994.  See also Exhibit (10)P hereof.
L.	Ecolab Executive Financial Counseling Plan.	Incorporated by reference to Exhibit (10)K of the Company’s Form 10-K Annual Report for the year ended December 31, 1992.
M.(i)	Ecolab Supplemental Executive Retirement Plan, as amended and restated effective July 1, 1994.	Incorporated by reference to Exhibit (10)M(i) of the Company’s 10-K Annual Report for the year ended December 31, 1994.  See also Exhibit (10)P hereof.

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(ii)	First Declaration of Amendment to Ecolab Supplemental Executive Retirement Plan effective as of July 1, 1994.	Incorporated by reference to Exhibit (10)M(ii) of the Company’s 10-K Annual Report for the year ended December 31, 1994.
(iii)	Second Declaration of Amendment to Ecolab Supplemental Executive Retirement Plan effective as of July 1, 1994.	Incorporated by reference to Exhibit (10)M(iii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1995.
(iv)	Third Declaration of Amendment to Ecolab Supplemental Executive Retirement Plan, effective March 1, 1998.	Incorporated by reference to Exhibit (10)M(iii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.
(v)	Fourth Declaration of Amendment to Ecolab Supplemental Executive Retirement Plan, effective February 22, 2002.	Filed herewith electronically.
N.(i)	Ecolab Mirror Savings Plan, as amended and restated effective September 1, 1994.	Incorporated by reference to Exhibit (10)N of the Company’s 10-K Annual Report for the year ended December 31, 1994.  See also Exhibit (10)P hereof.
(ii)	First Declaration of Amendment to Ecolab Mirror Savings Plan effective as of January 1, 1995.	Incorporated by reference to Exhibit (10)N(ii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1995.
(iii)	Second Declaration of Amendment to Ecolab Mirror Savings Plan effective January 1, 1997.	Incorporated by reference to Exhibit (10)O(iii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1996.

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(iv)	Third Declaration of Amendment to Ecolab Mirror Savings Plan effective November 13, 1997.	Incorporated by reference to Exhibit (10)L(iv) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.
(v)	Fourth Declaration of Amendment to Ecolab Mirror Savings Plan, effective September 1, 1998.	Incorporated by reference to Exhibit (10)L(v) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.
(vi)	Fifth Declaration of Amendment to Ecolab Mirror Savings Plan, effective February 22, 2002.	Filed herewith electronically.
O.(i)	Ecolab Mirror Pension Plan effective July 1, 1994.	Incorporated by reference to Exhibit (10)O(i) of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994.  See also Exhibit (10P hereof.
(ii)	First Declaration of Amendment to Ecolab Mirror Pension Plan effective as of July 1, 1994.	Incorporated by reference to Exhibit (10)O(ii) of the Company’s Annual Report on Form 10-K for the year ended December 31, 1994.
(iii)	Second Declaration of Amendment to Ecolab Mirror Pension Plan effective as of July 1, 1994.	Incorporated by reference to Exhibit (10)O(iii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1995.
(iv)	Third Declaration of Amendment to Ecolab Mirror Pension Plan, effective March 1, 1998.	Incorporated by reference to Exhibit (10)M(iv) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.

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(v)	Fourth Declaration of Amendment to Ecolab Mirror Pension Plan, effective February 22, 2002.	Filed herewith electronically.
P.(i)	Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans.	Incorporated by reference to Exhibit (10)P of the Company’s 10-K Annual Report for the year ended December 31, 1994.
(ii)	Amendment No. 1 to the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans effective July 1, 1997.	Incorporated by reference to Exhibit (10)N(ii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.
(iii)	First Declaration to Amendment to the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans effective November 13, 1997.	Incorporated by reference to Exhibit (10)N(iii) of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.
(iv)	Third Declaration of Amendment to the Ecolab Inc. Administrative document for Non-Qualified Benefit Plans effective July 1, 1999.	Incorporated by reference to Exhibit (10)N(iv) of the Company’s Annual Report on Form 10-K for the year ended December 31, 1999.
(v)	Fourth Declaration of Amendment to Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans, effective February 22, 2002.	Filed herewith electronically.
Q.	1999 Ecolab Inc. Management Performance Incentive Plan.	Incorporated by reference to Exhibit (10)O of the Company’s Form 10-K Annual Report for the year ended December 31, 1998.
R.	Ecolab Inc. Change in Control Severance Compensation Policy.	Filed herewith electronically.

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S. (i)	Master Agreement, dated as of December 7, 2000, between Ecolab Inc. and Henkel KGaA.	Incorporated by reference to Exhibit 18 of HC Investments, Inc.’s and Henkel KGaA’s Amendment No. 5 to Schedule 13D dated July 16, 1991.
(ii)	Amendment No. 1 to the Master Agreement, dated December 7, 2000, between Ecolab Inc. and Henkel KGaA	Incorporated by reference to Exhibit (10) of the Company’s Form 10-Q for the quarter ended September 30, 2001.
(iii)	Intellectual Property Agreement dated November 30, 2001, between Ecolab Inc. and Henkel KGaA.	Incorporated by reference to Exhibit (10) of the Company’s Current Report on Form 8-K dated November 30, 2001.
T.	Description of Ecolab Management Incentive Plan.	Incorporated by reference to Exhibit (10)R of the Company’s Form 10-K for the year ended December 31, 2001.
U.	Hiring Letter of Bruno Deschamps.	Incorporated by reference to Exhibit (10)T of the Company’s Form 10-K for the year ended December 31, 2000.
(13)	Those portions of the Company’s Annual Report to Stockholders for the year ended December 31, 2001 which are incorporated by reference into Parts I, II and IV hereof.	Filed herewith electronically.
(21)	List of Subsidiaries as of February 28, 2002.	Filed herewith electronically.
(23)A.	Consent of PricewaterhouseCoopers LLP to Incorporation by Reference at page 32 hereof is filed as a part hereof.	See page 32 hereof.

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B. Consent of PricewaterhouseCoopers Gesellschaft mit beschränkter Haftung Wirtschaftsprüfungsgesellschaft. Filed herewith electronically.

(24)	Powers of Attorney.	Filed herewith electronically.
COVER	Cover Letter.	Filed herewith electronically.

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EX-4.HI

CONFORMED COPY

Dated 7 February 2002

ECOLAB INC.

and

JPMORGAN CHASE BANK, LONDON BRANCH

TRUST DEED

constituting

€300,000,000

5.375% Notes due 2007

LINKLATERS

& ALLIANCE

LINKLATERS

Ref : AMS/LZH

This Trust Deed is made on 7 February 2002 between:

(1)           ECOLAB INC. (the “Issuer”) and

(2) JPMORGAN CHASE BANK, LONDON BRANCH (the “Trustee”, which expression, where the context so admits,  includes any other trustee for the time being of this Trust Deed).

Whereas:

(A)The Issuer, a company incorporated in the State of Delaware, has authorised the issue of €300,000,000 5.375% Notes due 2007 to be constituted by this Trust Deed.

(B)           The Trustee has agreed to act as trustee of this Trust Deed on the following terms and conditions.

This Deed witnesses and it is declared as follows:

1              Interpretation

1.1          Definitions: The following expressions have the following meanings:

“Authorised Officer” means, with respect to the Issuer, the Chief Executive Officer, the President, the Chief Financial Officer and the Treasurer from time to time

“Conditions” means the terms and conditions set out in Schedule 1 as from time to time modified in accordance with this Trust Deed  and, with respect to any Notes represented by the Global Note, as modified by the provisions of the Global Note.  Any reference to a particularly numbered Condition shall be construed accordingly

“Couponholder” means the holder of a Coupon

“Coupons” means the bearer coupons relating to the Notes or, as the context may require, a specific number of them and

includes any replacement Coupons issued pursuant to the Conditions

“Event of Default” means an event described in Condition 8

“Extraordinary Resolution” has the meaning set out in Schedule 3

“Global Note” means the Temporary Global Note and the Permanent Global Note

“Noteholder” means the holder of a Note

“Notes” means bearer Notes substantially in the form set out in Schedule 1 comprising the €300,000,000 5.375% Notes due 2007 constituted by this Trust Deed and for the time being outstanding or, as the context may require, a specific number of them and includes any replacement Notes issued pursuant to the Conditions and (except for the purposes of Clause 3.1) the Temporary Global Note and the Permanent Global Note

“outstanding” means, in relation to the Notes, all the Notes issued except (a) those which have been redeemed in accordance with the  Conditions, (b) those in respect of which the date for redemption has occurred and the redemption moneys (including all interest accrued on such Notes to the date for such redemption and any interest payable under the Conditions after such date) have been duly paid to the Trustee or to the Principal Paying Agent as provided in Clause 2 and remain available for payment against presentation and surrender of Notes and/or Coupons, as the case may be, (c) those which have become void, (d) those which have been purchased and cancelled as provided in the Conditions, (e) those mutilated or defaced Notes which have been surrendered in exchange for replacement Notes, (f) (for the purpose only of

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determining how many Notes are outstanding and without prejudice to their status for any other purpose) those Notes alleged to have been lost, stolen or destroyed and in respect of which replacement Notes have been issued, and (g) the Temporary Global Note to the extent that it shall have been exchanged for the Permanent Global Note pursuant to its provisions and the Permanent Global Note to the extent that it shall have been exchanged for definitive Notes pursuant to its provisions provided that for the purposes of (1) ascertaining the right to attend and vote at any meeting of the Noteholders, (2) the determination of how many Notes are outstanding for the purposes of Conditions 8 and 11 and Schedule 3 and (3) the exercise of any discretion, power or authority which the Trustee is required, expressly or impliedly, to exercise in or by reference to the interests of the Noteholders Notes which are beneficially held by or on behalf of the Issuer or any of its Subsidiaries and not cancelled shall (unless no longer so held) be deemed not to remain outstanding

“Paying Agency Agreement” means the agreement referred to as such in the Conditions, as altered from time to time, and includes any other agreements approved in writing by the Trustee appointing Successor Paying Agents or altering any such agreements

“Paying Agents” means the banks (including the Principal Paying Agent) referred to as such in the Conditions or any Successor Paying Agents in each case at their respective specified offices

“Permanent Global Note” means the permanent global Note which will represent the Notes after exchange of the Temporary Global Note substantially in the form set out in Part 2 of Schedule 2

“Potential Event of Default” means an event or circumstance which could with the giving of notice, lapse of time, issue of a certificate and/or fulfilment of any other requirement provided for in Condition 8 become an Event of Default

“Principal Paying Agent” means the bank named as such in the Conditions or any Successor Principal Paying Agent

“specified office” means, in relation to a Paying Agent, the office identified with its name at the end of the Conditions or any other office approved by the Trustee and notified to Noteholders pursuant to Clause 6.10

“Subsidiary” means (except in Clause 5.3) any corporation of which the Issuer directly or indirectly owns or controls stock which under ordinary circumstances (not dependent upon the happening of a contingency) has the voting power to elect a majority of the board of directors of such corporation

“Successor” means, in relation to the Paying Agents, such other or further person as may from time to time be appointed by the Issuer as a Paying Agent with the prior written approval of, and on terms approved in writing by, the Trustee and notice of whose appointment is given to Noteholders pursuant to Clause 6.10

“Temporary Global Note” means the temporary global Note which will represent the Notes on issue substantially in the form set out in Part 1 of Schedule 2

“this Trust Deed” means this Trust Deed (as from time to time altered in accordance with this Trust Deed) and any other document executed in accordance with this Trust Deed (as from time to time so altered) and expressed to be supplemental to this Trust Deed

“trust corporation” means a trust corporation (as defined in the Law of Property Act 1925) or a corporation entitled to act as a trustee pursuant to applicable foreign legislation relating to trustees

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1.2          Construction of Certain References: References to:

1.2.1       costs, charges, remuneration or expenses include any value added, turnover or similar tax charged in respect thereof

1.2.2“dollars” and “U.S.$” are to the lawful currency for the time being of the United States of America and to “euro”  and “€” are to the single currency introduced in January 1999 pursuant to the Treaty establishing the European Community, as amended by the Treaty on European Union and

1.2.3an action, remedy or method of judicial proceedings for the enforcement of creditors’ rights include references to the  action, remedy or method of judicial proceedings in jurisdictions other than England as shall most nearly approximate thereto.

1.3          Headings: Headings shall be ignored in construing this Trust Deed.

1.4          Schedules: The Schedules are part of this Trust Deed and have effect accordingly.

1.5Contracts (Rights of Third Parties) Act 1999: A person who is not a party to this Trust Deed has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Trust Deed except and to the extent (if any) that this  Trust Deed expressly provides for such Act to apply to any of its terms.

2              Amount of the Notes and Covenant to Pay

2.1          Amount of the Notes: The aggregate principal amount of the Notes is limited to €300,000,000.

2.2Covenant to pay: The Issuer will on any date when any Notes become due to be redeemed unconditionally pay to or to theorder of the Trustee in euro in same day funds the principal amount of the Notes becoming due for redemption on that date and will (subject to the Conditions) until such payment (both before and after judgment) unconditionally so pay to or to the order of the Trustee interest on the principal amount of the Notes outstanding as set out in the Conditions (subject to Clause 2.5) provided that (1) payment of any sum due in respect of the Notes made to the Principal Paying Agent as provided in the Paying Agency Agreement shall, to that extent, satisfy such obligation except to the extent that there is failure in its subsequent payment to the relevant Noteholders or Couponholders under the Conditions and (2) a payment made after the due date or pursuant to Condition 8 will be deemed to have been made when the full amount due has been received by the Principal Paying Agent or the Trustee and notice to that effect has been given to the Noteholders (if required under Clause 6.8), except to the extent that there is failure in its subsequent payment to the relevant Noteholders or Couponholders under the Conditions.  The Trustee will hold the benefit of this covenant on trust for the Noteholders and Couponholders.

2.3Discharge: Subject to Clause 2.4, any payment to be made in respect of the Notes or the Coupons by the Issuer or the Trustee may be made as provided in the Conditions and any payment so made will (subject to Clause 2.4) to that extent be a good discharge to the Issuer or the Trustee, as the case may be.

2.4Payment after a Default: At any time after an Event of Default or a Potential Event of Default has occurred the Trustee may:

2.4.1by notice in writing to the Issuer and the Paying Agents, require the Paying Agents, until notified by the Trustee to the contrary, so far as permitted by applicable law:

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(i)to act as Paying Agents of the Trustee under this Trust Deed and the Notes on the terms of the Paying  Agency Agreement (with consequential amendments as necessary and except that the Trustee’s liability for the  indemnification, remuneration and expenses of the Paying Agents will be limited to the amounts for the time being  held by the Trustee in respect of the Notes on the terms of this Trust Deed) and thereafter to hold all Notes and  Coupons and all moneys, documents and records held by them in respect of Notes and Coupons to the order of the  Trustee or

(ii)to deliver all Notes and Coupons and all moneys, documents and records held by them in respect of the  Notes and Coupons to the Trustee or as the Trustee directs in such notice and

2.4.2by notice in writing to the Issuer require it to make all subsequent payments in respect of the Notes and Coupons to or to the order of the Trustee and not to the Principal Paying Agent.

3              Form of the Notes

3.1The Global Note: The Notes will initially be represented by the Temporary Global Note in the principal amount of €300,000,000. Interests in the Temporary Global Note will be exchangeable for the Permanent Global Note as set out in the Temporary Global Note. The Permanent Global Note will be exchangeable for definitive Notes as set out in the Permanent Global Note.

3.2The Definitive Notes: The definitive Notes and the Coupons will be security printed in accordance with applicable legal and stock exchange requirements substantially in the forms set out in Schedule 1. The Notes will be endorsed with the Conditions.

3.3Signature: The Notes and the Coupons will be signed manually or in facsimile by a duly authorised officer of the Issuer and the Notes will be authenticated by or on behalf of the Principal Paying Agent. The Issuer may use the facsimile signature of a person who at the date of this Trust Deed is such a duly authorised officer of the Issuer even if at the time of issue of any Notes or Coupons he no longer holds that office. Notes and Coupons so executed and authenticated will be binding and valid obligations of the Issuer.

4              Stamp Duties and Taxes

4.1Stamp Duties: The Issuer will pay any stamp, issue, documentary or other taxes and duties, including interest and penalties, payable in the United States, Belgium, Luxembourg and the United Kingdom in respect of the creation, issue and offering of the Notes and the Coupons and the execution or delivery of this Trust Deed. The Issuer will also indemnify the Trustee, the Noteholders and the Couponholders from and against all stamp, issue, documentary or other taxes paid by any of them in any jurisdiction in connection with any action taken by or on behalf of the Trustee or, as the case may be, the Noteholders or the Couponholders to enforce the Issuer’s obligations under this Trust Deed, the Notes or the Coupons.

4.2Change of Taxing Jurisdiction: If the Issuer becomes subject generally to the taxing jurisdiction of a territory or a taxing authority of or in that territory with power to tax other than or in addition to the United States or any such authority of or in such territory then the Issuer will (unless the Trustee otherwise agrees) give the Trustee an undertaking satisfactory to the Trustee in terms corresponding to the terms of Condition 7 with the substitution for, or (as the case may require) the addition to, the references in that Condition to the United States of references to that other or additional territory or authority to whose taxing jurisdiction the Issuer

5

has become so subject. In such event this Trust Deed, the Notes and the Coupons will be read accordingly.

5              Application of Moneys Received by the Trustee

5.1Declaration of Trust: All moneys received by the Trustee in respect of the Notes or amounts payable under this Trust Deed will, despite any appropriation of all or part of them by the Issuer, be held by the Trustee on trust to apply them (subject to Clause 5.2):

first, in payment of all costs, charges, expenses and liabilities properly incurred by the Trustee (including remuneration payable to it) in carrying out its functions under this Trust Deed

secondly, in payment of any amounts owing in respect of the Notes or Coupons pari passu and rateably and

thirdly, in payment of any balance to the Issuer for itself.

If the Trustee holds any moneys in respect of Notes or Coupons which have become void, the Trustee will hold them on these trusts.

5.2Accumulation: If the amount of the moneys at any time available for payment in respect of the Notes under Clause 5.1 is less than 10 per cent of the principal amount of the Notes then outstanding, the Trustee may, at its discretion, invest such moneys. The Trustee may retain such investments and accumulate the resulting income until the investments and the accumulations, together with any other funds for the time being under its control and available for such payment, amount to at least 10 per cent of the principal amount of the Notes then outstanding and then such investments, accumulations and funds (after deduction of, or provision for, any applicable taxes) will be applied as specified in Clause 5.1.

5.3Investment: Moneys held by the Trustee may be invested in its name or under its control in any investments or other assets anywhere whether or not they produce income or deposited in its name or under its control at such bank or other financial institution in such currency as the Trustee may, in its absolute discretion, think fit. If that bank or institution is the Trustee or a subsidiary, holding or associated company of the Trustee, it need only account for an amount of interest equal to the standard amount of interest payable by it on such a deposit to an independent customer. The Trustee may at any time vary or transpose any such investments or assets or convert any moneys so deposited into any other currency, and will not be responsible for any resulting loss, whether by depreciation in value, change in exchange rates or otherwise.

6              Covenants

So long as any Note is outstanding, the Issuer will:

6.1Books of Account: keep, and procure that its Subsidiaries keep, proper books of account and, at any time after an Event of Default or Potential Event of Default has occurred or if the Trustee believes that such an event has occurred, so far as permitted by applicable law, allow, and procure that each such subsidiary will allow, the Trustee and anyone appointed by it to whom the Issuer and/or the relevant subsidiary has no reasonable objection, access to its books of account at all reasonable times during normal business hours

6.2Notice of Events of Default: notify the Trustee in writing immediately on becoming aware of the occurrence of any Event of Default or Potential Event of Default

6.3Information: so far as permitted by applicable law, give the Trustee such information as it requires (having regard to the interests of Noteholders) to perform its functions

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6.4Financial Statements etc.: send to the Trustee at the time of their issue and in the case of annual financial statements in any event within 180 days of the end of each financial year three copies in English of every balance sheet, profit and loss account, report or other notice, statement or circular issued, or which legally or contractually should be issued, to the members or creditors (or any class of them) of the Issuer or any holding company thereof generally in their capacity as such

6.5Certificate of Authorised Officer: send to the Trustee, within 14 days of its annual audited financial statements being made available to its members, and also within 14 days of any request by the Trustee a certificate of the Issuer signed by any Authorised Officer of the Issuer that, having made all reasonable enquiries, to the best of the knowledge, information and belief of the Issuer as at a date (the “Certification Date”) not more than five days before the date of the certificate no Event of Default or Potential Event of Default or other breach of this Trust Deed had occurred since the Certification Date of the last such certificate or (if none) the date of this Trust Deed or, if such an event had occurred, giving details of it

6.6Notices to Noteholders: send to the Trustee the form of each notice to be given to Noteholders and, once given, two copies of each such notice, such notice to be in a form approved by the Trustee

6.7Further Acts: so far as permitted by applicable law, do such further things as may be necessary in the opinion of the Trustee to give effect to this Trust Deed

6.8Notice of late payment: forthwith upon request by the Trustee give notice to the Noteholders of any unconditional payment to the Principal Paying Agent or the Trustee of any sum due in respect of the Notes or Coupons made after the due date for such payment

6.9Listing: use all reasonable endeavours to maintain the listing of the Notes on the Luxembourg Stock Exchange but, if it is unable to do so, having used such endeavours, or if the maintenance of such listing is agreed by the Trustee to be unduly onerous and the Trustee is satisfied that the interests of the Noteholders would not be thereby materially prejudiced, instead use all reasonable endeavours to obtain and maintain a listing of the Notes on another stock exchange approved in writing by the Trustee

6.10Change in Agents: give at least 14 days’ prior notice to the Noteholders of any future appointment, resignation or removal of a Paying Agent or of any change by a Paying Agent of its specified office and not make any such appointment or removal without the Trustee’s prior written approval

6.11Notes held by Issuer etc.: send to the Trustee as soon as practicable after being so requested by the Trustee a certificate of the Issuer signed by any Authorised Officer of the Issuer stating the number of Notes held at the date of such certificate by or on behalf of the Issuer or its Subsidiaries

7              Remuneration and Indemnification of the Trustee

7.1Normal Remuneration: So long as any Note is outstanding the Issuer will pay the Trustee as remuneration for its services as Trustee such sum on such dates in each case as they may from time to time agree. Such remuneration will accrue from day to day from the date of this Trust Deed. However, if any payment to a Noteholder or Couponholder of moneys due in respect of any Note or Coupon is improperly withheld or refused, such remuneration will again accrue as from the date of such withholding or refusal until payment to such Noteholder or Couponholder is duly made.

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7.2Extra Remuneration: If an Event of Default or Potential Event of Default shall have occurred or if the Trustee finds it expedient or necessary or is requested by the Issuer to undertake duties which they both agree to be of an exceptional nature or otherwise outside the scope of the Trustee’s normal duties under this Trust Deed, the Issuer will pay such additional remuneration as they may agree or, failing agreement as to any of the matters in this sub-Clause (or as to such sums referred to in Clause 7.1), as determined by an investment bank (acting as an expert) selected by the Trustee and approved by the Issuer or, failing such approval, nominated by the President for the time being of The Law Society of England and Wales. The expenses involved in such nomination and such investment bank’s fee will be paid by the Issuer. The determination of such investment bank will be conclusive and binding on the Issuer, the Trustee, the Noteholders and the Couponholders.

7.3Expenses: The Issuer will also on demand by the Trustee pay or discharge all costs, charges, liabilities and expenses properly incurred by the Trustee in the preparation and execution of this Trust Deed and the performance of its functions under this Trust Deed including, but not limited to, legal and travelling expenses and any stamp, documentary or other taxes or duties paid by the Trustee in connection with any legal proceedings reasonably brought or contemplated by the Trustee against the Issuer to enforce any provision of this Trust Deed, the Notes or the Coupons. Such costs, charges, liabilities and expenses will:

7.3.1in the case of payments made by the Trustee before such demand carry interest from the date of the demand at the  rate of one per cent. per annum over the base rate of JPMorgan Chase Bank on the date on which the Trustee made such payments and

7.3.2in other cases carry interest at such rate from 30 days after the date of the demand or (where the demand specifies that payment is to be made on an earlier date) from such earlier date.

7.4Indemnity: The Issuer will on demand by the Trustee indemnify it in respect of Amounts or Claims paid or incurred by it in acting as trustee under this Trust Deed (including (1) any Agent/Delegate Liabilities and (2) in respect of disputing or defending any Amounts or Claims made against the Trustee or any Agent/Delegate Liabilities).  The Issuer will on demand by such agent or delegate indemnify it against such Agent/Delegate Liabilities. “Amounts or Claims” are losses, liabilities, costs, claims, actions, demands or expenses and “Agent/Delegate Liabilities” are Amounts or Claims which the Trustee is or would be obliged to pay or reimburse to any of its agents or delegates appointed pursuant to this Trust Deed. The Contracts (Rights of Third Parties) Act 1999 applies to this Clause 7.4.

7.5Continuing Effect: Clauses 7.3 and 7.4 will continue in full force and effect as regards the Trustee even if it no longer is Trustee.

8              Provisions Supplemental to the Trustee Act 1925 and the Trustee Act 2000

8.1Advice: The Trustee may act on the opinion or advice of, or information obtained from, any expert and will not be responsible to anyone for any loss occasioned by so acting whether such advice is obtained or addressed to the Issuer, the Trustee or any other person. Any such opinion, advice or information may be sent or obtained by letter, telex or fax and the Trustee will not be liable to anyone for acting in good faith on any opinion, advice or information purporting to be conveyed by such means even if it contains some error or is not authentic.

8.2Trustee to Assume Performance: The Trustee need not notify anyone of the execution of this Trust Deed or do anything to find out if an Event of Default or Potential Event of Default has occurred. Until it has actual knowledge or express notice to the contrary, the Trustee may

8

assume that no such event has occurred and that the Issuer is performing all its obligations under this Trust Deed, the Notes and the Coupons.

8.3Resolutions of Noteholders: The Trustee will not be responsible for having acted in good faith on a resolution purporting to have been passed at a meeting of Noteholders in respect of which minutes have been made and signed even if it is later found that there was a defect in the constitution of the meeting or the passing of the resolution or that the resolution was not valid or binding on the Noteholders or Couponholders.

8.4Certificate signed by an Authorised Officer: If the Trustee, in the exercise of its functions, requires to be satisfied or to have information as to any fact or the expediency of any act, it may call for and accept as sufficient evidence of that fact or the expediency of that act a certificate signed by any Authorised Officer of the Issuer as to that fact or to the effect that, in their opinion, that act is expedient and the Trustee need not call for further evidence and will not be responsible for any loss occasioned by acting on such a certificate.

8.5Deposit of Documents: The Trustee may appoint as custodian, on any terms, any bank or entity whose business includes the safe custody of documents or any lawyer or firm of lawyers believed by it to be of good repute and may deposit this Trust Deed and any other documents with such custodian and pay all sums due in respect thereof. The Trustee is not obliged to appoint a custodian of securities payable to bearer.

8.6Discretion: The Trustee will have absolute and uncontrolled discretion as to the exercise of its functions and will not be responsible for any loss, liability, cost, claim, action, demand, expense or inconvenience which may result from their exercise or non-exercise.

8.7Agents: Whenever it considers it expedient in the interests of the Noteholders, the Trustee may, in the conduct of its trust business, instead of acting personally, employ and pay an agent selected by it, whether or not a lawyer or other professional person, to transact or conduct, or concur in transacting or conducting, any business and to do or concur in doing all acts required to be done by the Trustee (including the receipt and payment of money).

8.8Delegation: Whenever it considers it expedient in the interests of the Noteholders, the Trustee may delegate to any person on any terms (including power to sub-delegate) all or any of its functions.

8.9Nominees: In relation to any asset held by it under this Trust Deed, the Trustee may appoint any person to act as its nominee on any terms.

8.10Forged Notes: The Trustee will not be liable to the Issuer or any Noteholder or Couponholder by reason of having accepted as valid or not having rejected any Note or Coupon purporting to be such and later found to be forged or not authentic.

8.11Confidentiality: Unless ordered to do so by a court of competent jurisdiction the Trustee shall not be required to disclose to any Noteholder or Couponholder any confidential financial or other information made available to the Trustee by the Issuer.

8.12Determinations Conclusive: As between itself and the Noteholders and Couponholders the Trustee may determine all questions and doubts arising in relation to any of the provisions of this Trust Deed. Such determinations, whether made upon such a question actually raised or implied in the acts or proceedings of the Trustee, will be conclusive and shall bind the Trustee, the Noteholders and the Couponholders.

8.13Currency Conversion: Where it is necessary or desirable to convert any sum from one currency to another, it will (unless otherwise provided hereby or required by law) be converted

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at such rate or rates, in accordance with such method and as at such date as may reasonably be specified by the Trustee but having regard to current rates of exchange, if available. Any rate, method and date so specified will be binding on the Issuer, the Noteholders and the Couponholders.

8.14Events of Default: The Trustee may determine whether or not an Event of Default or Potential Event of Default is in its opinion capable of remedy and/or materially prejudicial to the interests of the Noteholders. Any such determination will be conclusive and binding on the Issuer, the Noteholders and the Couponholders.

8.15Payment for and Delivery of Notes: The Trustee will not be responsible for the receipt or application by the Issuer of the proceeds of the issue of the Notes, any exchange of Notes or the delivery of Notes to the persons entitled to them.

8.16Notes held by the Issuer etc.: In the absence of knowledge or express notice to the contrary, the Trustee may assume without enquiry (other than requesting a certificate under Clause 6.11) that no Notes are for the time being held by or on behalf of the Issuer or its Subsidiaries.

8.17Responsibility for agents etc.: If the Trustee exercises reasonable care in selecting any custodian, agent, delegate or nominee appointed under this clause (an “Appointee”), it will not have any obligation to supervise the Appointee or be responsible for any loss, liability, cost, claim, action, demand or expense incurred by reason of the Appointee’s misconduct or default or the misconduct or default of any substitute appointed by the Appointee.

9              Trustee Liable for Negligence

Section 1 of the Trustee Act 2000 shall not apply to any function of the Trustee, provided that if the Trustee fails to show the degree of care and diligence required of it as trustee, nothing in this Trust Deed shall relieve or indemnify it from or against any liability which would otherwise attach to it in respect of any negligence, default, breach of duty or breach of trust of which it may be guilty.

10           Waiver and Proof of Default

10.1Waiver: The Trustee may, without the consent of the Noteholders or Couponholders and without prejudice to its rights in respect of any subsequent breach, from time to time and at any time, if in its opinion the interests of the Noteholders will not be materially prejudiced thereby, waive or authorise, on such terms as seem expedient to it, any breach or proposed breach by the Issuer of this Trust Deed or the Conditions or determine that an Event of Default or Potential Event of Default will not be treated as such provided that the Trustee will not do so in contravention of an express direction given by an Extraordinary Resolution or a request made pursuant to Condition 8. No such direction or request will affect a previous waiver, authorisation or determination. Any such waiver, authorisation or determination will be binding on the Noteholders and the Couponholders and, if the Trustee so requires, will be notified to the Noteholders as soon as practicable.

10.2Proof of Default: Proof that the Issuer has failed to pay a sum due to the holder of any one Note or Coupon will (unless the contrary be proved) be sufficient evidence that it has made the same default as regards all other Notes or Coupons which are then payable.

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11            Trustee not Precluded from Entering into Contracts

The Trustee and any other person, whether or not acting for itself, may acquire, hold or dispose of any Note, Coupon or other security (or any interest therein) of the Issuer or any other person, may enter into or be interested in any contract or transaction with any such person and may act on, or as depositary or agent for, any committee or body of holders of any securities of any such person in each case with the same rights as it would have had if the Trustee were not acting as Trustee and need not account for any profit.

12           Modification

The Trustee may agree without the consent of the Noteholders or Couponholders to any modification to this Trust Deed of a formal, minor or technical nature or to correct a manifest error. The Trustee may also so agree to any other modification to this Trust Deed which is in its opinion not materially prejudicial to the interests of the Noteholders, but such power does not extend to any such modification as is mentioned in the proviso to paragraph 2 of Schedule 3.

13           Appointment, Retirement and Removal of the Trustee

13.1Appointment: The Issuer has the power of appointing new trustees but no-one may be so appointed unless previously approved by an Extraordinary Resolution. A trust corporation will at all times be a Trustee and may be the sole Trustee. Any appointment of a new Trustee will be notified by the Issuer to the Noteholders as soon as practicable.

13.2Retirement and Removal: Any Trustee may retire at any time on giving at least three months’ written notice to the Issuer without giving any reason or being responsible for any costs occasioned by such retirement and the Noteholders may by Extraordinary Resolution remove any Trustee provided that the retirement or removal of a sole trust corporation will not be effective until a trust corporation is appointed as successor Trustee. If a sole trust corporation gives notice of retirement or an Extraordinary Resolution is passed for its removal, it will use all reasonable endeavours to procure that another trust corporation be appointed as Trustee.

13.3Co-Trustees: The Trustee may, despite Clause 13.1, by written notice to the Issuer appoint anyone to act as an additional Trustee jointly with the Trustee:

13.3.1     if the Trustee considers the appointment to be in the interests of the Noteholders and/or the Couponholders

13.3.2to conform with a legal requirement, restriction or condition in a jurisdiction in which a particular act is to be performed or

13.3.3     to obtain a judgment or to enforce a judgment or any provision of this Trust Deed in any jurisdiction.

Subject to the provisions of this Trust Deed the Trustee may confer on any person so appointed such functions as it thinks fit. The Trustee may by written notice to the Issuer and that person remove that person. At the Trustee’s request, the Issuer will forthwith do all things as may be required to perfect such appointment or removal and it irrevocably appoints the Trustee as its attorney in its name and on its behalf to do so.

13.4Competence of a Majority of Trustees: If there are more than two Trustees the majority of them will be competent to perform the Trustee’s functions provided the majority includes a trust corporation.

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14           Couponholders

No notices need be given to Couponholders. They will be deemed to have notice of the contents of any notice given to Noteholders. Even if it has express notice to the contrary, in exercising any of its functions by reference to the interests of the Noteholders, the Trustee will assume that the holder of each Note is the holder of all Coupons relating to it.

15           Currency Indemnity

15.1Currency of Account and Payment: Euro or, in relation to Clause 7, U.S. dollars or such other currency as may be agreed between the Issuer and the Trustee from time to time (the “Contractual Currency”) is the sole currency of account and payment for all sums payable by the Issuer under or in connection with this Trust Deed, the Notes and the Coupons, including damages.

15.2Extent of discharge: An amount received or recovered in a currency other than the Contractual Currency (whether as a result of, or of the enforcement of, a judgment or order of a court of any jurisdiction, in the winding-up or dissolution of the Issuer or otherwise), by the Trustee or any Noteholder or Couponholder in respect of any sum expressed to be due to it from the Issuer will only discharge the Issuer to the extent of the Contractual Currency amount which the recipient is able to purchase with the amount so received or recovered in that other currency on the date of that receipt or recovery (or, if it is not practicable to make that purchase on that date, on the first date on which it is practicable to do so).

15.3Indemnity: If that Contractual Currency amount is less than the Contractual Currency amount expressed to be due to the recipient under this Trust Deed, the Notes or the Coupons, the Issuer will indemnify it against any loss sustained by it as a result. In any event, the Issuer will indemnify the recipient against the cost of making any such purchase.

15.4Indemnity separate: The indemnities in this Clause 15 and in Clause 7.4 constitute separate and independent obligations from the other obligations in this Trust Deed, will give rise to a separate and independent cause of action, will apply irrespective of any indulgence granted by the Trustee and/or any Noteholder or Couponholder and will continue in full force and effect despite any judgment, order, claim or proof for a liquidated amount in respect of any sum due under this Trust Deed, the Notes and/or the Coupons or any other judgment or order.

16           Communications

Any communication shall be by letter, telex or fax:

in the case of the Issuer, to it at:

Ecolab Inc.

370 North Wabasha Street

St. Paul, Minnesota

USA 55102-1390

Fax no. +1 651 293 2573

Attention General Counsel

and in the case of the Trustee, to it at:

JPMorgan Chase Bank, London Branch

Trinity Tower

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9 Thomas More Street

London E1W 1YT

Telex no. 8954681 CMBG

Fax no. +44 20 7777 5410

Attention Manager, Trust Administration

Communications will take effect, in the case of delivery, when delivered or, in the case of telex or fax, when despatched. Communications not by letter shall be confirmed by letter but failure to send or receive that letter shall not invalidate the original communication.

17           Further Issues

17.1Supplemental Trust Deed: If the Issuer issues further securities as provided in the Conditions, the Issuer shall, before their issue, execute and deliver to the Trustee a deed supplemental to this Trust Deed containing such provisions (corresponding to any of the provisions of this Trust Deed) as the Trustee may require.

17.2Meetings of Noteholders: If the Trustee so directs, Schedule 3 shall apply equally to Noteholders and to holders of any securities issued pursuant to the Conditions as if references in it to “Notes” and “Noteholders” were also to such securities and their holders respectively.

18           Governing Law and Jurisdiction

18.1        Governing Law: This Trust Deed shall be governed by and construed in accordance with English law.

18.2Jurisdiction: The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Trust Deed, the Notes or the Coupons and accordingly any legal action or proceedings arising out of or in connection with this Trust Deed, the Notes or the Coupons (“Proceedings”) may be brought in such courts. The Issuer irrevocably submits to the jurisdiction of such courts and waives any objections to Proceedings in any such courts on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is for the benefit of each of the Trustee, the Noteholders and the Couponholders and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not).

18.3Service of Process: The Issuer irrevocably appoints The London Law Agency Limited of 84 Temple Chambers, Temple Avenue, London EC4Y 0HP to receive, for it and on its behalf, service of process in any Proceedings in England. Such service shall be deemed completed on delivery to such process agent (whether or not it is forwarded to and received by the Issuer). If for any reason such process agent ceases to be able to act as such or no longer has an address in England the Issuer irrevocably agrees to appoint a substitute process agent acceptable to the Trustee and shall immediately notify the Trustee of such appointment. Nothing shall affect the right to serve process in any other manner permitted by law.

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Schedule 1

Form of Definitive Note

On the front:

Denomination	ISIN	Series	Certif. No.
€[1,000/10,000/100,000]	XS0142794238

ECOLAB INC.

(Incorporated in the State of Delaware)

€300,000,000

5.375% Notes due 2007

This Note forms part of a series designated as specified in the title (the “Notes”) of Ecolab Inc. (the “Issuer”) constituted by the Trust Deed referred to on the reverse hereof. The Notes are subject to, and have the benefit of, that Trust Deed and the terms and conditions (the “Conditions”) set out on the reverse hereof.

This is to certify that the bearer of this Note is entitled on 7 February 2007 or on such earlier date as the principal sum mentioned below may become repayable in accordance with the Conditions, to the principal sum of:

€[1,000 (one thousand euro) 10,000 (ten thousand euro) 100,000 (hundred thousand euro)] together with interest on such principal sum from 7 February 2002 at the rate of 5.375 per cent per annum payable in arrear on 7 February in each year, subject to and in accordance with the Conditions.

This Note shall not be valid or become obligatory for any purpose until authenticated by or on behalf of the Principal Paying Agent.

In witness whereof the Issuer has caused this Note to be signed in facsimile on its behalf.

Dated 7 February 2002

ECOLAB INC.

By:

[Vice President and Treasurer]

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This Note is authenticated by or on behalf of the Principal Paying Agent.

By:

Authorised Signatory

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

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On the back:

Terms and Conditions of the Notes

The issue of the 300,000,000 5.375% Notes due 2007 (the “Notes”, which expression shall in these Conditions, except where the context otherwise requires, include any further series of Notes issued in accordance with Condition 14 and consolidated and forming a single series herewith) of Ecolab Inc. (the “Issuer”) was authorised by a resolution of the Board of Directors of the Issuer on 6th December 2001. The Notes are constituted by a trust deed dated 7th  February 2002 (the “Trust Deed”) between the Issuer and JPMorgan Chase Bank, London Branch as trustee, (the “Trustee”, which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as Trustee for the holders of the Notes (the “Noteholders”). These terms and conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Notes and the coupons relating to them (the “Coupons”). Copies of the Trust Deed and of the paying agency agreement (the “Paying Agency Agreement”) dated 7th  February 2002 between the Issuer, the Trustee and the initial principal paying agent and the paying agents named therein, are available for inspection during usual business hours at the principal office of the Trustee (presently at Trinity Tower, 9 Thomas More Street, London E1W 1YT) and at the specified offices of the principal paying agent for the time being (the “Principal Paying Agent”) and the paying agents for the time being (the “Paying Agents”, which expression shall include the Principal Paying Agent). The Noteholders and the holders of the coupons (whether or not attached to the relevant Notes) (the “Couponholders”) are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have notice of those applicable to them of the Paying Agency Agreement.

1.             Form, Denomination and Title

(a)          Form and denomination

The Notes are serially numbered and in bearer form in the denominations of 1,000, 10,000 and 100,000 each with Coupons attached on issue. Notes of one denomination may not be exchanged for Notes of any other denomination.

(b)          Title

Title to the Notes and Coupons passes by delivery. The holder of any Note or Coupon will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it, any writing on it, or its theft or loss) and no person will be liable for so treating the holder.

2.             Status

The Notes and Coupons constitute (subject to Condition 3) unsecured and unsubordinated obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Notes and Coupons shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 3, at all times rank at least equally with all its other present and future unsecured and unsubordinated obligations.

3.             Negative Pledge

(a)          Restriction

So long as any Note or Coupon remains outstanding (as defined in the Trust Deed) the Issuer will not nor will it permit any Significant Subsidiary (as defined below) to create, assume, incur or suffer to exist any mortgage, pledge, lien, encumbrance, charge or security interest of any kind (each a “Lien”) on any stock or indebtedness, whether owned on the date of the Trust Deed or thereafter acquired, of any Significant Subsidiary to secure any Obligation (as defined below) of the Issuer (other than the Notes), any Significant Subsidiary or any other person, unless, at the same time or prior thereto, the Issuer’s obligations under the Notes and the Coupons and

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the Trust Deed (aa) are secured equally and rateably therewith or benefit from a guarantee or indemnity in substantially identical terms thereto, as the case may be, in each case to the satisfaction of the Trustee, or (bb) have the benefit of such other security, guarantee, indemnity or other arrangement as the Trustee in its absolute discretion shall deem to be not materially less beneficial to the Noteholders or as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders, provided that these restrictions do not apply to:

(i)            any Lien upon stock or indebtedness of a Significant Subsidiary existing at the date of the Trust Deed;

(ii)           any Lien upon stock or indebtedness of any corporation existing at the time it becomes a Significant Subsidiary;

(iii)any Lien existing or created upon stock or indebtedness of a Significant Subsidiary at the time of the acquisition of such stock or indebtedness; and

(iv)any extensions, renewals or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to above, provided that the principal amount of the Obligation secured thereby shall not exceed the principal amount of the Obligation so secured at the time of such extension, renewal or replacement, and provided further, that such Lien be limited to all or such part of the stock or indebtedness which secured the Lien so extended, renewed or replaced.

(b)          Definitions

For the purposes of this Condition,

“Obligation” means every obligation for money borrowed and every obligation evidenced by a bond, note, debenture or other similar instrument;

“Significant Subsidiary” means (1) any Subsidiary of the Issuer which has total assets that constitute at least 10% of the Issuer’s total assets on a consolidated basis determined as of the date of the Issuer’s most recent quarterly consolidated balance sheet or (2) any Subsidiary of the Issuer which had net sales for the three month period ending on the date of the most recent quarterly consolidated statement of income of the Issuer that constituted at least 10% of the Issuer’s net sales on a consolidated basis for such period; and

“Subsidiary” means any corporation of which the Issuer directly or indirectly owns or controls stock which under ordinary circumstances (not dependent upon the happening of a contingency) has the voting power to elect a majority of the board of directors of such corporation.

4.             Interest

The Notes bear interest from 7th  February 2002 at the rate of 5.375% per annum, payable annually in arrear on 7th  February in each year (each an “Interest Payment Date”), commencing on 7th  February 2003. Each Note will cease to bear interest from the due date for redemption unless, upon due presentation, payment of principal is improperly withheld or refused. In such event it shall continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant holder, and (b) the day seven days after the Trustee or the Principal Paying Agent has notified Noteholders of receipt of all sums due in respect of all the Notes up to that seventh day (except to the extent that there is failure in the subsequent payment to the relevant holders under these Conditions).

Where interest is to be calculated in respect of a period which is equal to or shorter than an Interest Period, the day-count fraction used will be the number of days in the relevant period, from and including the date from which interest begins to accrue to but excluding the date on which it falls due, divided by the number of days in the Interest Period in which the relevant period falls (including the first such day but excluding the last). The period beginning on 7th  February 2002 and ending on the first Interest Payment Date and each successive period beginning on an Interest Payment Date and ending on the next succeeding Interest Payment Date is called an “Interest Period”.

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5.             Redemption and Purchase

(a)          Final redemption

Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed at their principal amount on 7th  February 2007. The Notes may not be redeemed at the option of the Issuer other than in accordance with this Condition 5.

(b)          Redemption for taxation reasons

The Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time, on giving not less than 30 nor more than 60 days’ notice to the Noteholders (which notice shall be irrevocable and shall be given in accordance with Condition 15), at their principal amount (together with interest accrued to the date fixed for redemption) if (i) the Issuer satisfies the Trustee immediately prior to the giving of such notice that it has or will become obliged to pay additional amounts as provided or referred to in Condition 7 as a result of any change in, or amendment to, the laws or regulations of the United States or any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after 6th  February 2002, and (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it; provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of the Notes then due. Prior to the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver to the Trustee (1) a certificate signed by an authorised officer of the Issuer stating that the obligation referred to in (i) above cannot be avoided by the Issuer taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence to the satisfaction of the condition precedent set out in (ii) above, in which event it shall be conclusive and binding on the Noteholders and the Couponholders.

(c)           Notice of redemption

All Notes in respect of which any notice of redemption is given under this Condition shall be redeemed on the date specified in such notice in accordance with this Condition.

(d)          Purchase

The Issuer and any of its Subsidiaries (as defined below) may at any time purchase Notes in the open market or otherwise at any price (provided that they are purchased together with all unmatured Coupons relating to them). Any purchase by tender shall be made available to all Noteholders alike. The Notes so purchased, while held by or on behalf of the Issuer or any such Subsidiary, shall not entitle the holder to vote at any meetings of the Noteholders and shall not be deemed to be outstanding for the purposes of calculating quorums at meetings of the Noteholders or for the purposes of Condition 11(a). For the purpose of these Conditions, “Subsidiary” shall mean any corporation of which the Issuer directly or indirectly owns or controls stock which under ordinary circumstances (not dependent upon the happening of a contingency) has the voting power to elect a majority of the board of directors of such corporation.

(e)           Cancellation

All Notes so redeemed or purchased and any unmatured Coupons attached to or surrendered with them will be cancelled and may not be re-issued or resold.

6.             Payments

(a)          Method of Payment

Payments of principal and interest will be made against presentation and surrender of Notes or the appropriate Coupons (as the case may be and subject as provided below) at the specified office of any Paying Agent outside the United States by Euro cheque drawn on or (at the option of the payee) by transfer to a Euro account outside

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the United States or any other account outside the United States to which Euro may be credited or transferred maintained by the payee.

(b)          Payments subject to laws

All payments are subject in all cases to any applicable fiscal or other law, regulations and directives in the place of payment, but without prejudice to the provisions of Conditions 7 and 8. No commissions or expenses shall be charged to the Noteholders or Couponholders in respect of such payments.

(c)           Surrender of unmatured Coupons

Each Note should be presented for redemption together with all unmatured Coupons relating to it, failing which the amount of any such missing unmatured Coupon (or, in the case of payment not being made in full, that proportion of the amount of such missing unmatured Coupon which the sum of principal so paid bears to the total principal amount due) will be deducted from the sum due for payment. Each amount of principal so deducted will be paid in the manner mentioned above against surrender of the relevant missing Coupon not later than 10 years after the Relevant Date (as defined in Condition 7) for the relevant payment of principal.

(d)          Payments on business days

If the due date for payment of any amount of principal or interest in respect of any Note or Coupon is not at any place for payment a Business Day (as defined below), then the holder thereof shall not be entitled to payment of the amount due at that place of payment until the next following Business Day at that place of payment and shall not be entitled to any further interest or other payment in respect of any such delay.

(e)           Paying Agents

The initial Paying Agents and their initial specified offices are listed below. The Issuer reserves the right at any time to vary or terminate the appointment of any Paying Agent and appoint additional or other paying agents, provided that it will maintain (i) a Principal Paying Agent, (ii) Paying Agents having specified offices in at least two major European cities approved by the Trustee (including Luxembourg, so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require) and (iii) a Paying Agent with a specified office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26-27th November 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive. Notice of any change in the Paying Agents or their specified offices will promptly be given to the Noteholders in accordance with Condition 15.

In this Condition,  “Business Day” means any day (not being a Saturday or a Sunday) on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is operating.

7.             Taxation

All payments of principal and interest by or on behalf of the Issuer in respect of the Notes and the Coupons shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the United States or any authority therein or thereof having power to tax, unless such withholding or deduction is required by law. In that event the Issuer shall pay such additional amounts as will result in receipt by the Noteholders and the Couponholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable in respect of any Note or Coupon presented for payment:

(a)by or on behalf of a holder who is liable to such taxes, duties, assessments or governmental charges in respect of such Note or Coupon by reason of his having some connection with the United States other than the mere holding of the Note or Coupon; or

(b)more than 30 days after the Relevant Date except to the extent that the holder of it would have been entitled to such additional amounts on presenting such Note or Coupon for payment on the last day of such period of 30 days; or

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(c)where such tax, duty, assessment or other governmental charge is an estate, inheritance, gift, sales, transfer or personal property tax or any similar tax assessment or governmental charge; or

(d)where such tax, duty, assessment or other governmental charge would not have been imposed but for the failure of the Noteholder or Couponholder to comply with certification, information or other reporting requirements concerning the nationality, residence or identity of such Noteholder or Couponholder, if such compliance is required by statute or by regulation of the United States or of any political subdivision or taxing authority thereof or therein as a precondition to relief or exemption from such tax, duty, assessment or other governmental charge; or

(e)where such tax, duty, assessment or other governmental charge is payable otherwise than by withholding from payments on or in respect of a Note or Coupon; or

(f)where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the ECOFIN Council meeting of 26-27th November 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive; or

(g)by or on behalf of a Noteholder or a Couponholder who would have been able to avoid such withholding or deduction by presenting the relevant Note or Coupon to another Paying Agent in a Member State of the European Union.

“Relevant Date” means whichever is the later of (i) the date on which such payment first becomes due and (ii) if the full amount payable has not been received by the Principal Paying Agent or the Trustee on or prior to such due date, the date on which, the full amount having been so received, notice to that effect shall have been given to the Noteholders in accordance with Condition 15. Any reference in these Conditions to principal and/or interest shall be deemed to include any additional amounts which may be payable under this Condition or any undertaking given in addition to or substitution for it under the Trust Deed.

If the Issuer becomes subject at any time to any taxing jurisdiction other than the United States, references in this Condition 7 to the United States shall be construed as references to the United States and such other jurisdiction.

8.             Events of Default

If any of the following events (each an “Event of Default”) occurs and is continuing and has not been remedied or waived, the Trustee at its discretion may, and if so requested by the holders of at least one-quarter in principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution (as defined in the Trust Deed) shall (subject in each case to it being indemnified to its satisfaction), give notice to the Issuer that the Notes are, and they shall immediately become, due and payable at their principal amount together with accrued interest:

(a)           the Issuer fails to pay any interest on any of the Notes when due and such failure continues for a period of 15 days; or

(b)the Issuer does not perform or comply with any one or more of its other obligations under the Notes or the Trust Deed which default is incapable of remedy or, if in the opinion of the Trustee capable of remedy, is not in the opinion of the Trustee remedied within 60 days after notice of such default shall have been given to the Issuer by the Trustee; or

(c)(i) any other present or future indebtedness of the Issuer or any of its Significant Subsidiaries (as defined in Condition 3(b)) for or in respect of moneys borrowed or raised becomes due and payable prior to its stated maturity by reason of any actual default, event of default or the like (howsoever described), or (ii) any such indebtedness is not paid when due or, as the case may be, within any applicable grace period, or (iii) the Issuer or any Significant Subsidiaries fails to pay when due (or within any applicable grace period) any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised, provided that the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned above in this paragraph (c) have occurred equals or exceeds U.S.$50,000,000 or its equivalent (as determined by the Trustee); or

(d)the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Issuer in an involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganisation or other similar law or (ii) a decree or order adjudging the Issuer a bankrupt or insolvent, or approving as properly filed a petition seeking reorganisation, arrangement, adjustment or composition of, or in respect

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of, the Issuer under any applicable law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Issuer or substantially all of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or

(e)the commencement by the Issuer of a voluntary case or proceeding under any applicable bankruptcy, insolvency, reorganisation or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Issuer in an involuntary case or proceeding under any applicable bankruptcy, insolvency, reorganisation or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganisation or relief under any applicable law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Issuer or of substantially all of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Issuer in furtherance of any such action,

provided that, in the case of paragraph (b), the Trustee shall have certified that, in its opinion, such event is materially prejudicial to the interests of the Noteholders.

9.             Prescription

Claims in respect of principal and interest will become void unless presentation for payment is made as required by Condition 5 within a period of 10 years in the case of principal and 5 years in the case of interest from the appropriate Relevant Date.

10.          Replacement of Notes and Coupons

If any Note or Coupon is lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Principal Paying Agent subject to all applicable laws and stock exchange or other relevant authority requirements, upon payment by the claimant of the expenses incurred in connection with such replacement and on such terms as to evidence, security, indemnity and otherwise as the Issuer may require (provided that the requirement is reasonable in the light of prevailing market practice). Mutilated or defaced Notes or Coupons must be surrendered before replacements will be issued.

11.           Meetings of Noteholders and Modification

(a)          Meetings of Noteholders

The Trust Deed contains provisions for convening meetings of Noteholders to consider matters affecting their interests, including the sanctioning by Extraordinary Resolution (as defined in the Trust Deed) of a modification of any of these Conditions or any provisions of the Trust Deed. Such a meeting may be convened by the Issuer and shall be convened by it upon the request in writing of Noteholders holding not less than 10% in principal amount of the Notes for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution will be two or more persons holding or representing a clear majority in principal amount of the Notes for the time being outstanding, or, at any adjourned meeting, two or more persons being or representing Noteholders whatever the principal amount of the Notes held or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity of the Notes or the dates on which interest is payable in respect of the Notes, (ii) to reduce or cancel the principal amount of or interest on or to vary the method of calculating the rate of interest on, the Notes, (iii) to change the currency of payment of the Notes or the Coupons, or (iv) to modify the provisions concerning the quorum required at any meeting of Noteholders or the majority required to pass an Extraordinary Resolution in which case the necessary quorum will be two or more persons holding or representing not less than 75%, or at any adjourned meeting not less than 25%, in principal amount of the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on Noteholders (whether or not they were present at the meeting at which such resolution was passed) and on all Couponholders.

In addition, a resolution in writing signed by or on behalf of all Noteholders who for the time being are entitled to receive notice of a meeting of Noteholders will take effect as if it was an Extraordinary Resolution. Such a

21

resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.

(b)          Modification

The Trustee may agree, without the consent of the Noteholders or Couponholders, to (i) any modification of the Trust Deed which is of a formal, minor or technical nature or is made to correct a manifest error, and (ii) any other modification (except as mentioned in the Trust Deed), and any waiver or authorisation of any breach or proposed breach, of any of the provisions of the Trust Deed which is in the opinion of the Trustee not materially prejudicial to the interests of the Noteholders. Any such modification, authorisation or waiver shall be binding on the Noteholders and the Couponholders and, if the Trustee so requires, such modification shall be notified to the Noteholders as soon as practicable.

(c)           Entitlement of the Trustee

In connection with the exercise of its functions (including but not limited to those referred to in this Condition) the Trustee shall have regard to the interests of the Noteholders as a class and shall not have regard to the consequences of such exercise for individual Noteholders or Couponholders and the Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders.

12.          Enforcement

At any time after the Notes become due and payable, the Trustee may, at its discretion and without further notice, institute such proceedings against the Issuer as it may think fit to enforce the terms of the Trust Deed, the Notes and the Coupons, but it need not take any such proceedings unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least one-quarter in principal amount of the Notes outstanding, and (b) it shall have been indemnified to its satisfaction. No Noteholder or Couponholder may proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.

13.          Indemnification of Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility. The Trustee is entitled to enter into business transactions with the Issuer and any entity related to the Issuer without accounting for any profit.

14.          Further Issues

The Issuer may from time to time without the consent of the Noteholders or Couponholders create and issue further securities either having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest on them) and so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Notes) or upon such terms as the Issuer may determine at the time of their issue. References in these Conditions to the Notes include (unless the context requires otherwise) any other securities issued pursuant to this Condition and forming a single series with the Notes. Any further securities forming a single series with the outstanding securities of any series (including the Notes) constituted by the Trust Deed or any deed supplemental to it shall, and any other securities may (with the consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of securities of other series where the Trustee so decides.

15.          Notices

Notices to Noteholders will be valid if published in a leading newspaper having general circulation in London (which is expected to be the Financial Times) and (so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of that stock exchange so require) in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort) or, if in the opinion of the Trustee such publication is not practicable, in an English language newspaper of general circulation in Europe. Any such notice shall be

22

deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which publication is made. Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Noteholders in accordance with this Condition.

16.          Contracts (Rights of Third Parties) Act 1999

No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.

17.          Governing Law

(a)          Governing Law

The Trust Deed, the Notes and the Coupons are governed by and shall be construed in accordance with English law.

(b)          Jurisdiction

The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Notes the Coupons and accordingly any legal action or proceedings arising out of or in connection with the Notes or the Coupons (“Proceedings”) may be brought in such courts. The Issuer has in the Trust Deed irrevocably submitted to the jurisdiction of such courts and waives any objection to Proceedings in such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is made for the benefit of each of the Noteholders and Couponholders and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not).

(c)           Agent for Service of Process

The Issuer irrevocably appoints The London Law Agency Limited of 84 Temple Chambers, Temple Avenue, London EC4Y 0HP as its agent in England to receive service of process in any Proceedings in England based on any of the Notes or the Coupons. If for any reason the Issuer does not have such an agent in England, it will promptly appoint a substitute process agent and notify the Noteholders of such appointment. Nothing herein shall affect the right to serve process in any other manner permitted by law.

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PRINCIPAL PAYING AGENT

JPMorgan Chase Bank, London Branch

at Trinity Tower

9 Thomas More Street

London E1W 1YT

PAYING AGENTS

J.P. Morgan Bank Luxembourg S.A.

5 Rue Plaetis

L-2338 Luxembourg

Grand Duchy of Luxembourg

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Form of Coupon

On the front:

ECOLAB INC.

€300,000,000 5.375 per cent Notes due 2007

Coupon for €[1,000,10,000,100,000].

This Coupon is payable to bearer (subject to the Conditions endorsed on the Note to which this Coupon relates, which shall be binding upon the holder of this Coupon whether or not it is for the time being attached to such Note) at the specified offices of the Paying Agents set out on the reverse hereof (or any further or other Paying Agents or specified offices duly appointed or nominated and notified to the Noteholders).

If the Note to which this Coupon relates shall have become due and payable before the maturity date of this Coupon, this Coupon shall become void and no payment shall be made in respect of it.

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

ECOLAB INC.

By:

[Vice President and Treasurer]

Cp No.	Denomination	ISIN	Series	Certif. No.
	€[1,000/10,000/100,000]	XS0142794238

On the back:

PRINCIPAL PAYING AGENT

JPMorgan Chase Bank, London Branch

at Trinity Tower

9 Thomas More Street

London E1W 1YT

PAYING AGENTS

J.P. Morgan Bank Luxembourg S.A.

5 Rue Plaetis

L-2338 Luxembourg

Grand Duchy of Luxembourg

25

Schedule 2

Part 1

Form of Temporary Global Note

ISIN: XS0142794238

ECOLAB INC.

(Incorporated in the state of Delaware)

€300,000,000

5.375 per cent Notes due 2007

Temporary Global Note

This is to certify that the bearer is entitled to the sum of

THREE HUNDRED MILLION EURO (€300,000,000)

on 7 February 2007 (or such earlier date as such principal sum may become payable in accordance with the Trust Deed (as defined below) and with the terms and conditions (the “Conditions”) of the Notes designated above (the “Notes”) set out in Schedule 1 to the trust deed dated 7 February 2002 (the “Trust Deed”) between Ecolab Inc. (the “Issuer”) and JPMorgan Chase Bank, London Branch as trustee) upon presentation and surrender of this Temporary Global Note and to interest at the rate of 5.375 per cent per annum in arrear on 7 February in each year in accordance with the Conditions.

On or after 20 March 2002 (the “Exchange Date”) this Temporary Global Note may be exchanged in whole or part (free of charge to the holder) by its presentation and, on exchange in full, surrender to or to the order of the Principal Paying Agent for interests in a permanent Global Note (the “Permanent Global Note”) in bearer form in an aggregate principal amount equal to the principal amount of this Temporary Global Note submitted for exchange with respect to which there shall be presented to the Principal Paying Agent a certificate dated no earlier than the Exchange Date from Euroclear Bank S.A./N.V. as operator of the Euroclear System (“Euroclear”) or Clearstream Banking, société anonyme (“Clearstream, Luxembourg”) substantially to the following effect:

“CERTIFICATE

ECOLAB INC.

€300,000,000

5.375 per cent Notes due 2007

Common Code 014279423 ISIN XS0142794238

(the “Notes”)

This is to certify that, based solely on certificates we have received in writing, by tested telex or by electronic transmission from member organisations appearing in our records as persons being entitled to a portion of the principal amount set out below (our “Member Organisations”) substantially to the effect set out in the temporary global Note in respect of the Notes, as of the date hereof, €300,000,000 principal amount of the Notes (1) is owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source (“United States persons”), (2) is owned by United States persons that (a) are foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(iv) (“financial institutions”)) purchasing for their own account or for resale, or (b) acquired the Notes through foreign branches of United States financial institutions and who hold the Notes through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial

26

institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer’s agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (3) is owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7), and to the further effect that United States or foreign financial institutions described in clause (3) above (whether or not also described in clause (1) or (2)) have certified that they have not acquired the Notes for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.

We further certify (1) that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of such temporary global Note excepted in such certificates and (2) that as of the date hereof we have not received any notification from any of our Member Organisations to the effect that the statements made by such Member Organisation with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as of the date hereof.

We understand that this certificate is required in connection with certain tax laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorise you to produce this certificate to any interested party in such proceedings.

Yours faithfully

[EUROCLEAR BANK S.A./N.V. as operator of the Euroclear System] or [CLEARSTREAM BANKING, SOCIÉTÉ ANONYME]

By: Dated: "

Any person appearing in the records of Euroclear or Clearstream, Luxembourg as entitled to an interest in this Temporary Global Note may require the exchange of an appropriate part of this Temporary Global Note for an equivalent interest in the Permanent Global Note by delivering or causing to be delivered to Euroclear or Clearstream, Luxembourg a certificate dated not more than 15 days before the Exchange Date in substantially the following form (copies of which will be available at the office of Euroclear in Brussels and Clearstream, Luxembourg in Luxembourg):

27

“CERTIFICATE

ECOLAB INC.

€300,000,000

5.375 per cent Notes due 2007

Common Code 014279423 ISIN XS0142794238 (the “Notes”)

To:                 Euroclear Bank S.A./N.V. as operator of the Euroclear System or Clearstream Banking, société anonyme

This is to certify that as of the date hereof, and except as set out below, the Notes held by you for our account (1) are owned by person(s) that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source (“United States person(s)”), (2) are owned by United States person(s) that (a) are foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1.165-12(c)(1)(iv) (“financial institutions”)) purchasing for their own account or for resale, or (b) acquired the Notes through foreign branches of United States financial institutions and who hold the Notes through such United States financial institutions on the date hereof (and in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise the Issuer or the Issuer’s agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (3) are owned by United States or foreign financial institution(s) for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition if the owner of the Notes is a United States or foreign financial institution described in clause (3) above (whether or not also described in clause (1) or (2)) this is to further certify that such financial institution has not acquired the Notes for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.

As used herein, “United States” means the United States of America (including the States and the District of Columbia) and its “possessions” include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.

We undertake to advise you promptly by tested telex on or prior to that date on which you intend to submit your certificate relating to the Notes held by you for our account in accordance with your documented procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certificate applies as of such date.

This certificate excepts and does not relate to €[•] principal amount of such interest in the Notes in respect of which we are not able to certify and as to which we understand exchange for an equivalent interest in the Global Note (or, if relevant, exercise of any rights or collection of any interest) cannot be made until we do so certify.

We understand that this certificate is required in connection with certain tax laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorise you to produce this certificate to any interested party in such proceeding.

Dated:

By:

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[Name of person giving certificate]

As, or as agent for the beneficial owner(s) of the above Notes to which this certificate relates.”

Upon any exchange of a part of this Temporary Global Note for an equivalent interest in the Permanent Global Note, the portion of the principal amount hereof so exchanged shall be endorsed by or on behalf of the Principal Paying Agent in the Schedule hereto, whereupon the principal amount hereof shall be reduced for all purposes by the amount so exchanged and endorsed.

The Permanent Global Note will be exchangeable in accordance with its terms for definitive Notes (the “Definitive Notes”) in bearer form with Coupons attached.

This Temporary Global Note is subject to the Conditions and the Trust Deed and until the whole of this Temporary Global Note shall have been exchanged for equivalent interests in the Permanent Global Note its holder shall be entitled to the same benefits as if he were the holder of the Permanent Global Note for interests in which it may be exchanged (or the relevant part of it as the case may be) except that (unless exchange of this Temporary Global Note for the relevant interest in the Permanent Global Note shall be improperly withheld or refused by or on behalf of the Issuer) no person shall be entitled to receive any payment on this Temporary Global Note.

This Temporary Global Note shall not be valid or become obligatory for any purpose until authenticated by or on behalf of the Principal Paying Agent.

This Temporary Global Note shall be governed by and construed in accordance with English law. In witness whereof the Issuer has caused this Temporary Global Note to be signed on its behalf.

Dated 7 February 2002

ECOLAB INC.

By:

This Temporary Global Note is authenticated by or on behalf of the Principal Paying Agent.

By:

Authorised Signatory

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

29

Schedule of Exchanges for Interests in the Permanent Global Note

The following exchanges of an interest in this Temporary Global Note for an interest in the Permanent Global Note have been made:

Date of Exchange Amount of decrease in principal amount of this Temporary Global Note Principal amount of this Temporary Global Note following such decrease Notation made by or on behalf of the Principal Paying Agent

30

Schedule 2

Part 2

Form of Permanent Global Note

ISIN: XS0142794238

ECOLAB INC.

(Incorporated in the state of Delaware)

€300,000,000

5.375 per cent Notes due 2007

Global Note

This is to certify that the bearer is entitled to a principal sum not exceeding

THREE HUNDRED MILLION EURO (€300,000,000)

On 7 February 2007 (or such earlier date as such principal sum may become payable in accordance with the terms and conditions (the “Conditions”) of the Notes designated above (the “Notes”) set out in Schedule 1 to the Trust Deed dated 7 February 2002 (the “Trust Deed”) between Ecolab Inc. (the “Issuer”) and JPMorgan Chase Bank, London Branch as trustee (the “Trustee”)) upon presentation and surrender of this Permanent Global Note and to interest at the rate of 5.375 per cent per annum in arrear on 7 February in each year in accordance with the Conditions.

The aggregate principal amount from time to time of this Permanent Global Note shall be that amount not exceeding €300,000,000 as shall be shown by the latest entry in the fourth column of Schedule A hereto, which shall be completed by or on behalf of the Principal Paying Agent upon exchange of the whole or a part of the Temporary Global Note initially representing the Notes for a corresponding interest herein or upon the redemption or purchase and cancellation of Notes represented hereby or exchanged for Definitive Notes as described below.

This Permanent Global Note is exchangeable in whole but not in part (free of charge to the holder) for the Definitive Notes described below (1) if this Permanent Global Note is held on behalf of Euroclear or Clearstream, Luxembourg or the Alternative Clearing System (each as defined under “Notices” below) and any such clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, (2) if any holder of an interest in this Permanent Global Note makes a written request for such exchange to the Principal Paying Agent or (3) if the Issuer would suffer a material disadvantage in respect of the Notes as a result of a change in the laws or regulations (taxation or otherwise) of any jurisdiction referred to in Condition 7 which would not be suffered were the Notes in definitive form and a certificate to such effect signed by an authorised officer of the Issuer is delivered to the Trustee by the Issuer) giving notice to the Principal Paying Agent and the Noteholders, of its intention to exchange this Permanent Global Note for Definitive Notes on or after the Exchange Date specified in the notice.

On or after the Exchange Date (as defined below) the holder of this Permanent Global Note may surrender this Permanent Global Note to or to the order of the Principal Paying Agent. In exchange for this Permanent Global Note, the Issuer shall deliver, or procure the delivery of, an equal aggregate principal amount of duly executed and authenticated Definitive Notes (having attached to them all Coupons in respect of interest which has not already been paid on this Permanent Global Note) security printed in accordance with any applicable legal and stock exchange requirements and in or substantially in the form set out in Schedule 1 to the Trust Deed. On exchange in full of the Global

31

Note, the Issuer will procure that it is cancelled. Exchange will be made in accordance with the rules and regulations of Euroclear and/or Clearstream, Luxembourg, as applicable.

“Exchange Date” means a day falling not less than 60 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Principal Paying Agent is located and except in the case of exchange pursuant to (1) above in the cities in which Euroclear and Clearstream, Luxembourg or, if relevant, the Alternative Clearing System (each as defined under “Notices” below) are located.

Except as otherwise described herein, this Permanent Global Note is subject to the Conditions and the Trust Deed and, until it is exchanged for Definitive Notes, its holder shall be entitled to the same benefits as if it were the holder of the Definitive Notes for which it may be exchanged and as if such Definitive Notes had been issued on the date of this Permanent Global Note.

The Conditions shall be modified with respect to Notes represented by this Permanent Global Note by the following provisions:

Payments

Principal and interest in respect of this Permanent Global Note shall be paid to its holder against presentation and (if no further payment falls to be made on it) surrender of it to or to the order of the Principal Paying Agent in respect of the Notes (or to or to the order of such other Paying Agent as shall have been notified to the Noteholders for this purpose) which shall endorse such payment or cause such payment to be endorsed in the appropriate Schedule hereto (such endorsement being prima facie evidence that the payment in question has been made). References in the Conditions to Coupons and Couponholders shall be construed accordingly. No person shall however be entitled to receive any payment on this Permanent Global Note falling due after the Exchange Date, unless exchange of this Permanent Global Note for Definitive Notes is improperly withheld or refused by or on behalf of the Issuer.

Notices

So long as this Permanent Global Note is held on behalf of Euroclear Bank S.A./N.V. as operator of the Euroclear System (“Euroclear”) or Clearstream Banking, société anonyme (“Clearstream, Luxembourg”) or such other clearing system as shall have been approved by the Trustee (the “Alternative Clearing System”), notices required to be given to Noteholders may be given by their being delivered to Euroclear and Clearstream, Luxembourg or, as the case may be, the Alternative Clearing System, rather than by publication as required by the Conditions, except that, so long as the Notes are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, notices shall also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).

Prescription

Claims against the Issuer in respect of principal and interest in respect of this Permanent Global Note will become void unless it is presented for payment within a period of 10 years (in the case of principal) and 5 years (in the case of interest) from the appropriate Relevant Date (as defined in Condition 7).

Meetings

The holder hereof shall (unless this Permanent Global Note represents only one Note) be treated as being two persons for the purposes of any quorum requirements of, or the right to demand a poll at, a meeting of Noteholders and, at any such meeting, as having one vote in respect of each €1,000 principal amount of Notes for which this Permanent Global Note may be exchanged.

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Purchase and Cancellation

Cancellation of any Note represented by this Permanent Global Note which is required by the Conditions to be cancelled will be effected by reduction in the principal amount of this Permanent Global Note on its presentation to or to the order of the Principal Paying Agent for notation in Schedule A. Notes may only be purchased by the Issuer or any of its Subsidiaries if (where they should be cancelled in accordance with the Conditions) when they are purchased together with the right to receive interest therein.

Trustee’s Powers

In considering the interests of Noteholders in circumstances where this Permanent Global Note is held on behalf of any one or more of Euroclear, Clearstream, Luxembourg and an Alternative Clearing System, the Trustee may, to the extent it considers it appropriate to do so in the circumstances, (a) have regard to such information as may have been made available to it by or on behalf of the relevant clearing system or its operator as to the identity of its accountholders (either individually or by way of category) with entitlements in respect of this Permanent Global Note and (b) consider such interests on the basis that such accountholders were the holder of this Permanent Global Note.

This Permanent Global Note shall not be valid or become obligatory for any purpose until authenticated by or on behalf of the Principal Paying Agent.

This Permanent Global Note is governed by and shall be construed in accordance with English law.

In witness whereof the Issuer has caused this Permanent Global Note to be signed on its behalf.

Dated 7 February 2002

ECOLAB INC.

By:

This Permanent Global Note is authenticated by or on behalf of the Principal Paying Agent.

By:

Authorised Signatory

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

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Schedule A

Principal Amount of this Permanent Global Note

The aggregate principal amount of this Permanent Global Note is as shown by the latest entry made by or on behalf of the Principal Paying Agent in the fourth column below. Increases in the principal amount of this Permanent Global Note following exchanges of a part of the Temporary Global Note for interests in this Permanent Global Note and reductions in the principal amount of this Permanent Global Note following redemption or the purchase and cancellation of Notes are entered in the second and third columns below.

Date	Reason for change in the principal amount of this Permanent Global Note	Amount of such change	Initial principal amount and principal amount of this Permanent Global Note following such change	Notation made by or on behalf of the Principal Paying Agent (other than in respect of the initial principal amount)
7 February 2002	Not applicable	Not applicable	€ Zero	Not applicable

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Schedule B

Interest Payments in respect of this Permanent Global Note

The following payments of interest in respect of this Permanent Global Note and the Notes represented by this Permanent Global Note have been made:

Date made Amount of interest due and payable Amount of interest paid Notation made by or on behalf of the Principal Paying Agent

35

Schedule 3

Provisions for Meetings of Noteholders

Interpretation

1              In this Schedule:

1.1          references to a meeting are to a meeting of Noteholders and include, unless the context otherwise requires, any adjournment

1.2          “agent” means a holder of a voting certificate or a proxy for a Noteholder

1.3          “block voting instruction” means an instruction issued in accordance with paragraphs 8 to 14

1.4“Extraordinary Resolution” means a resolution passed at a meeting duly convened and held in accordance with this Trust Deed by a majority of at least 75 per cent of the votes cast

1.5          “voting certificate” means a certificate issued in accordance with paragraphs 5, 6, 7 and 14 and

1.6references to persons representing a proportion of the Notes are to Noteholders or agents holding or representing in the aggregate at least that proportion in principal amount of the Notes for the time being outstanding.

Powers of meetings

2A meeting shall, subject to the Conditions and without prejudice to any powers conferred on other persons by this Trust Deed, have power by Extraordinary Resolution:

2.1to sanction any proposal by the Issuer or the Trustee for any modification, abrogation, variation or compromise of, or arrangement in respect of, the rights of the Noteholders and/or the Couponholders against the Issuer, whether or not those rights arise under this Trust Deed

2.2to sanction the exchange or substitution for the Notes of, or the conversion of the Notes into, shares, Notes or other obligations or securities of the Issuer or any other entity

2.3          to assent to any modification of this Trust Deed, the Notes or the Coupons proposed by the Issuer or the Trustee

2.4          to authorise anyone to concur in and do anything necessary to carry out and give effect to an Extraordinary Resolution

2.5          to give any authority, direction or sanction required to be given by Extraordinary Resolution

2.6to appoint any persons (whether Noteholders or not) as a committee or committees to represent the Noteholders’ interests and to confer on them any powers or discretions which the Noteholders could themselves exercise by Extraordinary Resolution

2.7          to approve a proposed new Trustee and to remove a Trustee

2.8to approve the substitution of any entity for the Issuer (or any previous substitute) as principal debtor or guarantor under this Trust Deed and

2.9to discharge or exonerate the Trustee from any liability in respect of any act or omission for which it may become responsible under this Trust Deed, the Notes or the Coupons

provided that the special quorum provisions in paragraph 19 shall apply to any Extraordinary Resolution (a “special quorum resolution”) for the purpose of sub-paragraph 2.2 or 2.8 or for

36

the purpose of making a modification to this Trust Deed, the Notes or the Coupons which would have the effect of:

(i)            modifying the maturity of the Notes or the dates on which interest is payable on them or

(ii)reducing or cancelling the principal amount of, or interest on, or varying the method of calculating the rate of interest on, the Notes or

(iii)          changing the currency of payment of the Notes or the Coupons or

(iv)modifying the provisions in this Schedule concerning the quorum required at any meeting of Noteholders or the majority required to pass an Extraordinary Resolution or

(v)           amending this proviso.

Convening a meeting

3The Issuer or the Trustee may at any time convene a meeting. If it receives a written request by Noteholders holding at least 10 per cent in principal amount of the Notes for the time being outstanding and is indemnified to its satisfaction against all costs and expenses, the Trustee shall convene a meeting. Every meeting shall be held at a time and place approved by the Trustee.

4At least 21 days’ notice (exclusive of the day on which the notice is given and of the day of the meeting) shall be given to the Noteholders. A copy of the notice shall be given by the party convening the meeting to the other parties. The notice shall specify the day, time and place of meeting and, unless the Trustee otherwise agrees, the nature of the resolutions to be proposed and shall explain how Noteholders may appoint proxies or representatives, obtain voting certificates and use block voting instructions and the details of the time limits applicable.

Arrangements for voting

5If a holder of a Note wishes to obtain a voting certificate in respect of it for a meeting, he must deposit it for that purpose at least 48 hours before the time fixed for the meeting with a Paying Agent or to the order of a Paying Agent with a bank or other depositary nominated by the Paying Agent for the purpose. The Paying Agent shall then issue a voting certificate in respect of it.

6              A voting certificate shall:

6.1          be a document in the English language

6.2          be dated

6.3          specify the meeting concerned and the serial numbers of the Notes deposited and

6.4          entitle, and state that it entitles, its bearer to attend and vote at that meeting in respect of those Notes.

7Once a Paying Agent has issued a voting certificate for a meeting in respect of a Note, it shall not release the Note until either:

7.1          the meeting has been concluded or

7.2          the voting certificate has been surrendered to the Paying Agent.

8If a holder of a Note wishes the votes attributable to it to be included in a block voting instruction for a meeting, then, at least 48 hours before the time fixed for the meeting, (i) he must deposit the Note for that purpose with a Paying Agent or to the order of a Paying Agent with a bank or other depositary nominated by the Paying Agent for the purpose and (ii) he or a duly authorised

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person on his behalf must direct the Paying Agent how those votes are to be cast. The Paying Agent shall issue a block voting instruction in respect of the votes attributable to all Notes so deposited.

9              A block voting instruction shall:

9.1          be a document in the English language

9.2          be dated

9.3          specify the meeting concerned

9.4list the total number and serial numbers of the Notes deposited, distinguishing with regard to each resolution between those voting for and those voting against it

9.5certify that such list is in accordance with Notes deposited and directions received as provided in paragraphs 8, 11 and 14 and

9.6appoint a named person (a “proxy”) to vote at that meeting in respect of those Notes and in accordance with that list. A proxy need not be a Noteholder.

10Once a Paying Agent has issued a block voting instruction for a meeting in respect of the votes attributable to any Notes:

10.1it shall not release the Notes, except as provided in paragraph 11, until the meeting has been concluded and

10.2the directions to which it gives effect may not be revoked or altered during the 48 hours before the time fixed for the meeting.

11If the receipt for a Note deposited with a Paying Agent in accordance with paragraph 8 is surrendered to the Paying Agent at least 48 hours before the time fixed for the meeting, the Paying Agent shall release the Note and exclude the votes attributable to it from the block voting instruction.

12Each block voting instruction shall be deposited at least 24 hours before the time fixed for the meeting at such place as the Trustee shall designate or approve, and in default it shall not be valid unless the chairman of the meeting decides otherwise before the meeting proceeds to business. If the Trustee requires, a notarially certified copy of each block voting instruction shall be produced by the proxy at the meeting but the Trustee need not investigate or be concerned with the validity of the proxy’s appointment.

13A vote cast in accordance with a block voting instruction shall be valid even if it or any of the Noteholders’ instructions pursuant to which it was executed has previously been revoked or amended, unless written intimation of such revocation or amendment is received from the relevant Paying Agent by the Issuer or the Trustee at its registered office or by the chairman of the meeting in each case at least 24 hours before the time fixed for the meeting.

14No Note may be deposited with or to the order of a Paying Agent at the same time for the purposes of both paragraph 5 and paragraph 8 for the same meeting.

Chairman

15The chairman of a meeting shall be such person as the Trustee may nominate in writing, but if no such nomination is made or if the person nominated is not present within 15 minutes after

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the time fixed for the meeting the Noteholders or agents present shall choose one of their number to be chairman, failing which the Issuer may appoint a chairman.

16The chairman may, but need not, be a Noteholder or agent. The chairman of an adjourned meeting need not be the same person as the chairman of the original meeting.

Attendance

17           The following may attend and speak at a meeting:

17.1        Noteholders and agents

17.2        the chairman

17.3        the Issuer and the Trustee (through their respective representatives) and their respective financial and legal advisers.

                No-one else may attend or speak.

Quorum and Adjournment

18No business (except choosing a chairman) shall be transacted at a meeting unless a quorum is present at the commencement of business. If a quorum is not present within 15 minutes from the time initially fixed for the meeting, it shall, if convened on the requisition of Noteholders or if the Issuer and the Trustee agree, be dissolved. In any other case it shall be adjourned until such date, not less than 14 nor more than 42 days later, and time and place as the chairman may decide. If a quorum is not present within 15 minutes from the time fixed for a meeting so adjourned, the meeting shall be dissolved.

19           Two or more Noteholders or agents present in person shall be a quorum:

19.1in the cases marked “No minimum proportion” in the table below, whatever the proportion of the Notes which they represent

19.2        in any other case, only if they represent the proportion of the Notes shown by the table below.

Column 1	Column 2	Column 3
Purpose of meeting	Any meeting except one referred to in column 3	Meeting previously adjourned through want of a quorum
	Required proportion	Required proportion
To pass a special quorum resolution	75 per cent	25 per cent
To pass any other Extraordinary Resolution	A clear majority	No minimum proportion
Any other purpose	10 per cent	No minimum proportion

20The chairman may with the consent of (and shall if directed by) a meeting adjourn the meeting from time to time and from place to place. Only business which could have been transacted at the original meeting may be transacted at a meeting adjourned in accordance with this paragraph or paragraph 18.

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21At least 10 days’ notice of a meeting adjourned through want of a quorum shall be given in the same manner as for an original meeting and that notice shall state the quorum required at the adjourned meeting. No notice need, however, otherwise be given of an adjourned meeting.

Voting

22Each question submitted to a meeting shall be decided by a show of hands unless a poll is (before, or on the declaration of the result of, the show of hands) demanded by the chairman, the Issuer, the Trustee or one or more persons representing 2 per cent of the Notes.

23Unless a poll is demanded a declaration by the chairman that a resolution has or has not been passed shall be conclusive evidence of the fact without proof of the number or proportion of the votes cast in favour of or against it.

24If a poll is demanded, it shall be taken in such manner and (subject as provided below) either at once or after such adjournment as the chairman directs. The result of the poll shall be deemed to be the resolution of the meeting at which it was demanded as at the date it was taken. A demand for a poll shall not prevent the meeting continuing for the transaction of business other than the question on which it has been demanded.

25           A poll demanded on the election of a chairman or on a question of adjournment shall be taken at once.

26On a show of hands every person who is present in person and who produces a Note or a voting certificate or is a proxy has one vote. On a poll every such person has one vote for each €1,000 principal amount of Notes so produced or represented by the voting certificate so produced or for which he is a proxy or representative. Without prejudice to the obligations of proxies, a person entitled to more than one vote need not use them all or cast them all in the same way.

27In case of equality of votes the chairman shall both on a show of hands and on a poll have a casting vote in addition to any other votes which he may have.

Effect and Publication of an Extraordinary Resolution

28An Extraordinary Resolution shall be binding on all the Noteholders, whether or not present at the meeting, and on all the Couponholders and each of them shall be bound to give effect to it accordingly. The passing of such a resolution shall be conclusive evidence that the circumstances justify its being passed. The Issuer shall give notice of the passing of an Extraordinary Resolution to Noteholders within 14 days but failure to do so shall not invalidate the resolution.

Minutes

29Minutes shall be made of all resolutions and proceedings at every meeting and, if purporting to be signed by the chairman of that meeting or of the next succeeding meeting, shall be conclusive evidence of the matters in them. Until the contrary is proved every meeting for which minutes have been so made and signed shall be deemed to have been duly convened and held and all resolutions passed or proceedings transacted at it to have been duly passed and transacted.

Trustee’s Power to Prescribe Regulations

30Subject to all other provisions in this Trust Deed the Trustee may without the consent of the Noteholders prescribe such further regulations regarding the holding of meetings and attendance and voting at them as it in its sole discretion determines including (without limitation)

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such requirements as the Trustee thinks reasonable to satisfy itself that the persons who purport to make any requisition in accordance with this Trust Deed are entitled to do so and as to the form of voting certificates or block voting instructions so as to satisfy itself that persons who purport to attend or vote at a meeting are entitled to do so.

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In witness whereof this Trust Deed has been executed as a deed on the date stated at the beginning.

EXECUTED as a deed by ECOLAB INC.

acting under the authority of that company by:

DANIEL J. SCHMECHEL

EXECUTED as a deed by JPMORGAN CHASE BANK, LONDON BRANCH By: NICOLA DALE
Director	[Assistant Trust Manager]

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EX-4.HII

Dated 7 February 2002

ECOLAB INC.

and

JPMORGAN CHASE BANK, LONDON BRANCH

and

J.P. MORGAN BANK LUXEMBOURG S.A.

and

OTHERS

PAYING AGENCY AGREEMENT

relating to

€300,000,000

5.375% Notes due 2007

LINKLATERS

& ALLIANCE

LINKLATERS

Ref: NJP/TSYJ/HVSA

This Agreement is made on 7 February 2002 between:

(1)           ECOLAB INC. (the “Issuer”);

(2)           JPMORGAN CHASE BANK, LONDON BRANCH as principal paying agent (the “Principal Paying Agent”);

(3)           J.P. MORGAN BANK LUXEMBOURG S.A. as paying agent (the “Paying Agent”); and

(4)JPMORGAN CHASE BANK, LONDON BRANCH (the “Trustee”, which expression includes any other trustee for the time being of the Trust Deed referred to below).

                Whereas:

(A)The Issuer proposes to issue €300,000,000 principal amount of Notes to be known as its 5.375% Notes due 2007 (the “Notes”).

(B)The definitive Notes for which the Permanent Global Note referred to below may be exchanged (subject to its provisions) will be in bearer form in the denominations of €1,000,10,000 and 100,000 each with Coupons attached.

(C)The Notes will be constituted by a Trust Deed (the “Trust Deed”) dated 7 February 2002 between the Issuer and the Trustee.

(D)This is the Paying Agency Agreement defined in the Trust Deed.

1              Interpretation

1.1Definitions: Terms defined in the Trust Deed have the same meanings in this Agreement except where otherwise defined in this Agreement. In addition:

“Agents” means the Principal Paying Agent and the Paying Agent or any of them.

“Business Day” means any day (not being a Saturday or a Sunday) on which the Trans European Automated Real-Time Gross Settlement Express Transfer (TARGET) System is operating.

1.2Contracts (Rights of Third Parties) Act 1999: A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.

2              Appointment

The Issuer appoints the Agents as its agents in respect of the Notes in accordance with the Conditions at their respective specified offices referred to in the Notes. Except in Clause 14, references to the Agents are to them acting solely through such specified offices. Each Agent shall perform the duties required of it by the Conditions. The obligations of the Agents are several and not joint.

3              Authentication and Exchange of the Notes

3.1The Temporary Global Note and the Permanent Global Note: Immediately before issue, the Issuer shall deliver the duly executed Temporary Global Note and Permanent Global Note to the Principal Paying Agent. The Principal Paying Agent (or its agent on its behalf) shall authenticate the Temporary Global Note and the Permanent Global Note and return the Temporary Global Note and the Permanent Global Note to or to the order of the Issuer for delivery to a depositary

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common to Euroclear Bank S.A./N.V. as operator of the Euroclear System and Clearstream Banking, société anonyme.

3.2Exchange of Temporary Global Note for Permanent Global Note: On and after the Exchange Date (as defined in the Temporary Global Note), the Principal Paying Agent shall, on presentation to it or to its order of the Temporary Global Note and the Permanent Global Note, procure the exchange of interests in the Temporary Global Note for interests of an equal principal amount in the Permanent Global Note in accordance with the Temporary Global Note. On exchange in full of the Temporary Global Note the Principal Paying Agent shall cancel it.

3.2          Exchange of Permanent Global Note:

3.2.1Notification of request for definitive Notes: The Principal Paying Agent, on receiving notice in accordance with the terms of the Permanent Global Note that its holder requires to exchange the Permanent Global Note, or an interest in it, for definitive Notes, shall forthwith notify the Issuer of such request.

3.2.2Authentication and exchange: At least 14 days before the Exchange Date (as defined in the Permanent Global Note), the Issuer will deliver or procure the delivery of definitive Notes in an aggregate principal amount equal to the outstanding principal amount of the Permanent Global Note to or to the order of the Principal Paying Agent. Such definitive Notes shall have attached all Coupons in respect of interest which has not already been paid against presentation of the Permanent Global Note. The Principal Paying Agent (or its agent on its behalf) shall authenticate such definitive Notes and shall make them and the Coupons available for exchange against the Permanent Global Note in accordance with the Permanent Global Note. On exchange in full of the Permanent Global Note the Principal Paying Agent shall cancel it.

4              The Trustee

4.1Agents to act for Trustee: The Agents shall, on demand in writing by the Trustee made at any time after an Event of Default or a Potential Event of Default has occurred and until notified in writing by the Trustee to the contrary, so far as permitted by applicable law:

4.1.1act as Agents of the Trustee under the Trust Deed and the Notes on the terms of this Agreement (with consequential amendments as necessary and except that the Trustee’s liability under this Agreement for the indemnification, remuneration and expenses of the Agents will be limited to the amounts for the time being held by the Trustee in respect of the Notes on the terms of the Trust Deed) and thereafter to hold all Notes and Coupons and all moneys, documents and records held by them in respect of Notes and Coupons to the order of the Trustee; or

4.1.2deliver all Notes and Coupons and all moneys, documents and records held by them in respect of the Notes and Coupons to the Trustee or as the Trustee directs in such demand.

4.2Notices of change of the Trustee: The Issuer shall forthwith notify the Principal Paying Agent of any change in the person or persons comprising the Trustee.

5              Payment

5.1Payment to Principal Paying Agent: The Issuer will, one Business Day before each date on which any payment in respect of the Notes becomes due, transfer to the Principal Paying Agent such amount as may be required for the purposes of such payment. The Issuer will procure that

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the bank through which such payment is to be made will supply to the Principal Paying Agent by 3.00 p.m. (local time in the city of the Principal Paying Agent’s specified office) on the business day in the city of the Principal Paying Agent’s specified office before the due date for any such payment an irrevocable confirmation (by tested telex or authenticated SWIFT message) of its intention to make such payment. In this Clause, the date on which a payment in respect of the Notes becomes due means the first date on which the holder of a Note or Coupon could claim the relevant payment by transfer to an account under the Conditions, but disregarding the necessity for it to be a business day in any particular place of presentation.

5.2Condition to payment by Paying Agents: The Principal Paying Agent will forthwith notify by telex each of the other Paying Agents, the Trustee and the Issuer if it has not by the due date for any payment due in respect of the Notes received the full amount so payable on such date by the time specified for its receipt received the amount referred to in sub-Clause 5.1.

5.3Payment by Paying Agents: Unless they receive a notification from the Principal Paying Agent under sub-Clause 5.2 (or they are notified by the Principal Paying Agent that it has not received payment) the Paying Agents will, subject to and in accordance with the Conditions, pay or cause to be paid on behalf of the Issuer on and after each due date therefor the amounts due in respect of the Notes and Coupons and will be entitled to claim any amounts so paid from the Principal Paying Agent. If any payment provided for in sub-Clause 5.1 is made late but otherwise in accordance with this Agreement the Paying Agents will nevertheless make such payments in respect of the Notes and Coupons. However, unless and until the full amount of any such payment has been made to the Principal Paying Agent none of the Paying Agents will be bound but shall be entitled to make such payments. No payment shall be made by transfer of funds into an account maintained by the payee in the United States or by mail to an address in the United States.

5.4Reimbursement by the Issuer: If the Principal Paying Agent pays out on or after the due date therefor, or becomes liable to pay out funds on the assumption that the corresponding payment by the Issuer has been or will be made and such payment has in fact not been so made by the Issuer, then the Issuer shall on demand reimburse the Principal Paying Agent for the relevant amount and pay interest to the Principal Paying Agent on such amount from the date on which it is paid out to the date of reimbursement at a rate per annum equal to the cost to the Principal Paying Agent of funding the amount paid out, as certified by the Principal Paying Agent and expressed as a rate per annum.

5.5Reimbursement of Paying Agents: The Principal Paying Agent will on demand promptly reimburse each Paying Agent for payments in respect of the Notes and Coupons properly made by it in accordance with the Conditions and this Agreement.

5.6Late Payment: If the Principal Paying Agent has not by the due date for any payment in respect of the Notes received the full amount payable on such date but receives it later, it will forthwith give notice to the other Paying Agents, the Trustee and, if requested by the Trustee, the Noteholders that it has received such full amount.

5.7Method of payment to Principal Paying Agent: All sums payable to the Principal Paying Agent hereunder will be paid in euro and in immediately available or same day funds to such account with such bank as the Principal Paying Agent may from time to time notify to the Issuer.

5.8Moneys held by Principal Paying Agent: The Principal Paying Agent may deal with moneys paid to it under this Agreement in the same manner as other moneys paid to it as a banker by its customers except that (1) it may not exercise any lien, right of set-off or similar claim in respect

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of them and (2) it shall not be liable to anyone for interest on any sums held by it under this Agreement.

5.9Partial Payments: If on presentation of a Note or Coupon only part of the amount payable in respect of it is paid (except as a result of a deduction of tax permitted by the Conditions), the Paying Agent to whom the Note or Coupon is presented shall procure that such Note or Coupon is enfaced with a memorandum of the amount paid and the date of payment.

6              Repayment

If claims in respect of any principal, premium or interest become void under the Conditions, the Principal Paying Agent shall (subject to Clause 4.1) forthwith repay to the Issuer the amount which would have been due if presentations for payment had been made before such claims became void. The Principal Paying Agent shall not however be otherwise required or entitled to repay any sums received by it under this Agreement.

7              Early Redemption

7.1Notice of Redemption: If the Issuer intends to redeem all or any of the Notes under Condition 5, otherwise than under Condition 5(d), before their stated maturity date it shall, at least 14 days before the latest date for the publication of the notice of redemption required to be given to Noteholders, give notice of its intention to the Principal Paying Agent and the Trustee stating the date on which such Notes are to be redeemed and the principal amount of Notes to be redeemed.

7.2Redemption Notice: The Principal Paying Agent shall publish the notice required in connection with such redemption. Such notice shall specify the date fixed for redemption, the redemption price and the manner in which redemption will be effected.

8              Cancellation, Destruction and Records

8.1Cancellation by Paying Agents: All Notes which are redeemed (together with such unmatured Coupons as are attached to or are surrendered with them at the time of such redemption), and all Coupons which are paid, shall be cancelled forthwith by the Paying Agent by or through which they are redeemed or paid. Such Paying Agent shall send to the Principal Paying Agent the details required by the Principal Paying Agent for the purposes of this Clause and the cancelled Notes and Coupons.

8.2Cancellation by Issuer: If the Issuer or any of its Subsidiaries purchases any Notes or Coupons which are required by the Conditions to be cancelled after such purchase, the Issuer shall forthwith cancel them or procure their cancellation and send them (if in definitive form) to the Principal Paying Agent.

8.3Certification of Payment Details: The Principal Paying Agent shall within four months after the date of any such redemption or payment send to the Issuer and the Trustee a certificate stating (1) the aggregate principal amount of Notes which have been redeemed and cancelled and the aggregate amount paid in respect of Coupons which have been paid and cancelled or in respect of interest paid on the Temporary Global Note and the Permanent Global Note, (2) the certificate numbers of such Notes, (3) the total numbers by maturity date of such Coupons and (4) the total number and the maturity dates of unmatured Coupons not surrendered with Notes redeemed, in each case distinguishing between Notes and Coupons of different denominations.

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8.4Destruction: Unless otherwise instructed by the Issuer, the Principal Paying Agent shall destroy the cancelled Notes and Coupons in its possession and send the Issuer and the Trustee a certificate giving the certificate numbers of such Notes in numerical sequence, the total numbers by maturity date and the aggregate amount paid in respect of such Coupons and particulars of the Coupons attached to or surrendered with such Notes in each case distinguishing between Notes and Coupons of different denominations.

8.5Records: The Principal Paying Agent shall keep a record of the payment, redemption, replacement, cancellation and destruction of all Notes and Coupons (but need not record the certificate numbers of Coupons). It shall make such record available at all reasonable times to the Issuer and the Trustee.

9              Replacement Notes and Coupons

9.1Stocks of Notes and Coupons: The Issuer shall, if definitive Notes are issued, cause a sufficient quantity of additional forms of Notes and Coupons to be made available, upon request, to the Paying Agent for the time being in the Grand Duchy of Luxembourg (in such capacity the “Replacement Agent”) for the purpose of issuing replacement Notes and Coupons.

9.2Replacement: The Replacement Agent shall issue replacement Notes and Coupons in accordance with the Conditions.

9.3Coupons on replacement Notes: In the case of a mutilated or defaced Note, the Replacement Agent shall ensure that (unless such indemnity as the Issuer may require is given) any replacement Note only has attached to it Coupons corresponding to those attached to the Note which it replaces.

9.4Cancellation: The Replacement Agent shall cancel and, unless otherwise instructed by the Issuer, destroy any mutilated or defaced Notes or Coupons replaced by it and shall send the Issuer, the Principal Paying Agent and the Trustee a certificate giving the information specified in Clause 8.4.

9.5Notification: The Replacement Agent shall, on issuing a replacement Note or Coupon, forthwith inform the other Paying Agents of the certificate numbers of the replacement Note or Coupon and of the Note or Coupon which it replaces.

9.6Presentation of replaced Note or Coupon: If a Note or Coupon which has been replaced is presented to a Paying Agent for payment, that Paying Agent shall forthwith inform the Principal Paying Agent, which shall inform the Issuer.

10           Notices

10.1Publication: At the request and expense of the Issuer, the Principal Paying Agent shall arrange for the publication of all notices to Noteholders. Notices to Noteholders shall be published in accordance with the Conditions having previously, unless the Trustee otherwise directs, been approved by the Trustee.

10.2Copies to the Trustee: The Principal Paying Agent shall promptly send to the Trustee two copies of the form of every notice to be given to Noteholders for approval and of every such notice once published.

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11            Documents and Forms

The Issuer shall send to the Paying Agents:

11.1        specimen Notes (but only if definitive Notes are issued)

11.2sufficient copies of all documents required by the Notes, the Offering Circular relating to the Notes or any Stock Exchange on which the Notes are listed from time to time to be available for issue or inspection (and the Paying Agents shall make them so available to Noteholders) and

11.3as required, forms of voting certificates and block voting instructions, together with instructions as to how to complete, deal with and record the issue of such forms (and the Paying Agents shall make such documents available to Noteholders and perform their other functions as set out in Schedule 3 of the Trust Deed).

12           Indemnity

12.1By Issuer: The Issuer will indemnify each Agent against any loss, liability, cost, claim, action, demand or expense (including, but not limited to, all costs, charges and expenses properly paid or incurred in disputing or defending any of the foregoing) which it may incur or which may be made against it arising out of or in relation to or in connection with its appointment or the exercise of its functions, except such as may result from a breach by it of this Agreement or its wilful default, negligence or bad faith or that of its officers or employees.

12.2By Agents: Each Agent shall indemnify the Issuer against any loss, liability, cost, claim, action, demand or expense (including, but not limited to, all costs, charges and expenses properly paid or incurred in disputing or defending any of the foregoing) which the Issuer may incur or which may be made against it as a result of a breach by that Agent of this Agreement or its wilful default, negligence or bad faith or that of its officers or employees.

13           General

13.1No agency or trust: In acting under this Agreement the Agents shall, except as provided in Clause 5.7; have no obligation towards or relationship of agency or trust with any Noteholder or Couponholder and need only perform the duties set out specifically in this Agreement and the Conditions and any duties necessarily incidental to them.

13.2Holder to be treated as owner: Except as otherwise required by law, each Agent will treat the holder of a Note or Coupon as its absolute owner as provided in the Conditions and will not be liable for doing so.

13.3No lien: No Paying Agent shall exercise any lien, right of set-off or similar claim against any Noteholder or Couponholder in respect of moneys payable by it under this Agreement.

13.4Legal advice: Each Agent may consult on any legal matter any legal adviser selected by it, who may be an employee of or adviser to the Issuer and it shall not be liable in respect of anything done, or omitted to be done, relating to that matter in good faith in accordance with that adviser’s opinion.

13.5Reliance on documents etc.: No Agent shall be liable in respect of anything done or suffered by it in reliance on a Note, Coupon or other document reasonably believed by it to be genuine and to have been signed by the proper parties.

13.6Other relationships: Any Agent and any other person, whether or not acting for itself, may acquire, hold or dispose of any Note, Coupon or other security (or any interest therein) of the

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Issuer or any other person, may enter into or be interested in any contract or transaction with any such person and may act on, or as depositary, trustee or agent for, any committee or body of holders of securities of any such person in each case with the same rights as it would have had if that Agent were not an Agent and need not account for any profit.

14           Changes in Agents

14.1Appointment and Termination: The Issuer may at any time, with the prior written approval of the Trustee, appoint additional Paying Agents and/or terminate the appointment of any Agent by giving to the Principal Paying Agent and the Agent concerned at least 60 days’ notice to that effect, which notice shall expire at least 30 days before or after any due date for payment of any Notes or Coupons.

14.2Resignation: Any Agent may resign its appointment at any time by giving the Issuer and the Principal Paying Agent at least 60 days’ notice to that effect, which notice shall expire at least 30 days before or after any due date for payment of any Notes or Coupons.

14.3Condition to Resignation or Termination: No resignation or (subject to sub-Clause 14.5) termination of the appointment of the Principal Paying Agent shall, however, take effect until a new Principal Paying Agent (which shall be a bank or trust company) has been appointed, with the prior written approval of the Trustee, and no resignation or termination of the appointment of a Paying Agent shall take effect if there would not then be Paying Agents as required by the Conditions. If the Issuer shall have failed to appoint a successor Agent by the 10th day prior to the expiry of the relevant notice period, the relevant Agent may appoint a successor, provided that such successor shall be a reputable bank or trust company of good standing and previously approved by the Issuer and the Trustee (such approval not to be unreasonably withheld or delayed).

14.4Change of Office: If an Agent changes the address of its specified office in a city it shall give the Issuer, the Trustee and the Principal Paying Agent at least 60 days’ notice of the change, giving the new address and the date on which the change takes effect.

14.5Automatic Termination: The appointment of any Agent shall forthwith terminate if such Agent becomes incapable of acting, is adjudged bankrupt or insolvent, files a voluntary petition in bankruptcy, makes an assignment for the benefit of its creditors, consents to the appointment of a receiver, administrator or other similar official of all or a substantial part of its property or admits in writing its inability to pay or meet its debts as they mature or suspends payment thereof, or if a resolution is passed or an order made for the winding up or dissolution of such Agent, a receiver, administrator or other similar official of such Agent or all or a substantial part of its property is appointed, a court order is entered approving a petition filed by or against it under applicable bankruptcy or insolvency law or a public officer takes charge or control of such Agent or its property or affairs for the purpose of rehabilitation, conservation or liquidation.

14.6Delivery of records: If the Principal Paying Agent resigns or its appointment is terminated, it shall on the date the resignation or termination takes effect pay to the new Principal Paying Agent any amount held by it for payment of the Notes or Coupons and deliver to the new Principal Paying Agent the records kept by it and all Notes and Coupons held by it pursuant to this Agreement.

14.7Successor Corporations: A corporation into which an Agent is merged or converted or with which it is consolidated or which results from a merger, conversion or consolidation to which it is a party shall, to the extent permitted by applicable law, be the successor Agent under this

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Agreement without further formality. The Agent concerned shall forthwith notify such an event to the other parties to this Agreement.

14.8Notices: The Principal Paying Agent shall give Noteholders and the Trustee at least 30 days’ notice of any proposed appointment, termination, resignation or change under sub-Clauses 14.1 to 14.4 of which it is aware, and, as soon as practicable, notice of any succession under sub-Clause 14.7 of which it is aware. The Issuer shall give Noteholders and the Trustee, as soon as practicable, notice of any termination under sub-Clause 14.5 of which it is aware.

15           Commissions, Fees and Expenses

15.1Fees: The Issuer will pay to the Principal Paying Agent the commissions, fees and expenses in respect of the Agents’ services as separately agreed with the Principal Paying Agent and the Issuer need not concern itself with their apportionment between the Agents.

15.2Costs: The Issuer will also pay on demand all reasonable out-of-pocket expenses (including legal, advertising, telex and postage expenses) properly incurred by the Agents in connection with their services together with any applicable value added tax and stamp, issue, documentary or other taxes and duties.

16           Communications

16.1        Notices: Any communication shall be by letter, telex or fax:

in the case of the Issuer, to it at:

Ecolab Inc.

370 North Wabasha Street

St. Paul, Minnesota

USA 55102-1390

Fax no. +1 651 293 2573

Attention General Counsel

in the case of the Trustee, to it at:

JPMorgan Chase Bank, London Branch

Trinity Tower

9 Thomas More Street

London E1W 1YT

Telex no. 8954681 CMBG

Fax no. +44 20 7777 5410

Attention Manager, Trust Administration

and, in the case of any of the Agents, to it care of:

JPMorgan Chase Bank, London Branch

Trinity Tower

9 Thomas More Street

London E1W 1YT

Telex no. 8954681 CMBG

Fax no. +44 1202 347 601

Attention Manager, Institutional Trust Services

8

or any other address of which written notice has been given to the parties in accordance with this Clause. Such communications will take effect, in the case of a letter, when delivered or, in the case of telex or fax, when despatched. Communications not by letter shall be confirmed by letter but failure to send or receive the letter of confirmation shall not invalidate the original communication.

16.2Notices through Principal Paying Agent: All communications relating to this Agreement between (1) the Issuer and the Trustee and (2) any of the Agents or between the Agents themselves shall be made (except where otherwise expressly provided) through the Principal Paying Agent.

17           Governing Law and Submission

17.1        Governing Law: This Agreement shall be governed by and construed in accordance with English law.

17.2Jurisdiction: The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with this Agreement and accordingly any legal action or proceedings arising out of or in connection with this Agreement (“Proceedings”) may be brought in such courts. Each of the Issuer and the Agents irrevocably submits to the jurisdiction of such courts and waives any objection to Proceedings in any such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. These submissions are for the benefit of the Agents and the Trustee and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not).

17.3Service of Process: The Issuer irrevocably appoints The London Law Agency Limited of 84 Temple Chambers, Temple Avenue, London EC4Y 0HP as its authorised agent for service of process in England. If for any reason such agent shall cease to be such agent for the service of process, the Issuer shall forthwith appoint a new agent for service of process in England and deliver to the Principal Paying Agent a copy of the new agent’s acceptance of that appointment within 30 days. Nothing shall affect the right to serve process in any other manner permitted by law.

9

This Agreement has been entered into on the date stated at the beginning.

ECOLAB INC.
By:	/s/ Daniel J. Schmechel

JPMORGAN CHASE BANK, LONDON BRANCH as Principal Paying Agent
By:	/s/ Nicola Dale

J.P. MORGAN BANK LUXEMBOURG S.A.
By:	/s/ Nicola Dale

JPMORGAN CHASE BANK, LONDON BRANCH as Trustee
By:	/s/ Nicola Dale

For the purposes of Article I of the Protocol annexed to the Convention on jurisdiction and the enforcement of judgments in civil and commercial matters signed at Brussels on 27 September 1968 we hereby expressly and specifically accept the jurisdiction of the courts of England.

J.P. MORGAN BANK LUXEMBOURG S.A.
By:	/s/ Nicola Dale

10

EX-10.MV

ECOLAB

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

Fourth Declaration of Amendment

Pursuant to Section 1.3 of the Ecolab Supplemental Executive Retirement Plan (“Plan”) and Section 5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans which is incorporated into the Plan by reference (“Administrative Document”), the Company amends the Plan as set forth below.  Except as otherwise specifically provided herein, the terms of this Amendment shall be effective on February 22, 2002:

1.         Section 3.4(2)(c) of the Plan is hereby amended by deleting the phrase “does not exceed $5,000” therefrom and replacing it with the phrase “does not exceed $25,000” therein.

2.         Section 5.1(1) of the Plan is hereby amended by deleting the phrase “Except as provided in Subsection (2) of this Section” therefrom and replacing it with the phrase “Except as provided in Subsections (2) and (3) of this Section” therein.

3.         Section 5.1(2) of the Plan is hereby amended in its entirety to read as follows:

“(2)  Forfeiture Provision.

(a)  Notwithstanding the provisions of Subsection (1) hereof, but subject to the requirements of clause (b) of this Subsection, the Employers shall be relieved of any obligation to pay or provide any future SERP Benefits or SERP Pre-Retirement Benefits under this Plan and shall be entitled to recover amounts already distributed if,  without the written consent of the Company, the Executive, whether before or after termination with the Controlled Group (i) participates in dishonesty , fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or a Controlled Group member, (ii) commits any unlawful or criminal activity of a serious nature, (iii) commits any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Executive’s overall duties or (iv) materially breaches any confidentiality or noncompete agreement entered into with the Company or a Controlled Group member.  The Employers shall have the burden of proving that one of the foregoing events have occurred.  Notwithstanding the foregoing, the provisions of Subsection (2)(a) shall not apply to the Executive’s Minimum Benefit.

(b)  Notwithstanding the foregoing, an Executive shall not forfeit any portion of his SERP Benefits or SERP Pre-Retirement Benefits under clause (a) of this Subsection unless (i) the Executive receives reasonable notice in writing setting forth the grounds for the forfeiture, (ii) if requested by the Executive, the Executive (and/or the Executive’s counsel or other representative) is granted a hearing before the full Board of Directors of the Company (the “Board”) and (iii) a majority of the members of the full Board determine that the Executive violated one or more of the provisions of clause (a) of this Subsection.”

4.         Section 5.1 of the Plan is hereby amended by adding the following new Subsection (3) to the end thereof, to read as follows:

“(3)  Acceleration of Vesting.  Notwithstanding the provisions of Subsection (1) hereof, the SERP  Benefits of the Executives (a) who are employed by the Controlled Group on the date of a Change in Control or (b) whose employment with the Company was terminated prior to a Change in Control but the Executive reasonably demonstrates that the termination occurred at the request of a third party who has

taken steps reasonably calculated to effect the Change in Control, shall become immediately 100% vested upon the occurrence of such Change in Control.”

5.         Article VI of the Plan is hereby amended by adding the following new Sections to the end thereof, to read as follows:

"SECTION 6.3.                         Limitation on Payments and Benefits.  Notwithstanding any provision of this Plan to the contrary, if any amount or benefit to be paid or provided under this Plan or any other plan or agreement between the Executive and a Controlled Group member would be an "Excess Parachute Payment", within the meaning of Section 280G of the Code, or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Plan shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes).  If requested by the Executive or the Company, the determination of whether any reduction in such payments or benefits to be provided under this Plan or otherwise is required pursuant to the preceding sentence shall be made by the Company's independent accountants, at the expense of the Company, and the determination of the Company's independent accounts shall be final and binding on all persons.  The fact that the Executive's right to payments or benefits may be reduced by reason of the limitations contained in this Section 6.3 shall not of itself limit or otherwise affect any other rights of the Executive pursuant to this Plan.  In the event that any payment or benefit intended to be provided under this Plan or otherwise is required to be reduced pursuant to this Section, the Executive (in his or her sole discretion) shall be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section.  The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation.  In the event that the Executive fails to make such designation within ten (10) business days or receiving such information, the Company may effect such reduction in any manner it deems appropriate.

SECTION 6.4.                           Estrablishment of Trust Funds

(1)        In General.  The Plan is intended to be an unfunded, non-qualified retirement plan.  However, the Company may enter into a trust agreement with a trustee to establish a trust fund (the “Trust Fund”) and to transfer assets thereto (or cause assets to be transferred thereto), subject to the claims of the creditors of the Employers, pursuant to which some or all of the SERP Benefits and SERP Pre-Retirement  Benefits shall be paid.  Payments from the Trust Fund shall discharge the Employers’ obligation to make payments under the Plan to the extent that Trust Fund assets are used to satisfy such obligations.

(2)        Upon a Change in Control.

(a)        Within thirty (30) business days of the occurrence of a Change in Control, to the extent it has not already done so, the Company shall be required to establish an irrevocable Trust Fund for the purpose of paying SERP Benefits and SERP Pre-Retirement Benefits.  Except as described in the following sentence, all contributions to the Trust Fund shall be irrevocable and the Company shall not have the right to direct the trustee to return to the Employers, or divert to others, any of the  assets of the Trust Fund until after satisfaction of all liabilities to all of the Executives and their Death Beneficiaries under the Plan.  Any assets deposited in the Trust Fund shall be subject to the claims of the creditors of the

2

Employers and any excess assets remaining in the Trust Fund after satisfaction of all liabilities shall revert to the Company.

(b)        In addition to the requirements described in Subsection (a) above, the Trust Fund which becomes effective on the Change in Control shall be subject to the following additional requirements:

(i)         the trustee of the Trust Fund shall be a third party corporate or institutional trustee;

(ii)        the Trust Fund shall satisfy the requirements of a grantor trust under the Code; and

(iii)the Trust Fund shall automatically terminate (A) in the event that it is determined by a final decision of the United Stated Department of Labor (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that by reason of the creation of, and a transfer of assets to, the Trust, the Trust is considered “funded” for purposes of Title I of ERISA or (B) in the event that it is determined by a final decision of the Internal Revenue Service (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that (I) a transfer of assets to the Trust is considered a transfer of property for purposes of Code Section 83 or any successor provision thereto, or (II) pursuant to Code Section 451 or any successor provision thereto, amounts are includable as compensation in the gross income of a Trust Fund beneficiary in a taxable year that is prior to the taxable year or years in which such amounts would otherwise actually be distributed or made available to such beneficiary by the trustee.  Upon such a termination of the Trust, all of the assets in the Trust Fund attributable to the accrued SERP Benefits and SERP Pre-Retirement Benefits shall be immediately distributed to the Executives and the remaining assets, if any, shall revert to the Company.

(c)        Within five (5) days following establishment of the Trust Fund, the Company shall transfer (or cause the Employers to transfer) to the trustee of such Trust Fund an amount equal to the equivalent actuarial present value of the SERP Benefits and SERP Pre-Retirement Benefits which have been accrued as of the date of the Change in Control on behalf of all of the Executives under the Plan (using the Actuarial Factors specified in Exhibit A for this purpose).

(d)        In January of each year following a funding of the Trust Fund pursuant to clause (c) above, the Company shall cause to be deposited in the Trust Fund such additional amount (if any) by which the aggregate equivalent actuarial present value (determined using the Actuarial Factors specified in Exhibit A) of the sum of the SERP Benefits and SERP  Pre-Retirement Benefits for all Executives under the Plan as of December 31 of the preceding year exceeds the fair market value of the assets of the Trust Fund as of such date.

(e)        Notwithstanding the foregoing, an Employer shall not be required to make any contributions to the Trust Fund if the Employer is insolvent at the time such contribution is required.

(f)         The Administrator shall notify the trustee of the amount of SERP Pension Benefits and SERP Pre-Retirement Pension Benefits to be paid to or on behalf of the Executive from the Trust Fund and shall assist the trustee in making distribution thereof in accordance with the terms of the Plan.

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(g)        Notwithstanding any provision of the Plan or the Administrative Document to the contrary, the provisions of this Section 6.4(2) hereof (i) may not be amended following a Change in Control and (ii) prior to a Change in Control may only be amended (A) with the written consent of each of the Executives or (B) if the effective date of such Amendment is at least two years following the date the Executives were given written notice of the adoption of such amendment.”

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer and its corporate seal affixed, this 27 day of February, 2002.

ECOLAB, INC.
By:	/s/ Steven L. Fritze
Title: Senior Vice President – Finance and Controller

(Seal)

Attest: /s/ Kenneth A. Iverson

4

EX-10.NVI

ECOLAB

MIRROR SAVINGS PLAN

Fifth Declaration of Amendment

Pursuant to Section 1.3 of the Ecolab Mirror Savings Plan (“Plan”) and Section 5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans which is incorporated into the Plan by reference (“Administrative Document”), the Company amends the Plan as set forth below.  Except as otherwise specifically provided herein, the terms of this Amendment shall be effective on February 22, 2002:

1.             Effective as of January 1, 2001, Section 2.2(1) of the Plan is hereby amended in its entirety to read as follows:

“(1) in an Employer-sponsored plan which is governed by Sections 401(k), 132(f)(4) or 125 of the Code.”

2.             Effective as of March 1, 2002, the first sentence of Section 3.2(2)(b) of the Plan is hereby amended by deleting the phrase “one-year anniversary” therefrom and replacing it with the phrase “six-month anniversary” therein.

3.             Section 4.2(2)(c) of the Plan is hereby amended by deleting the phrase “does not exceed $5,000” therefrom and replacing it with the phrase “does not exceed $25,000” therein.

4.             Effective March 1, 2002, the second sentence of Section 5.1(1) of the Plan is hereby amended in its entirety to read as follows:

“Subject to the provisions of Section 3.3(1)(c) and Subsection (2) of this Section, an Executive who is credited with an Hour of Service on or after March 1, 2002 shall be immediately 100% vested in all Matching Contributions hereunder.

5.             Section 5.1(2) of the Plan is hereby amended in its entirety to read as follows:

“(2)  Forfeiture Provision.

(a)  Notwithstanding the provisions of Subsection (1) hereof, but subject to the requirements of clause (b) of this Subsection, the Employers shall be relieved of any obligation to pay or provide any future Mirror Savings Plan Benefits under this Plan and shall be entitled to recover amounts already distributed if, without the written consent of the Company, the Executive, whether before or after termination with the Controlled Group (i) participates in dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or a Controlled Group member, (ii) commits any unlawful or criminal activity of a serious nature, (iii) commits any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Executive’s overall duties or (iv) materially breaches any confidentiality or noncompete agreement entered into with the Company or a Controlled Group member.  The Employers shall have the burden of proving that one of the foregoing events have occurred.  Notwithstanding the foregoing, the provisions of this Subsection

1

2(a)  shall not apply to an Executive’s Minimum Benefit or the portion of the Executive’s Account which is attributable to his Executive Deferrals.

(b)  Notwithstanding the foregoing, an Executive shall not forfeit any portion of his Mirror Savings Plan Benefits under clause (a) of this Subsection unless (i) the Executive receives reasonable notice in writing setting forth the grounds for the forfeiture, (ii) if requested by the Executive, the Executive (and/or the Executive’s counsel or other representative) is granted a hearing before the full Board of Directors of the Company (the “Board”) and (iii) a majority of the members of the full Board determine that the Executive violated one or more of the provisions of clause (a) of this Subsection.”

6.             Article VII of the Plan is hereby amended by adding the following new Sections to the end thereof, to read as follows:

“SECTION 7.2.  Limitation on Payments and Benefits.  Notwithstanding an provision of this Plan to the contrary, if any amount or benefit to be paid or provided under this Plan or any other plan or agreement between the Executive and a Controlled Group member would be an “Excess Parachute Payment,” within the meaning of Section 280G of the Code, or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Plan shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes).  If requested by the Executive or the Company, the determination of whether any reduction in such payments or benefits to be provided under this Plan or otherwise is required pursuant to the preceding sentence shall be made by the Company’s independent accountants, at the expense of the Company, and the determination of the Company’s independent accounts shall be final and binding on all persons.   The fact that the Executive’s right to payments or benefits may be reduced by reason of the limitations contained in this Section 7.2 shall not of itself limit or otherwise affect any other rights of the Executive pursuant to this Plan.  In the event that any payment or benefit intended to be provided under this Plan or otherwise is required to be reduced pursuant to this Section, the Executive (in his or her sole discretion) shall be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section.  The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation.  In the event that the Executive fails to make such designation with ten (10) business days of receiving such information, the Company may effect such reduction in any manner it deems appropriate.

SECTION 7.3.                        Establishment of Trust Fund.

(1)           In General.  The Plan is intended to be an unfunded, non-qualified retirement plan.  However, the Company may enter into a trust agreement with a trustee to establish a trust fund (the “Trust Fund”) and to transfer assets thereto (or cause assets to be transferred thereto), subject to the claims of the creditors of the Employers, pursuant to which some or all of the Mirror Savings Plan Benefits shall be paid.  Payments from the Trust Fund shall discharge the Employers’ obligation to make payments under the Plan to the extent that Trust Fund assets are used to satisfy such obligations.

2

(2)  Upon a Change in Control.

(a)  Within thirty (30) business days of the occurrence of a Change in Control, to the extent it has not already done so, the Company shall be required to establish an irrevocable Trust Fund for the purpose of paying Mirror Savings Plan Benefits.  Except as described in the following sentence, all contributions to the Trust Fund shall be irrevocable and the Company shall not have the right to direct the trustee to return to the Employers, or divert to others, any of the  assets of the Trust Fund until after satisfaction of all liabilities to all of the Executives and their Death Beneficiaries under the Plan.  Any assets deposited in the Trust Fund shall be subject to the claims of the creditors of the Employers and any excess assets remaining in the Trust Fund after satisfaction of all liabilities shall revert to the Company.

(b)           In addition to the requirements described in Subsection (a) above, the Trust Fund which becomes effective on the Change in Control shall be subject to the following additional requirements:

(i)            the trustee of the Trust Fund shall be a third party corporate or institutional trustee;

(ii)           the Trust Fund shall satisfy the requirements of a grantor trust under the Code; and

(iii)          the Trust Fund shall automatically terminate (A) in the event that it is determined by a final decision of the United States Department of Labor (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that by reason of the creation of, and a transfer of assets to, the Trust, the Trust is considered “funded” for purposes of Title I of ERISA or (B) in the event that it is determined by a final decision of the Internal Revenue Service (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that (I) a transfer of assets to the Trust is considered a transfer of property for purposes of Code Section 83 or any successor provision thereto, or (II) pursuant to Code Section 451 or any successor provision thereto, amounts are includable as compensation in the gross income of a Trust Fund beneficiary in a taxable year that is prior to the taxable year or years in which such amounts would otherwise be actually distributed or made available to such beneficiary by the trustee.  Upon such termination of the Trust, all of the assets in the Trust Fund attributable to the accrued Mirror Savings Plan Benefits shall be immediately distributed to the Executives and the remaining assets, if any, shall revert to the Company.

(c)           Within five (5) days following establishment of the Trust Fund, the Company shall transfer (or cause the Employers to transfer) to the trustee of such Trust Fund an amount equal to all 100% of the Account balances of all of the Executives under the Plan.

(d)  Following the funding of the Trust Fund pursuant to clause (b) above, the Company shall cause to be deposited in the Trust Fund additional Executive Deferrals and Matching Contributions, as such amounts are credited to the Accounts of the Executives pursuant to Section 3.4 hereof.

(e)  Notwithstanding the foregoing, an Employer shall not be required to make any contributions to the Trust Fund if the Employer is insolvent at the time such contribution is required.

(f)  The Administrator shall notify the trustee of the amount of Mirror Savings Plan Benefits to be paid to the Executive (or his Death Beneficiary) from the Trust Fund and shall assist the trustee in making distribution thereof in accordance with the terms of the Plan.

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(g)            Notwithstanding any provision of the Plan or the Administrative Document to the contrary, the provisions of this Section 7.3(2) hereof (i) may not be amended following a Change in Control and (ii) prior to a Change in Control may only be amended (A) with the written consent of each of the Executives or (B) if the effective date of such Amendment is at least two years following the date the Executives were given written notice of the adoption of such amendment.”

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer and its corporate seal affixed, this 27 day of February, 2002.

		ECOLAB, INC.
		By:	/s/ Steven L. Fritze
		Title: Senior Vice President –
				Finance and Controller
(Seal)
Attest:	/s/ Kenneth A. Iverson

4

EX-10.OV

ECOLAB

MIRROR PENSION PLAN

Fourth Declaration of Amendment

Pursuant to Section 1.3 of the Ecolab Mirror Pension Plan (“Plan”) and Section 5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans which is incorporated into the Plan by reference (“Administrative Document”), the Company amends the Plan as set forth below.  Except as otherwise specifically provided herein, the terms of this Amendment shall be effective on February 22, 2002:

1.             Section 3.3(2)(c) of the Plan is hereby amended by deleting the phrase “does not exceed $5,000” therefrom and replacing it with the phrase “does not exceed $25,000” therein.

2.             Section 5.1(1) of the Plan is hereby amended by deleting the phrase “Except as provided in Subsection (2) of this Section” therefrom and replacing it with the phrase “Except as provided in Subsections (2) and (3) of this Section” therein.

3.             Section 5.1(2) of the Plan is hereby amended in its entirety to read as follows:

“(2)  Forfeiture Provision.

(a)  Notwithstanding the provisions of Subsection (1) hereof, but subject to the requirements of clause (b) of this Subsection, the Employers shall be relieved of any obligation to pay or provide any future Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits under this Plan and shall be entitled to recover amounts already distributed if, without the written consent of the Company, the Executive, whether before or after termination with the Controlled Group (i) participates in dishonesty , fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company or a Controlled Group member, (ii) commits any unlawful or criminal activity of a serious nature, (iii) commits any intentional and deliberate breach of a duty or duties that, individually or in the aggregate, are material in relation to the Executive’s overall duties or (iv) materially breaches any confidentiality or noncompete agreement entered into with the Company or a Controlled Group member.  The Employers shall have the burden of proving that one of the foregoing events have occurred.

(b)  Notwithstanding the foregoing, an Executive shall not forfeit any portion of his Mirror Pension Benefits or Mirror Pre-Retirement Pension Benefits under clause (a) of this Subsection unless (i) the Executive receives reasonable notice in writing setting forth the grounds for the forfeiture, (ii) if requested by the Executive, the Executive (and/or the Executive’s counsel or other representative) is granted a hearing before the full Board of Directors of the Company (the “Board”) and (iii) a majority of the members of the full Board determine that the Executive violated one or more of the provisions of clause (a) of this Subsection.”

4.             Section 5.1 of the Plan is hereby amended by adding the following new Subsection (3) to the end thereof, to read as follows:

“(3)  Acceleration of Vesting.  Notwithstanding the provisions of Subsection (1) hereof, the Mirror Pension Benefits of the Executives (a) who are employed by the Controlled Group on the date of a Change in Control or (b) whose employment with the Company was terminated prior to a Change in Control but the Executive reasonably demonstrates that the termination occurred at the request of a third party who has taken steps reasonably calculated to effect the Change in Control, shall become immediately 100% vested upon the occurrence of such Change in Control.”

5.Article VI of the Plan is hereby amended by adding the following new Sections to the end thereof, to read as follows:

SECTION 6.2.        Limitation on Payments and Benefits.  Notwithstanding any provision of this Plan to the contrary, if any amount or benefit to be paid or provided under this Plan or any other plan or agreement between the Executive and a Controlled Group member would be an “Excess Parachute Payment,” within the meaning of Section 280G of the Code, or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Plan shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Executive, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes).  If requested by the Executive or the Company, the determination of whether any reduction in such payments or benefits to be provided under this Plan or otherwise is required pursuant to the preceding sentence shall be made by the Company’s independent accountants, at the expense of the Company, and the determination of the Company’s independent accounts shall be final and binding on all persons.   The fact that the Executive’s right to payments or benefits may be reduced by reason of the limitations contained in this Section 6.2 shall not of itself limit or otherwise affect any other rights of the Executive pursuant to this Plan.  In the event that any payment or benefit intended to be provided under this Plan or otherwise is required to be reduced pursuant to this Section, the Executive (in his or her sole discretion) shall be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section.  The Company shall provide the Executive with all information reasonably requested by the Executive to permit the Executive to make such designation.  In the event that the Executive fails to make such designation within ten (10) business days of receiving such information, the Company may effect such reduction in any manner it deems appropriate.

SECTION 6.3.        Establishment of Trust Fund.

(1)           In General.  The Plan is intended to be an unfunded, non-qualified retirement plan.  However, the Company may enter into a trust agreement with a trustee to establish a trust fund (the “Trust Fund”) and to transfer assets thereto (or cause assets to be transferred thereto), subject to the claims of the creditors of the Employers, pursuant to which some or all of the Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits shall be paid.  Payments from the Trust Fund shall discharge the Employers’ obligation to make payments under the Plan to the extent that Trust Fund assets are used to satisfy such obligations.

(2)  Upon a Change in Control.

(a)  Within thirty (30) business days of the occurrence of a Change in Control, to the extent it has not already done so, the Company shall be required to establish an irrevocable Trust Fund for the purpose of paying Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits.  Except as described in the following sentence, all contributions to the Trust Fund shall be irrevocable and the Company shall not have the right to direct the trustee to return to the Employers, or divert to others, any of the  assets of the Trust Fund until after satisfaction of all liabilities to all of the Executives and their Death Beneficiaries under the Plan.  Any assets deposited in the Trust Fund shall be subject to the claims of the creditors of the Employers and any excess assets remaining in the Trust Fund after satisfaction of all liabilities shall revert to the Company.

2

(b)           In addition to the requirements described in Subsection (a) above, the Trust Fund which becomes effectve on the Change in Control shall be subject to the following additional requirements:

(i)            the Trustee of the Trust Fund shall be a third party corporate or institutional trustee;

(ii)           the Trust Fund shall satisfy the requirements of a grantor trust under the Code; and

(iii)          the Trust Fund shall automatically terminate (A) in the event that it is determined by a final decision of the United States Department of Labor (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that by reason of the creation of, and a transfer of assets to, the Trust, the Trust is considered “funded” for purposes of Title I of ERISA or (B) in the event that it is determined by a final decision of the Internal Revenue Service (or, if an appeal is taken therefrom, by a court of competent jurisdiction) that (I) a transfer of assets to the Trust is considered a transfer of property for purposes of Code Section 83 or any successor provision thereto, or (II) pursuant to Code Section 451 or any successor provision thereto, amounts are includable as compensation in the gross income of a Trust Fund beneficiary in a taxable year that is prior to the taxable year or years in which such amounts would otherwise actually be distributed or made available to such beneficiary by the trustee.  Upon such a termination of the Trust, all of the assets in the Trust Fund attributable to the accrued Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits shall be immediately distributed to the Executives and the remaining assets, if any, shall revert back to the Company.

(c)           Within five (5) days following establishment of the Trust Fund, the Company shall transfer (or cause the Employers to transfer) to the trustee of such Trust Fund an amount equal to the equivalent actuarial present value of the Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits which have been accrued as of the date of the Change in Control on behalf of all of the Executives under the Plan (using the Actuarial Factors specified in Exhibit A for this purpose).

(d)           In January of each year following a funding of the Trust Fund pursuant to clause (b) above, the Company shall cause to be deposited in the Trust Fund such additional amount (if any) by which the aggregate equivalent actuarial present value (determined using the Actuarial Factors specified in Exhibit A) of the sum of the Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits for all Executives under the Plan as of December 31 of the preceding year exceeds the fair market value of the assets of the Trust Fund as of such date.

(e)           Notwithstanding the foregoing, an Employer shall not be required to make any contributions to the Trust Fund if the Employer is insolvent at the time such contribution is required.

(f)            The Administrator shall notify the trustee of the amount of Mirror Pension Benefits and Mirror Pre-Retirement Pension Benefits to be paid to or on behalf of the Executive from the Trust Fund and shall assist the trustee in making distribution thereof in accordance with the terms of the Plan.”

(g)           Notwithstanding any provision of the Plan or the Administrative Document to the contrary, the provision of this Section 6.3(2) hereof (i) may not be amended following a Change in Control and (ii) prior to a Change in Control may only be amended (A) with the written consent of each of the Executives or (B) if the effective date of such Amendment is at least two years following the date the Executives were given written notice of the adoption of such amendment.

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IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer and its corporate seal affixed, this 27 day of February, 2002.

		ECOLAB, INC.
		By:	/s/ Steven L. Fritze
		Title:	Senior Vice President — Finance and Controller
(Seal)
Attest:	/s/ Kenneth A. Iverson

4

EX-10.PV

ECOLAB, INC.

ADMINISTRATIVE DOCUMENT FOR NON-QUALIFIED BENEFIT PLANS

Fourth Declaration of Amendment

Pursuant to Section 5.1 of the Ecolab Inc. Administrative Document for Non-Qualified Benefit Plans (“Administrative Document”), the Company amends the Administrative Document as set for the below.  Except as specifically described herein, the terms of this Amendment shall be effective on February 22, 2002.  Words and phrases used herein with initial capital letters which are defined in the Administrative Document are used herein as so defined.

1.             Effective as of January 1, 2001, Section 1.2(2) of the Administrative Document is hereby amended in its entirety to read as follows:

                “(2) any salary reductions caused as a result of participation in any Employer-sponsored plan which is governed by Sections 401(k), 132(f)(4) or 125 of the Code.”

2.             Article I of the Administrative Document is hereby amended by adding the following new Section 1.3A thereto, immediately following Section 1.3 thereof, to read as follows:

                “SECTION 1.3A. “Change in Control.”  A “Change in Control” shall be deemed to have occurred if the event set forth in any one of the following Subsections shall have occurred:

                (1)           any “person” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (“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  the common stock of the Company (“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 of Directors of the Company (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 if this Subsection (1) 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 Subsection (3) of this Section (e.g., a reverse triangular merger); or

                (2)           during any thirty-six consecutive calendar months, individuals who constitute the Board on the first day of such period or 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 were either directors on the first day of such period, or whose appointment, election or nomination for election was previously so approved or recommended, shall cease for any reason to constitute at least a majority thereof; or

                (3)           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 Subsection (1) 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

                (4)           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.”

                IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its duly authorized officer and its corporate seal affixed, this 27 day of February, 2002.

			ECOLAB, INC.
			By:	/s/	Steven L. Fritze
			Title: Senior Vice President – Finance and Controller
(Seal)
Attest:	/s/	Kenneth A. Iverson

2

EX-10.R

ECOLAB INC.

CHANGE IN CONTROL SEVERANCE COMPENSATION POLICY

ARTICLE I  - INTRODUCTION

Section 1.1      Background.  The Board of Directors (the “Board”) of Ecolab Inc. (the “Company”) has considered the effect a Change in Control of the Company may have on certain Executives of the Company.  The Board recognizes and understands the concern such Executives have for their careers and their personal financial security in the event of a Change in Control of the Company.  As a result, absent appropriate assurances, such Executives are likely to seek more secure career opportunities elsewhere if a Change in Control of the Company is perceived to be a real possibility, or if a Change in Control transaction is proposed or threatened.

Section 1.2      Purpose.  This Policy is designed to encourage Executives to remain employees of the Company and its Subsidiaries notwithstanding the time pressure and financial uncertainty which may result from a proposed or threatened Change in Control transaction and notwithstanding the outcome of any such proposed transaction, to enable Executives to make career decisions and to assure fair treatment of such Executives in the event of a Change in Control of the Company.

ARTICLE II - ESTABLISHMENT OF THE POLICY

Section 2.1      Establishment of Policy.  As of the Effective Date, the Company establishes this severance compensation Policy known as the “Change in Control Severance Compensation Policy” (this “Policy”).

Section 2.2      Applicability of Policy.  The benefits provided by this Policy shall be available to all Executives who, at or after the Effective Date, meet the eligibility requirements of Article IV hereof.

Section 2.3      Contractual Right to Benefits.  Subject to the provisions of Article VIII hereof, this Policy establishes and vests in each Participant a contractual right to the benefits to which he or she is entitled hereunder, enforceable by the Participant against the Company on the terms and subject to the conditions hereof.

ARTICLE III  - DEFINITIONS AND CONSTRUCTION

Section 3.1      Definitions.  The following terms shall have the following meanings when used in this Policy with initial capital letters:

(a)         “Base Pay” of a Participant means the Participant’s annual base salary rate as in effect on the Termination Date from the Participant’s Employer(s); provided, however, that any reductions in Base Pay following the date of the Change in Control will not be taken into account when determining Base Pay hereunder.

(b)         “Board” means the Board of Directors of the Company.

(c)         “Change in Control” of the Company shall be deemed to have occurred if the events set forth in any one of the following paragraphs shall have occurred:

(i)                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 Policy 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 in 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 (i) 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 (iii) of this Section 3.1(c) (e.g., a reverse triangular merger); or

(ii)               during any thirty-six consecutive calendar months, individuals who constitute the Board on the first day of such period or 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

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 was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who were either directors on the first day of such period, or whose appointment, election or nomination for election was previously so approved or recommended, shall cease for any reason to constitute at least a majority thereof; or

(iii)              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 Subsection (i) 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

(iv)             the stockholders of the Company approve a Policy 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.

(d)         “Code” means the Internal Revenue Code of 1986, as amended.

(e)         “Company” means Ecolab Inc., a Delaware corporation, and any successor thereto as provided in Section 7.1 hereof.

(f)          “Effective Date” means February 22, 2002.

(g)         “Employer” means the Company, any Subsidiary or any “affiliated organization” which employs an Executive.  For purposes of this Policy, an “affiliated organization” is the Company and (i) any corporation that is a member of a controlled group of corporations (within the meaning of Code Section 1563(a) without regard to Code Sections 1563(a)(4) and 1563(e)(3)(C)) that includes the Company, (ii) any trade or business (whether or not incorporated) that is controlled (within the meaning of Code Section 414(c)) by the Company, (iii) any member of an “affiliated service group” (within the meaning of Code Section 414(m)) of which the Company is a member or (iv) any other organization that, together with the Company, is treated as a single employer pursuant to Code Section 414(o) or the regulations thereunder; provided that the provisions of Code Section 1563(a) shall be applied by substituting the phrase “more than 50 percent” for the phrase “at least 80 percent” wherever it appears in such Code Section.

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(h)         “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(i)          “Executive” means any person who is designated as an officer of the Company by the Board and who is employed by an Employer as a salaried employee on a substantially full-time basis, other than a person who is designated solely as an assistant officer.

(j)          “Good Reason” means, without the express written consent of the Participant:

(i)                the assignment to the Participant of any duties inconsistent in any substantial respect with the Participant’s position, authority or responsibilities as in effect during the 90-day period immediately preceding the Change in Control which assignment results in a substantial diminution in such position, authority or responsibilities or any other substantial adverse change in such position (including titles), authority or responsibilities, excluding an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Employer as set forth below.

(ii)               any failure by the Employer to furnish the Participant with compensation and benefits at a level substantially equal to or exceeding those received by the Participant from the Employer during the 90-day period preceding the Change in Control, other than (A) an insubstantial and inadvertent failure remedied by the Employer as set forth below, (B) a reduction in compensation which is applied to all non-union employees of the Employer in the same dollar amount or percentage or (C) a reduction or modification of any employee benefit program covering substantially all of the employees of the Employer, which reduction or modification generally applies to all employees covered under such program;

(iii)              the Employer’s requiring the Participant to be based or to perform services at any office or location that is in excess of 50 miles from the principal location of the Participant’s work during the 90-day period immediately preceding the Change in Control, except for travel reasonably required in the performance of the Participant’s responsibilities;

(iv)             the failure by the Employer to comply with any requirements existing in any deferred compensation or other policy of the Employer, which require the establishment and funding of a trust or trusts following a Change in Control, unless remedied by the Employer as set forth below; or

(v)              the failure by the Company to obtain the assumption and agreement to perform the obligations under this Policy by any successor as contemplated by Section 7.1 hereof.

Before a termination by the Participant under this Section 3.1(j) will constitute termination for Good Reason, the Participant must give the Company a Notice of Termination within 30 calendar days of the occurrence of the event that constitutes Good Reason.  Failure to provide such Notice of Termination within such 30-day period shall be conclusive proof that the Participant shall not have Good Reason to terminate employment.

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For purposes of subparagraphs (i), (ii) and (iv) of this Section 3.1(j), Good Reason shall exist only if the Employer fails to remedy the event or events constituting Good Reason within 15 calendar days after receipt of the Notice of Termination from the Participant.  If the Participant determines that Good Reason for termination exists and timely files a Notice of Termination, such determination shall be presumed to be true and the Company will have the burden of proving that Good Reason does not exist.

(k)         “Incentive Pay” means the target bonus as notified to the Participant for the year in which the Termination Date occurs under the Management Incentive Plan or the Management Performance Incentive Plan, as applicable to the Participant, or if such Plan or Plans are no longer in effect, the annual bonus, incentive or other payment of compensation in addition to Base Pay, made or to be made in regard to services rendered in any year or other annual measurement period pursuant to any bonus, incentive, performance, or similar agreement, policy, Policy, program or arrangement of the Employer or any successor thereto.

(l)          “Just Cause” means without the written consent of the Company, the Participant (i) participates in dishonesty, fraud, misrepresentation, embezzlement or deliberate injury or attempted injury, in each case related to the Company, an Employer or a Subsidiary, (ii) commits any unlawful or criminal activity of a serious nature, (iii) commits 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) materially breaches any confidentiality or noncompete agreement entered into with the Company or an Employer.  The Company shall have the burden of proving that Just Cause exists.

For purposes of this Policy, the Participant shall not be deemed to have been terminated for “Just Cause” hereunder unless (A) the Participant receives a Notice of Termination setting forth the grounds for the termination at least 30 calendar days prior to the specified Termination Date, (B) if requested by the Participant, the Participant (and/or the Participant’s counsel or other representative) is granted a hearing before the full Board and (C) a majority of the members of the full Board determine that the Participant violated one or more of the provisions of the definition of “Just Cause” set forth above.

(m)        “Notice of Termination” means (i) a written notice of termination by the Company to the Executive or (ii) a written notice of termination for Good Reason by the Executive to the Company, in either case, setting forth in reasonable detail the specific reason for termination and the facts and circumstances claimed to provide a basis for termination of employment under the provision indicated.

(n)         “Participant” means an Executive who meets the eligibility requirements of Article IV hereof, other than an Executive who has entered into an employment, severance or other similar agreement with the Company (other than a stock option or restricted stock agreement or other form of participation document entered into pursuant to an Employer-sponsored plan which may incidentally refer to accelerated vesting or accelerated payment upon a change in control (as defined in such separate plan or document)) which becomes operative upon the occurrence of a change in control of the Company (as defined in such agreement).

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(o)         “Policy” means this Change in Control Severance Compensation Policy.

(p)         “Protection Period” means the period of time commencing on the date of the first occurrence of a Change in Control and continuing until the second anniversary of the occurrence of the Change in Control.

(q)         “Severance Payment” means the payment of severance compensation as provided in Article V hereof.

(r)          “Subsidiary” means any corporation or other legal entity a majority of the securities entitled to vote generally in the election of directors of which are owned by the Company or another Subsidiary of the Company.

(s)         “Termination Date” means, (i) with respect to a termination by the Employer, the date on which the Participant’s employment is terminated as stated in the Notice of Termination and (ii) with respect to a termination by the Participant for Good Reason, the date that is 15 calendar days following the Company’s receipt of the Notice of Termination.

Section 3.2      Status of Policy/Applicable Law.

(a)         This Policy is classified as a “payroll practice” under Department of Labor Regulation Section 2510.3-1(b) and, as such is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended.  The Policy will be interpreted and administered accordingly.

(b)         This Policy shall be administered, construed and enforced according to the laws of the State of Minnesota.

Section 3.3      Severability.  If a provision of this Policy shall be held illegal or invalid, the illegality or invalidity shall not affect the remaining parts of this Policy and this Policy shall be construed and enforced as if the illegal or invalid provision had not been included.

ARTICLE IV  - ELIGIBILITY

Section 4.1      Participation.  Each person who is an Executive on the Effective Date shall be a Participant on the Effective Date.  Thereafter, each other person who becomes an Executive prior to both (a) a Change in Control and (b), unless specifically provided for by the Board at the time a Participant is elected as an Executive, the date a notice of termination of the Policy is provided under Section 8.1(a), shall automatically become a Participant on the day on which such person becomes an Executive.

Section 4.2      Duration of Participation.  A Participant shall cease to be a Participant and shall have no rights hereunder, without further action, when he or she ceases to be an Executive, unless such Participant is then entitled to payment of a Severance Payment as provided in Section 5.1 hereof.  A Participant entitled to a Severance Payment shall remain a Participant in this Policy until the full amount of the Severance Payment has been paid to the Participant.

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ARTICLE V  - SEVERANCE PAYMENTS

Section 5.1      Right to Severance Payment.

(a)         Subject to Subsection (c) hereof, a Participant shall be entitled to receive from the Company a Severance Payment in the amount provided in Section 5.2 hereof if there has been a Change in Control and if, after a Change in Control and within the Protection Period, (i) the Participant’s employment by an Employer shall be terminated by the Employer without Just Cause or (ii) the Participant shall terminate employment with an Employer for Good Reason.

(b)         Notwithstanding anything to the contrary contained in this Policy, any termination of employment of the Participant or removal of the Participant from the office or position in the Company that occurs prior to a Change in Control but which the Participant reasonably demonstrates occurred at the request of a third party who had taken steps reasonably calculated to effect the Change in Control shall be deemed to be a termination or removal of the Participant after a Change in Control for purposes of this Policy.

(c)         Notwithstanding anything to the contrary contained in this Policy, a Participant shall not be entitled to receive any Severance Payment hereunder unless and until he or she has signed and returned to the Company a release in the form prescribed by the Company and the applicable rescission period for such release has expired.

Section 5.2      Amount of Severance Payment.

(a)         Each Participant entitled to a Severance Payment under this Policy shall receive the following Severance Payment from the Company.

(i)             A lump sum cash payment in an amount equal to two times the sum of (A) the Participant’s Base Pay plus (B) Incentive Pay; provided, however, that the amount of such cash payment determined pursuant to this Section 5.2(a)(i) shall be reduced by an amount equal to the aggregate amount of any other cash payments in the nature of severance payments paid or payable by the Company or the Employer or any Subsidiary pursuant to any agreement, policy, program, arrangement or requirement of statutory or common law (other than this Policy or cash payments received in lieu of stock incentives);

(ii)            A lump sum cash payment in an amount equal to (A) the Incentive Pay for the year in which the Termination Date occurs, pro rated to reflect time worked during the year in which the Termination Date occurs (i.e., days worked during the year divided by 365 days times the Incentive Pay expressed as a dollar amount) and (B) reduced by any amounts paid under the terms of the applicable incentive bonus Policy itself for the same period of time;

(iii)           Reasonable fees for outplacement services, by a firm selected by the Company and at the expense of the Company, in an amount not in excess of 20% of Base Pay; and

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(iv)           Eligibility for continuation coverage pursuant to Section 4980B of the Code (or any successor provision thereto) under the Employer’s medical, dental and other group health plans, or successor plans as in effect from time to time; provided, however, that (A) the Company shall reimburse the Participant, on a semi-annual basis, for any costs incurred in securing such continuation coverage that are in excess of the costs that would have been incurred by the Participant immediately prior to the Termination Date to obtain such coverage and (B) such reimbursements shall in no event continue beyond a period of eighteen (18) months following the Termination Date.

(b)         Notwithstanding any provision of this Policy to the contrary, if any amount or benefit to be paid or provided under this Policy or any other plan or agreement between the Participant and an Employer would be an “Excess Parachute Payment,” within the meaning of Section 280G of the Code, or any successor provision thereto, but for the application of this sentence, then the payments and benefits to be paid or provided under this Policy shall be reduced to the minimum extent necessary (but in no event to less than zero) so that no portion of any such payment or benefit, as so reduced, constitutes an Excess Parachute Payment; provided, however, that the foregoing reduction shall be made only if and to the extent that such reduction would result in an increase in the aggregate payment and benefits to be provided to the Participant, determined on an after-tax basis (taking into account the excise tax imposed pursuant to Section 4999 of the Code, or any successor provision thereto, any tax imposed by any comparable provision of state law, and any applicable federal, state and local income taxes).  If requested by the Participant or the Employer, the determination of whether any reduction in such payments or benefits to be provided under this Policy or otherwise is required pursuant to the preceding sentence shall be made by the Company’s independent accountants, at the expense of the Company, and the determination of the Company’s independent accounts shall be final and binding on all persons.   The fact that the Participant’s right to payments or benefits may be reduced by reason of the limitations contained in this Section 5.2(b) shall not of itself limit or otherwise affect any other rights of the Participant pursuant to this Policy.  In the event that any payment or benefit intended to be provided under this Policy or otherwise is required to be reduced pursuant to this Section, the Participant (in his or her sole discretion) shall be entitled to designate the payments and/or benefits to be so reduced in order to give effect to this Section.  The Employer shall provide the Participant with all information reasonably requested by the Participant to permit the Participant to make such designation.  In the event that the Participant fails to make such designation within ten business days of receiving such information, the Employer may effect such reduction in any manner it deems appropriate.

(c)         The Participant shall not be required to mitigate damages or the amount of his or her Severance Payment by seeking other employment or otherwise, nor shall the amount of such payment be reduced by any compensation earned by the Participant as a result of employment after the termination of his or her employment by an Employer.

Section 5.3      Time of Severance Payment.  The Severance Payment to which a Participant is entitled shall be paid to the Participant by the Company in cash and in full, not later than 30 calendar days after the Participant’s Termination Date (or, if later, the date on which both the

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Excess Parachute Payment calculations described in Section 5.2(b) are completed and the date the applicable rescission period for the release required in Section 5.1(c) has expired, but in no event shall payment be made later than 90 calendar days after the Termination Date).  If such a Participant should die before all amounts payable to him have been paid, such unpaid amounts shall be paid to the Participant’s spouse, if living, otherwise to the personal representative of the Participant’s estate.

Section 5.4      Liability for Payment.  The Company shall be solely liable for and shall pay the Severance Payments (or cause the Severance Payments to be paid) to the Executive.

ARTICLE VI  - OTHER RIGHTS AND BENEFITS NOT AFFECTED

Section 6.1      Other Benefits.  Except as provided in Section 5.2(b), neither the provisions of this Policy nor the Severance Payment provided for hereunder shall reduce or increase any amounts otherwise payable, or in any other way affect a Participant’s rights as an employee of an Employer, whether existing now or hereafter, under any benefit, incentive, retirement, stock option, stock bonus, stock purchase or employment agreement, policy (other than this Policy), program or arrangement (collectively, the “Other Plans”), except to the extent specifically provided under such Other Plans.

Section 6.2      Certain Limitations.  This Policy does not constitute a contract of employment or impose on any Participant, the Company or any other Employer any obligation to retain any Participant as an employee or in any other capacity, to change or not change the status, terms or conditions of any Participant’s employment, or to change or not change the Employer’s policies regarding termination of employment.

ARTICLE VII  - SUCCESSORS

Section 7.1      Successors.  Without limiting the obligations of any person or entity under applicable law, the Company shall require any successor or assignee, whether direct or indirect, by purchase, merger, consolidation or otherwise, to all or substantially all the business or assets of the Company, expressly and unconditionally to assume and agree to perform the Company’s obligations under this Policy, in the same manner and to the same extent that the Company would be required to perform if no such succession or assignment had taken place.  In such event, the term “Company,” as used in this Policy, shall mean the Company as hereinbefore defined and any successor assignee to the business or assets which by reason hereof becomes bound by the terms and provisions of this Policy.

ARTICLE VIII  - DURATION, AMENDMENT AND TERMINATION

Section 8.1             Duration/Termination.

(a)         This Policy will become effective on the Effective Date and will terminate as to all Participants:  (i) if a Change in Control has not occurred, the date that is 2 years following the giving of notice to each Executive who is a Participant on the date of the notice that the Board has determined (by resolution adopted by a majority of the members of the Board) that the Policy will terminate; and (ii) if a Change in Control has occurred, the expiration of the Protection Period.

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(b)         Notwithstanding the foregoing, if a Change in Control occurs, this Policy shall continue in full force and effect, and shall not terminate or expire until after all Participants who were Participants on the date of the Change in Control who became entitled to a Severance Payment hereunder shall have received such payment in full.

Section 8.2      Amendment.  Unless a Change in Control has previously occurred, this Policy may be amended in any respect by resolution adopted by a majority of the members of the Board; provided, however, that no such amendment shall adversely affect the rights of a Participant under this Policy without the Participant’s consent unless such amendment does not become effective until the date that is two years following the giving of notice to all Participants of the adoption of such amendment by the Board.  If a Change in Control occurs, notwithstanding the foregoing, this Policy no longer shall be subject to amendment, change, substitution, deletion or revocation in any respect.

Section 8.3      Form of Amendment/Termination.  The form of any proper amendment or termination of this Policy shall be a written instrument signed by a duly authorized officer or officers of the Company, certifying that the amendment or termination has been approved by the Board as provided in Sections 8.1 or 8.2 hereof.  A proper amendment of this Policy automatically shall effect a corresponding amendment to all Participants’ rights hereunder.  A proper termination of this Policy automatically shall effect a termination of all Participants’ rights and benefits hereunder without further action.

ARTICLE IX  - MISCELLANEOUS

Section 9.1      Legal Fees and Expenses/Binding Arbitration.

(a)         It is the intent of the Company that Participants not be required to incur any expenses associated with the enforcement of rights under this Policy because the cost and expense thereof would substantially detract from the benefits intended to be extended to Participants hereunder.  Accordingly, if the Company or any Employer, as the case may be, has failed to comply with any of its obligations under this Policy or in the event that the Company or any Employer, or any other person takes any action to declare this Policy void or unenforceable, or institutes any litigation designed to deny, or to recover from, a Participant the benefits intended to be provided to the Participant hereunder, the Company and each Employer irrevocably authorizes the Participant from time to time to retain counsel of his or her choice, at the expense of the Company, as hereafter provided, to represent the Participant in connection with the initiation or defense of any legal action, whether by or against the Company or any Employer, in any jurisdiction.  The Company shall pay or cause to be paid and shall be solely responsible for any and all reasonable attorneys’ fees and expenses incurred by the Participant in enforcing his or her rights hereunder individually (but not as a representative of any class) as a result of the Company’s or any Employer’s, failure to perform this Policy or any provision hereof or as a result of the Company or any Employer, or any person contesting the validity or enforceability of this Policy or any provision hereof.

(b)         Notwithstanding any provision of this Policy to the contrary, (including, without limitation, determining whether a termination is for Just Cause or with Good Reason) any

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dispute or controversy arising under or in connection with this Policy shall be settled by binding arbitration, conducted before a panel of three arbitrators sitting in a location selected by the Participant within 50 miles from the location of his or her job with his or her Employer, in accordance with current Employment Dispute rules of the American Arbitration Association (“AAA”) then in effect.  Within fifteen days after the commencement of arbitration, each of the Company and the Participant shall select one person to act as arbitrator, and the two selected shall select a third arbitrator within ten days of their appointment.  If the arbitrators are unable or fail to agree upon the third arbitrator, the third arbitrator shall be selected by the AAA.  Judgment shall be entered on the award of the arbitrator in any court having jurisdiction.  All expenses of such arbitration, including the fees and expenses of the counsel for the Participant, shall be borne by the Company.

Section 9.2      Withholding of Taxes.  The Employer may withhold from any amounts payable under this Policy all foreign, federal, provincial, state, city or other taxes as shall be required pursuant to any law or government regulation or ruling.

Section 9.3      Successors.

(a)         This Policy shall inure to the benefit of and be enforceable by the Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees and/or legatees.

(b)         The rights under this Policy are personal in nature and neither the Company nor any Participant shall, without the consent of the other, assign, transfer or delegate any rights or obligations hereunder except as expressly provided in Section 7.2 hereof.  Without limiting the generality of the foregoing, the Participant’s right to receive a Severance Payment hereunder shall not be assignable, transferable or delegable, whether by pledge, creation of a security interest or otherwise, other than by a transfer by his or her will or by the laws of descent and distribution and, in the event of any attempted assignment or transfer contrary to this Section 9.3(b), the Company, shall have no liability to pay any amount so attempted to be assigned, transferred or delegated.

(c)         The Company and each Participant recognize that each party will have no adequate remedy at law for breach by the other of any of the agreements contained herein and, in the event of any such breach, the Company, and each Participant hereby agree and consent that the other shall be entitled to a decree of specific performance, mandamus or other appropriate remedy to enforce performance of this Policy.

Section 9.4      Notices.  For all purposes of this Policy, all communications, including without limitation notices, consents, requests or approvals provided for herein shall be in writing and shall be deemed to have been duly given when delivered or five business days after having been mailed by registered or certified mail, return receipt requested, postage prepaid, addressed to the Company, (to the attention of the General Counsel of the Company), at its principal executive office and to any Participant at his or her principal residence as shown in the relevant records of the Employer, or to such other address as any party may have furnished to the other in writing

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and in accordance herewith, except that notices of change of address shall be effective only upon receipt.

Executed this 27 day of February, 2002, to be effective on the Effective Date.

ECOLAB, INC.
	By:	/s/ Steven L. Fritze
	Title:		Senior Vice President —
			Finance and Controller

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EX-13

Financial discussion

The following discussion and analysis provides information that management believes is useful in understanding Ecolab’s operating results,  cash flows and financial position.  The discussion should be read in conjunction with the consolidated financial statements and related notes.

Forward-Looking Statements

This financial discussion and other portions of this Annual Report to Shareholders contain various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  These include expectations concerning business progress and expansion,  business acquisitions, global economic conditions and liquidity requirements.  These statements, which represent Ecolab’s expectations or beliefs concerning various future events, are based on current expectations.  Therefore, they involve a number of risks and uncertainties that could cause actual results to differ materially from those of such Forward-Looking Statements.  These risks and uncertainties include the vitality of the hospitality and travel industries; restraints on pricing flexibility due to competitive factors and customer consolidations; changes in oil or raw material prices or unavailability of adequate and reasonably priced raw materials; the occurrence of capacity constraints or the loss of a key supplier; the effect of future acquisitions or divestitures or other corporate transactions; the company’s ability to achieve plans for past acquisitions; the costs and effects of complying with laws and regulations relating to the environment and to the manufacture, storage, distribution and labeling of the company’s products; changes in tax, fiscal, governmental and other regulatory policies; economic factors such as the worldwide economy,  interest rates and currency movements, including, in particular, the company’s greater exposure to foreign currency risk due to the recent acquisition of Henkel-Ecolab, and changes in the capital markets affecting the company’s ability to raise capital; the occurrence of (i) litigation or claims, (ii) the loss or insolvency of a major customer or distributor, (iii) natural or manmade disasters (including material acts of terrorism or hostilities which impact the company’s markets) and,  (iv) severe weather conditions affecting the food service and the hospitality industries; 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.  There can be no assurances that the company’s earnings levels will meet investors’ expectations. 

2001 Overview

During 2001, Ecolab took aggressive actions to optimize its financial performance for the year in the face of deteriorating conditions in the economy.  Results for the year included the following:  

•       The company met or exceeded two of its three long-term financial objectives during 2001, including a 20 percent return on beginning shareholders’ equity and maintaining an investment grade rating of its balance sheet.  The third objective of 15 percent growth in diluted income per common share was not achieved this year as already softened conditions in the travel and hospitality industry were exacerbated by the events of September 11, 2001. 

[GRAPH]

[GRAPH]

•       Diluted net income per share was $1.45 for 2001, down 7 percent from $1.56 in 2000.  Excluding several unusual items in 2000 [the gain on the sale of the Jackson MSC, Inc.  (Jackson) business ($15.0 million after tax), special charges recorded in 2000 ($4.3 million after tax) and the cumulative effect of a change in accounting for revenue recognition ($2.4 million after tax)] diluted net income per share decreased 3 percent from $1.50 in 2000. 

•       Return on beginning shareholders’ equity was 25 percent for 2001 compared with 26 percent for 2000 which was based on income excluding unusual items.  This was the tenth consecutive year the company exceeded this long-term financial objective

•       The company maintained its debt rating within the “A” categories of the major rating agencies during 2001.  This was the ninth consecutive year this objective was accomplished. 

•       Even with the slowdown in the economy, the company’s stock price outperformed the Standard & Poor’s 500 index.  Ecolab’s stock price decreased 7 percent during 2001 compared with a decrease of 12 percent in the Standard & Poor’s 500 index.  Including cash dividends,  Ecolab’s total return to shareholders was a negative 6 percent for 2001.

•       Net sales for 2001 reached an all-time high of nearly $2.4 billion and increased 4 percent over 2000.

•       Operating income was $318 million for 2001, a decrease of 7 percent from $343 million in 2000.  Excluding the unusual items in 2000, operating income decreased 2 percent.  Operating income represented 13.5 percent of net sales, down from last year’s all-time high of 14.3 percent excluding the unusual items.

•       The company increased its annual dividend rate for the tenth consecutive year.  The dividend was increased 4 percent in December 2001 to an annual rate of $0.54 per common share.

•       Strategic accomplishments in 2001 reflect the company’s plans for future growth.  Management completed the acquisition of the remaining 50 percent of the Henkel-Ecolab joint venture that Ecolab did not own on November 30, 2001.  This is the largest acquisition in Ecolab’s history and is expected to provide additional growth opportunities for the company in Europe.  The company also completed several other acquisitions during 2001 in order to continue to broaden its product and service offerings in line with its Circle the Customer-Circle the Globe strategy. 

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Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial condition and results of operations are based upon the company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported revenues and expenses during the reporting period.  Management bases these estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the recorded values of certain assets and liabilities.  Actual results could differ from these estimates. 

        Management believes the company’s critical accounting policies and areas that require more significant judgments and estimates used in the preparation of its consolidated financial statements to be:  

•       revenue recognition, including customer based programs and incentives;  

•       estimating valuation allowances and accrued liabilities, specifically sales returns and allowances, the allowance for doubtful accounts and litigation and environmental accruals;  

•       the determination of actuarially determined liabilities related to pension plans, other postretirement benefit obligations and self-insurance reserves;  

•       accounting for income taxes;  

•       valuation and useful lives of long-lived and intangible assets and goodwill; and  

•       determining functional currencies for the purpose of consolidating our International operations. 

        The company recognizes revenue on product sales at the time title transfers to the customer.  The company records estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives.   If market conditions were to decline, the company may take actions to increase customer incentive offerings, possibly resulting in a reduction of gross profit margins at the time the incentive is offered. 

        Management estimates sales returns and allowances by analyzing historical returns and credits, and applies these trend rates to the most recent 12 months’ sales data to calculate estimated reserves for future credits.  Management estimates the allowance for doubtful accounts by analyzing accounts receivable balances by age, applying historical trend rates to the most recent 12 months’ sales, less actual write-offs to date.  Management’s estimates include providing for 100 percent of specific customer balances when it is deemed probable that the balance is uncollectible.  Actual results could differ from these estimates under different assumptions. 

        Management’s current estimated ranges of liabilities related to pending litigation and environmental claims are based on management’s best estimate of future costs.  The company has recorded the amounts that represent the points in the ranges that management believes are most probable or the minimum amounts when no amount within the range is a better estimate than any other amount.  Potential insurance reimbursements are not anticipated in the company’s accruals for environmental liabilities.  While the final resolution of the litigation and environmental contingencies could result in amounts different than current accruals, and therefore have an impact on the company’s consolidated financial results in a future reporting period, management believes the ultimate outcome will not have a significant effect on the company’s consolidated results of operations, financial position or cash flows. 

        Pension and other postretirement benefit obligations are actuarially determined.  These calculations include assumptions related to the discount rate, projected salary increases and the expected return on assets.  The company is self-insured in North America for most workers compensation, general liability and automotive liability losses subject to per occurrence and aggregate annual liability limitations.  The company is insured for losses in excess of these limitations.  The company is also self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations.  The company determines its liabilities for claims incurred but not reported on an actuarial basis.  A change in these assumptions could cause actual results to differ from those reported. 

        Management judgement is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets.  As part of the process of preparing the company’s consolidated financial statements,  management is required to estimate income taxes in each of the jurisdictions in which the company operates.  This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and book accounting purposes.  These differences result in deferred tax assets and liabilities, which are included within the company’s consolidated balance sheet.  Management must then assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, a valuation allowance must be established.  To the extent that a valuation allowance is established or increased, an expense within the tax provision is included in the statement of operations. 

        Management periodically reviews its long-lived and intangible assets and goodwill for impairment and assesses whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable.  An impairment loss is recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition.  The amount of the impairment loss to be recorded, if any, is calculated by the excess of the asset’s carrying value over its estimated fair value.  Management also periodically reassesses the estimated remaining useful lives of its long-lived assets.  Changes to estimated useful lives would impact the amount of depreciation and amortization expense recorded in earnings. 

        In 2002, Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets” became effective and as a result, the company will cease to amortize goodwill in 2002.  The company estimates the impact had it not amortized historical goodwill (prior to the new goodwill generated by the Henkel-Ecolab transaction) to have been an after-tax benefit of approximately $19 million, or $0.15 per diluted share for the year ended December 31, 2001.  The company will be required to perform an initial impairment review of its goodwill in 2002 under the guidelines of SFAS 142 and an annual

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impairment review thereafter. The company expects to complete this initial review by June 30, 2002.

        In preparing the consolidated financial statements, the company is required to translate the financial statements of its foreign subsidiaries from the currency in which they keep their accounting records, generally the local currency, into United States dollars. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss in shareholders’ equity. Income statement accounts are translated at the average rates of exchange prevailing during the year. The different exchange rates from period to period impact the amount of reported income from the company’s International operations.

Operating Results

Consolidated

(thousands, except per share)	2001		2000			1999
Net sales	$	2,354,723	$	2,264,313		$	2,080,012
Operating income	$	318,179	$	343,139		$	289,951
Income
Before change in accounting	$	188,170	$	208,555		$	175,786
Change in accounting for revenue recognition			(2,428		)
Net income	$	188,170	$	206,127		$	175,786
Diluted income per common share
Before change in accounting	$	1.45	$	1.58		$	1.31
Change in accounting for revenue recognition			(0.02		)
Net income	$	1.45	$	1.56		$	1.31

Supplemental 2000 Proforma Consolidated Operating Results Information

Year Ended December 31, 2000 (thousands, except per share)	Total			Unusual Items*			Excluding Unusual Items
Operating income	$	343,139		$	18,788		$	324,351
Interest expense, net	(24,605		)				(24,605		)
Income before income taxes	318,534			18,788			299,746
Provision for income taxes	(129,495		)	(8,111		)	(121,384		)
Equity in earnings of Henkel-Ecolab	19,516						19,516
Change in accounting	(2,428		)	(2,428		)
Net income	$	206,127		$	8,249		$	197,878
Diluted net income per common share	$	1.56		$	0.06		$	1.50

*Unusual items included the gain on the sale of the Jackson MSC, Inc. business of $25.9 million, special charges of $7.1 million and the cumulative effect of a change in accounting for revenue recognition of $2.4 million.

        Consolidated net sales reached nearly $2.4 billion for 2001, an increase of 4 percent over net sales of nearly $2.3 billion in 2000.  Sales growth was experienced in nearly all of the company’s divisions.  Business acquisitions also contributed to the overall sales growth for 2001. Businesses acquired in 2001 and the annualized effect of businesses acquired and disposed of in 2000 accounted for approximately 2 percentage points of the growth in consolidated sales for 2001. Changes in currency translation negatively impacted the consolidated sales growth rate by approximately 2 percentage points for 2001. Sales results reflected benefits from aggressive sales efforts,  new account growth, new products, and additional programs to solve customer cleaning needs. These benefits were partially offset by a poor economic environment and a slowdown in the travel and hospitality markets following the September 11 terrorist attacks.

        The company’s consolidated gross profit margin was 53.7 percent of net sales for 2001, which decreased from a gross profit margin of 54.7 percent in 2000. The lower margin reflected increased raw material costs, unfavorable sales mix, fixed costs growing faster than unit volume, foreign currency effects and general cost increases. The comparison benefited from lower restructuring costs in 2001. Net selling price increases during 2001 were not significant.

        Selling, general and administrative expenses for 2001 were 40.2 percent of net sales, a decrease from total selling, general and administrative expenses of 40.5 percent of net sales in 2000. Selling,  general and administrative expenses in 2000 included $4.4 million of income for reductions in probable losses related to certain environmental matters partially offset by $4 million of expenses related to a large distributor. Selling, general and administrative expense improvements for 2001 primarily reflected the benefits of a tighter focus on discretionary costs, lower incentive-based compensation and synergies from acquisitions, which were partially offset by investments in the sales-and-service force, investments in acquisitions and increased retirement plan and medical costs.

        Operating income for 2001 was $318 million and decreased 7 percent from $343 million in 2000. This is a decrease of 2 percent from 2000 when excluding the unusual items that occurred during 2000. Business acquisitions had a minimal effect on operating income for 2001. As a percentage of net sales, operating income was 13.5 percent compared with 2000 operating income of 14.3 percent,  excluding unusual items. This decrease in operating income reflects the poor economic environment and a slowdown in the travel and hospitality markets.

        The company’s net income for 2001 was $188 million, a decrease of 9 percent compared with net income of $206 million for 2000.  Excluding the unusual items from 2000, net income for 2001 decreased 5 percent from $198 million. The decrease in net income reflected the effects of a difficult economic environment, lower gross margins, higher net interest expense, lower equity in the earnings of Henkel-Ecolab and the negative impact of foreign currency translation. As a percentage of net sales, after-tax income for 2001 was 8.0 percent, down from 8.7 percent in 2000, excluding the unusual items previously mentioned.

2000 compared with 1999

Consolidated net sales reached nearly $2.3 billion for 2000, an increase of 9 percent over net sales of nearly $2.1 billion in 1999.  This sales growth reflected double-digit increases in Kay’s and Pest Elimination’s operations and in sales in the Latin America region, as well as another year of solid growth in the company’s core Institutional business. Business acquisitions also contributed to the overall sales growth for 2000. Businesses acquired in 2000 and the annualized effect of businesses acquired in 1999 accounted for approximately 3 percentage points of the growth in consolidated sales for 2000.

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Changes in currency translation had a very modest negative effect on the consolidated sales growth rate for 2000. The growth in sales also reflected new product introductions, a larger and better trained sales-and-service force, new customers and a continuation of generally good conditions in the hospitality and lodging industries,  particularly in the United States.

        The consolidated gross profit margin was 54.7 percent of net sales for 2000, down slightly from a gross profit margin of 54.9 percent in 1999. This modest decrease reflected the negative effects of the lower gross margin and more service-related businesses the company has acquired, higher costs of fuel and special charges. The gross profit margin for 2000 benefited from strong Institutional and International performances and sales of new products. Selling price increases for 2000 were not significant.

        Selling, general and administrative expenses for 2000 were 40.5 percent of net sales, a decrease from total selling, general and administrative expenses of 41.0 percent of net sales in 1999. Selling,  general and administrative expenses included approximately $4 million of expenses related to a large distributor in both 2000 and 1999. Prior to issuing the company’s 1999 annual financial statements, the company received notice of a January 31, 2000 bankruptcy filing by a large distributor. This resulted in a $4 million charge in 1999 for outstanding accounts receivable related to 1999 sales. In 2000,  the company expensed another $4 million related to this distributor,  $2 million of which was for additional receivables from sales in 2000 and $2 million of which was for a preference claim the bankruptcy estate filed against the company in 2001. Selling, general and administrative expenses in both years also included a significant favorable item: expenses for 2000 were reduced by $4.4 million for reductions in probable losses related to certain environmental matters, and 1999 included a non-taxable gain of $1.5 million related to the demutualization of an insurance company. The $4.4 million reduction in probable losses in 2000 relates to an environmental claim made against the company by the Netherlands government. In 1996 the company recorded a liability of $5 million related to its best estimate of the probable losses associated with these claims. In 2000, the Netherlands government settled the claim for $600,000. Selling, general and administrative expense improvements for 2000 also reflected lower costs related to retirement plans, and the benefits of synergies from the effects of business acquisitions and cost controls. These benefits were partially offset by higher investments in the sales-and-service force and in new businesses.

        During the fourth quarter of 2000, management approved various actions to improve the long-term efficiency and competitiveness of the company and to reduce costs. These actions included personnel reductions, discontinuance of certain product lines, changes to certain manufacturing and distribution operations and the closing of selected sales and administrative offices. As a result of these actions, the company recorded special charges totaling $7.1 million ($4.3 million after tax, or $0.03 per diluted share). Further details related to these special charges are included in Note 3 of the notes to consolidated financial statements.

        Also, during the fourth quarter of 2000, the company sold its Jackson dishmachine manufacturing business for cash proceeds of approximately $36 million. The company realized a gain on the sale of $25.9 million ($15.0 million after tax, or $0.11 per diluted share).

        Operating income for 2000, excluding the unusual items, totaled $324 million and increased 12 percent over consolidated operating income of $290 million in 1999. Business acquisitions accounted for approximately 2 percentage points of the growth in operating income for 2000. As a percentage of net sales, operating income excluding the unusual items represented 14.3 percent compared with the 1999 operating income of 13.9 percent. These improvements in operating income reflected the strong performance of the company’s International and U.S. Institutional operations.

        The company’s net income for 2000 was $206 million. Net income included $2.4 million of net expense to reflect the cumulative effect of a change in accounting for revenue recognition. This change resulted from adopting the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” This amount was recorded to reflect changes in the company’s policies from recording revenue when products are shipped to the time title transfers to the customer. Excluding this charge and the other unusual items, after-tax income for 2000 would have been $198 million, an increase of 13 percent over net income of $176 million in 1999. This improvement reflected strong operating income growth, a lower effective income tax rate and improved equity in earnings of Henkel-Ecolab, partially offset by higher net interest expense.  As a percentage of net sales, this after-tax income was 8.7 percent,  up slightly from net income of 8.5 percent in 1999.

Operating Segment Performance

(thousands)	2001			2000			1999
Net sales
United States
Cleaning & Sanitizing	$	1,582,895		$	1,532,033		$	1,424,037
Other Services	273,020			248,317			211,562
Total United States	1,855,915			1,780,350			1,635,599
International Cleaning & Sanitizing	521,959			465,452			420,799
Total	2,377,874			2,245,802			2,056,398
Effect of foreign currency translation	(23,151		)	18,511			23,614
Consolidated	$	2,354,723		$	2,264,313		$	2,080,012
Operating income
United States
Cleaning & Sanitizing	$	246,936		$	249,182		$	230,520
Other Services	29,338			25,515			25,114
Total United States	276,274			274,697			255,634
International Cleaning & Sanitizing	49,770			47,240			36,396
Total	326,044			321,937			292,030
Corporate	(4,938		)	18,491			(4,570		)
Effect of foreign currency translation	(2,927		)	2,711			2,491
Consolidated	$	318,179		$	343,139		$	289,951
Operating income as a percent of net sales
United States
Cleaning & Sanitizing	15.6		%	16.3		%	16.2		%
Other Services	10.7			10.3			11.9
Total	14.9			15.4			15.6
International Cleaning & Sanitizing	9.5		%	10.1		%	8.6		%

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        The company’s operating segments have similar products and services and the company is organized to manage its operations geographically. The company’s operating segments have been aggregated into three reportable segments: United States Cleaning & Sanitizing,  United States Other Services, and International Cleaning & Sanitizing.  The company evaluates the performance of its International operations based on fixed management rates of currency exchange. Therefore,  International sales and operating income totals, as well as the International financial information included in this financial discussion,  are based on translation into U.S. dollars at the fixed currency exchange rates used by management for 2001. All other accounting policies of the reportable segments are consistent with accounting principles generally accepted in the United States of America and the accounting policies of the company described in Note 2 of the notes to consolidated financial statements. Additional information about the company’s reportable segments is included in Note 15 of the notes to consolidated financial statements. The following chart presents the comparative percentage change in net sales for each of the company’s operating segments for 2001 and 2000.

	Percent Change from Prior Year
	2001		2000
Net sales
United States Cleaning & Sanitizing
Institutional	3	%	8	%
Kay	8		36
Textile Care	(5	)	(5	)
Professional Products	7		(4	)
Water Care Services	5		6
Vehicle Care	9		5
Food & Beverage	1		4
Total United States Cleaning & Sanitizing	3	%	8	%
United States Other Services
Pest Elimination	8	%	12	%
GCS Service	33		35
Jackson	—		(2	)
Total United States Other Services	10	%	17	%
Total United States	4	%	9	%
International Cleaning & Sanitizing
Asia Pacific	9	%	4	%
Latin America	13		34
Canada	7		7
Africa/Export and Other	32		8
Total International Cleaning & Sanitizing	12	%	11	%
Consolidated	4	%	9	%

[GRAPH]

        Sales of the company’s United States Cleaning & Sanitizing operations were nearly $1.6 billion in 2001 and increased 3 percent over net sales of $1.5 billion in 2000. Business acquisitions accounted for approximately 1 percentage point of the growth in sales for 2001.  Sales reflected solid growth in the company’s Kay, Professional Products and Vehicle Care operations. The sales improvement also reflected benefits from new products and services, as well as aggressive sales efforts and programs. Net selling price increases during 2001 were not significant. U.S. Institutional operations sales growth during 2001 reflected modest growth in its specialty, housekeeping and Ecotemp programs, which were partially offset by the continuing slow down in the economy and the weaker demand in the lodging and restaurant markets due to the events of September 11, 2001.  Excluding the acquisition of Facilitec, Institutional’s sales increased 2 percent for 2001. Sales of Kay’s U.S. operations increased over the prior year with significant growth in its food retail business and good growth in sales to the quickservice market. Excluding the acquisition of Southwest Sanitary Distributing Company (SSDC) in February 2000,  Kay’s sales for 2001 increased 5 percent over the prior year. Textile Care sales decreased from the prior year due to exiting selected business and a very competitive market. Professional Products sales increased in 2001 with good growth in its healthcare and janitorial sales. Professional Products’ sales have been positively impacted by long-term supply agreements in its janitorial business. Water Care Services sales increased over the prior year with good growth in sales to the food and beverage and hospitality markets. Vehicle Care sales growth for 2001 was primarily due to new products and additional business with major oil company chains. Food & Beverage U.S. sales increased from the prior year with good growth in the beverage market.

[GRAPH]

        Sales of United States Other Services operations increased 10 percent to $273 million in 2001, from $248 million in 2000. Excluding the effects of businesses acquired and disposed of, sales increased 7 percent for 2001. Pest Elimination’s sales in 2001 included solid growth in contract services, slightly offset by a slowdown in non-contract services due to economic conditions. GCS Service sales growth increased over last year reflecting the continued expansion of its operations through acquisitions. Excluding the effects of businesses acquired,  GCS sales increased 4 percent for 2001. In the fourth quarter of 2000,  the company sold its Jackson dishmachine manufacturing business.

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[GRAPH]

        Management rate-based sales of the company’s International Cleaning & Sanitizing operations reached $522 million for 2001, an increase of 12 percent over sales of $465 million in 2000. Business acquisitions accounted for approximately 5 percentage points of the sales increase in 2001 for International Cleaning & Sanitizing operations. Excluding business acquisitions, Asia Pacific sales increased 8 percent with double-digit sales growth in New Zealand and East Asia and good growth in Japan. The increase in Asia Pacific sales was primarily from the food and beverage and institutional markets. Latin America sales increased  7 percent in 2001, excluding business acquisitions, with good growth in almost all countries. Sales in Canada increased over the prior year due to strong growth in sales to the institutional and food and beverage markets. Sales of the Africa/Export region increased sharply in 2001 due to strong results in South Africa and the full-year sales effect of a business, which was acquired in September 2000.

        Operating income of the company’s United States Cleaning & Sanitizing operations was $247 million in 2001, a decrease of 1 percent from operating income of $249 million in 2000. Business acquisitions had little effect on operating income for 2001. Operating income included strong growth for Professional Products and Water Care Services with moderate growth in Kay and Vehicle Care operations.  Operating income of Institutional, Food & Beverage and Textile Care was lower than the prior year. As a percentage of net sales, operating income decreased from 16.3 percent in 2000 to 15.6 percent in 2001.  Operating income margins declined due to lower sales volumes, unfavorable sales mix, increased storage and handling costs and increased raw material costs. The company added 50 sales-and-service associates to its United States Cleaning & Sanitizing operations during 2001.

        Operating income of United States Other Services operations increased 15 percent to $29 million in 2001. Excluding operating income of businesses acquired in 2001 and the annualized effect of businesses acquired and disposed of in 2000, operating income for 2001 increased 20 percent. Both Pest Elimination and GCS reported double-digit increases in operating income. The operating income margin of United States Other Services operations was 10.7 percent,  which is up from 10.3 percent of net sales in 2000. This increase reflected GCS’ efforts to improve income by focusing on operational efficiencies, as well as Pest Elimination’s increased productivity, more efficient use of products and cost controls. During 2001, the company added 120 sales-and-service associates to its United States Other Services operations.

        Operating income of International Cleaning & Sanitizing operations rose 5 percent to $50 million in 2001 from operating income of $47 million in 2000. The effects of businesses acquired accounted for approximately 1 percentage point of the growth in operating income for 2001. The International operating income margin decreased from 10.1 percent in 2000 to 9.5 percent in 2001. While the Latin America and Africa/Export regions showed operating income margin improvement, the margins for Asia Pacific and Canada declined due to higher raw material costs. Excluding associates added by Henkel-Ecolab, the company added 160 sales-and-service associates to its International Cleaning & Sanitizing operations during 2001.

        Operating income margins of the company’s International operations are presently less than the operating income margins realized for the company’s U.S. operations. The lower International margins are due to higher costs of importing raw materials and finished goods, increased investments in dispensing equipment and the additional costs caused by the difference in scale of International operations where operating locations are smaller in size as well as to the additional cost of operating in numerous and diverse foreign jurisdictions. Proportionately larger investments in sales, technical support and administrative personnel are also necessary in order to facilitate growth of International operations.

2000 compared with 1999

Sales of the company’s United States Cleaning & Sanitizing operations exceeded $1.5 billion in 2000 and increased 8 percent over net sales of $1.4 billion in 1999. Business acquisitions accounted for approximately 2 percentage points of the growth in sales for 2000. Sales reflected double-digit growth in sales of Kay’s operations and good growth in the core Institutional operations. The sales improvement also reflected sales of new products and services, a larger and better trained sales-and-service force, aggressive sales efforts and programs and generally good conditions in the hospitality and lodging industries.  Selling price increases during 2000 were not significant. Sales of U.S.  Institutional operations increased in 2000 with good growth in its specialty, housekeeping and Ecotemp programs, and modest growth in warewashing and laundry sales. Business acquisitions were not significant to Institutional’s sales growth. Excluding the acquisition of SSDC, Kay’s U.S. sales increased 14 percent over 1999 with good growth in sales to the quickservice market and continued growth and expansion of its food retail business. Textile Care sales decreased in 2000 as markets remained very price competitive. Sales of Professional Products decreased reflecting lower sales to the private label and government markets, partially offset by higher sales of healthcare products. Water Care Services sales increased due to good growth in sales to the hospitality and food and beverage markets. Excluding the annualized effect of the Blue Coral business acquired in February 1999, Vehicle Care sales decreased 1 percent for 2000 reflecting the loss of some customers during the integration of the Blue Coral business, which included sales force reorganizations and product consolidation. Food & Beverage U.S. sales increased moderately with strong growth in sales to the dairy and beverage markets.

        Sales of United States Other Services operations increased 17 percent to $248 million in 2000, from $212 million in 1999. Excluding the effects of businesses acquired, sales increased 10 percent for 2000.

25

Pest Elimination’s sales increased due to high growth in new contract sales and a continuation of solid growth across all of its business lines.  Sales of the GCS commercial kitchen equipment parts and repair operations rose as the company continued to expand operations through business acquisitions. Excluding the effects of businesses acquired,  GCS sales increased 9 percent for 2000. In the fourth quarter of 2000,  the company sold its Jackson dishmachine manufacturing business.  Jackson’s sales in 2000, prior to its divestiture, were flat compared with the full year sales for 1999.

        Management rate-based sales of the company’s International Cleaning & Sanitizing operations reached $465 million for 2000, an increase of 11 percent over sales of $421 million in 1999. Business acquisitions accounted for approximately 50 percent of the increase in International Cleaning & Sanitizing sales for 2000. Excluding business acquisitions, Asia Pacific sales increased 3 percent with double-digit growth in East Asia, good growth in New Zealand and Japan and lower sales in Australia. Asia Pacific sales reflected good growth in sales to both the institutional and food and beverage markets. Excluding businesses acquired, Latin America sales increased 10 percent with continued significant growth in Mexico and modest growth in Brazil. Sales in Canada rose with solid growth in sales to the institutional markets and improved sales to the food and beverage, textile care and professional products markets. Sales of Africa/Export operations increased due to an additional Export business acquired and good growth in sales of Africa’s operations.

        Operating income of the company’s United States Cleaning & Sanitizing operations reached $249 million in 2000 and increased 8 percent over operating income of $231 million in 1999. Business acquisitions accounted for approximately 10 percent of the growth in operating income for 2000. Operating income included good growth in Kay, Institutional and Water Care operations and modest growth in Food & Beverage. Operating income of Professional Products, Vehicle Care and Textile Care was lower than in 1999. As a percentage of net sales, operating income increased slightly to 16.3 percent in 2000,  from 16.2 percent in 1999. This margin improvement reflected strong results of the core Institutional operations, growth in sales of new products, synergies from the integration of businesses acquired, modest increases in raw material costs and tight cost controls. These benefits were substantially offset by poor results of Professional Products operations, investments in the sales-and-service force, lower margins of businesses acquired and higher fuel costs. The company added 280 sales-and-service associates to its United States Cleaning & Sanitizing operations during 2000.

        Operating income of United States Other Services operations increased 2 percent to $26 million in 2000. Excluding operating income of businesses acquired in 2000 and the annualized effect of 1999 acquisitions, operating income for 2000 was virtually unchanged from the prior year. Near double-digit growth in Pest Elimination operating income was offset by lower operating income of GCS operations.  Growth in the operating income of the divested Jackson business was not significant. The operating income margin of United States Other Services operations was 10.3 percent of net sales for 2000, down from 11.9 percent of net sales in 1999. This decrease reflected higher GCS operational expenses including fuel surcharges, rising labor rates and insurance losses, partially offset by growth in the sales of new Pest Elimination service offerings and cost controls. During 2000 the company added 225 sales-and-service associates to its United States Other Services operations.

        Operating income of International Cleaning & Sanitizing operations was $47 million in 2000 and increased 30 percent over operating income of $36 million in 1999. The effects of businesses acquired accounted for approximately 20 percent of this operating income growth. The International operating income margin improved to 10.1 percent of net sales in 2000 from 8.6 percent in 1999. All of the company’s international regions of operations reported double-digit growth in operating income and improved operating margins for 2000.  These improvements reflected sales growth from new customers,  including sales of new products, and tight cost controls. The company added 395 sales-and-service associates to its International Cleaning & Sanitizing operations during 2000.

Henkel-Ecolab

        Prior to November 30, 2001, the company operated cleaning and sanitizing businesses in Europe through a 50 percent economic interest in the Henkel-Ecolab joint venture. On November 30, 2001, Ecolab purchased the remaining 50 percent interest of Henkel-Ecolab it did not previously own from Henkel KGaA. Additional details related to this purchase are included in Note 4 of the notes to consolidated financial statements.

        The company included the results of Henkel-Ecolab operations in its financial statements using the equity method of accounting through November 30, 2001. The company’s equity in earnings of Henkel-Ecolab,  which includes royalty income and goodwill amortization, was $16 million in 2001, a decrease of 19 percent when compared to $20 million in 2000. When measured in euros, net income of Henkel-Ecolab for 2001 decreased 13 percent and reflected lower sales volumes driven by slowing economies and increasing raw material, energy and other costs, which were partially offset by price increases.

        Henkel-Ecolab sales, although not consolidated in Ecolab’s financial statements, increased 4 percent when measured in euros. Sales reflected the impact of Europe’s slowing economies and reduced orders from distributors as they lowered inventory levels. When measured in U.S. dollars, Henkel-Ecolab sales were flat when compared to the prior year due to the negative effects of a stronger U.S. dollar.

[GRAPH]

        Ecolab consolidated Henkel-Ecolab’s operations effective with the November 30, 2001 acquisition date and end of Henkel-Ecolab’s fiscal year for 2001. Because the company consolidates its International

26

operations on the basis of their November 30 fiscal year ends,  Henkel-Ecolab’s balance sheet has been consolidated with Ecolab’s balance sheet as of year-end 2001. The income statement for the European operations will be consolidated with Ecolab’s operations beginning in 2002.

2000 compared with 1999

The company’s equity in earnings of Henkel-Ecolab increased 7 percent to $20 million in 2000 from $18 million in 1999. When measured in euros, earnings of Henkel-Ecolab increased 18 percent and reflected the benefits of good sales growth, improved income margins, a lower effective income tax rate and tight cost controls, which more than offset investments in the sales-and-service force.

        Sales of Henkel-Ecolab increased 7 percent when measured in euros. All major business lines contributed to the overall sales growth for 2000. Sales continued to benefit from expansion of global contracts,  new product introductions and acquisitions. Henkel-Ecolab sales decreased 7 percent when measured in U.S. dollars due to the negative effects of a stronger U.S. dollar.

Corporate

Corporate operating expense totaled $5 million in 2001, compared with corporate operating income of $18 million in 2000 and corporate operating expense of $5 million in 1999. Historically, corporate operating expense includes overhead costs directly related to the Henkel-Ecolab joint venture. However, in 2000, corporate operating income also included the $25.9 million gain on the sale of the Jackson business, special charges of $7.1 million and income of $4.4 million for net reductions in probable losses related to certain environmental matters.

Interest and Income Taxes

Net interest expense for 2001 was $28 million, an increase of 16 percent over net interest expense of $25 million in 2000. This increase reflected higher debt levels during the year, including the additional debt incurred to purchase the remaining 50 percent of Henkel-Ecolab.

        Net interest expense of $25 million for 2000 increased 8 percent over net interest expense of $23 million in 1999. This increase reflected higher average debt levels during 2000 incurred to fund stock repurchases and business acquisitions.

        The company’s effective income tax rate was 40.5 percent for 2001, a decrease from the effective income tax rates in 2000 and 1999 of 40.7 percent and 41.1 percent,  respectively.  Excluding the effects of the sale of Jackson and special charges, the effective income tax rate for 2000 was 40.5 percent. The decrease in the 2001 and 2000 effective tax rates from 1999 was principally due to lower overall effective rates on earnings of International operations.  International’s effective income tax rate varies from year-to-year with the pre-tax income mix of the various countries in which the company operates. The 1999 effective income tax rate also benefited slightly from a one-time gain of $1.5 million related to the demutualization of an insurance company.

Financial Position

The company has maintained its long-term financial objective of an investment-grade balance sheet since 1993. The company’s debt continued to be rated within the “A” categories by the major rating agencies during 2001. Significant changes in the company’s financial position during 2001 and 2000 included the following:  

•      Total assets reached $2.5 billion at December 31, 2001, an increase of 47 percent over total assets of $1.7 billion at year-end 2000. At year-end 2001, the balance sheet of Henkel-Ecolab was consolidated with the company’s balance sheet due to the acquisition of the remaining 50 percent of Henkel-Ecolab from Henkel KGaA. Total assets as of November 30, 2001 increased approximately $0.7 billion as a result of this acquisition and the consolidation of Henkel-Ecolab.

        During 2000, total assets increased to $1.7 billion at year-end 2000 from $1.6 billion at year-end 1999. This increase reflects growth in ongoing operations and assets added through business acquisitions over the year. The increase in goodwill and other intangible assets was primarily due to the acquisition of Spartan, Southwest Sanitary Distributing Company and Facilitec in 2000. Accounts receivable,  inventories and property, plant and equipment were also added in 2000 as a result of these acquisitions.

•      Working capital levels increased to $102 million at December 31,  2001 from $69 million at year-end 2000 reflecting lower levels of current liabilities prior to the Henkel-Ecolab acquisition, as well as increases in accounts receivable and inventory due to the consolidation of Europe’s balance sheet for the first time as of year-end 2001.  During 2001, short-term debt increased approximately $97 million due to the issuance of commercial paper to finance the acquisition of Henkel-Ecolab. Working capital levels at year-end 2000 of $69 million were down from $107 million at year-end 1999 reflecting higher levels of short-term debt, accounts payable and other current liabilities.   

•      Total debt was $746 million at December 31, 2001 and increased from total debt of $371 million at year-end 2000 and $281 million at year-end 1999. Additional commercial paper borrowings were incurred during 2001 to fund the acquisition of the remaining 50 percent of Henkel-Ecolab. At December 31, 2001, the company classified $265.9 million of commercial paper borrowings as long-term debt. In February 2002, the company refinanced $265.9 million of commercial paper borrowings through the issuance of euro 300 million of Eurobonds. The company reduced debt under its 9.68 percent Senior Notes through scheduled debt repayments during both 2001 and 2000.  As of December 31, 2001, the ratio of total debt to capitalization rose

[GRAPH]

27

to 46 percent, from 33 percent at year-end 2000 and 27 percent at year-end 1999. The higher debt to capitalization ratio for 2001 was due to funding for the company’s acquisition of Henkel-Ecolab. The increase in the debt to capitalization ratio for 2000 was due to funding for the company’s share repurchase program.

Cash Flows

Cash provided by operating activities reached a new record high of $364 million for 2001, an increase from $315 million in 2000 and $293 million in 1999. The operating cash flow for 2001 increased due to a reduction in year-end accounts receivable and the additional cash flows generated by business acquisitions. The operating cash flow increase during 2000 benefited from strong earnings growth, including additional earnings and cash flows from businesses acquired. Changes in net operating asset levels positively affected the operating cash flow by approximately $10 million in 2001 and negatively affected it by approximately $2 million in 2000 and $16 million in 1999.

        Cash flows used for investing activities included capital expenditures of $158 million in 2001, $150 million in 2000 and $146 million in 1999. Worldwide additions of merchandising equipment, primarily cleaning and sanitizing product dispensers, accounted for approximately 70 percent of each year’s capital expenditures.  Merchandising equipment is depreciated over 3 to 7 year lives. The company also continued to invest in additional manufacturing facilities through construction and business acquisitions in order to meet sales requirements more efficiently. Cash used for businesses acquired included Henkel-Ecolab in 2001, Spartan and Facilitec in 2000 and Blue Coral in 1999. Investing cash flow activity also included the proceeds from the sale of the Jackson business in 2000 and the sale of certain Gibson businesses and duplicate facilities in 1999 which the company chose not to retain.

        Financing cash flow activity included cash used to reacquire shares and pay dividends and cash provided and used through the company’s debt arrangements. In May 2000, the company announced a program to repurchase up to $200 million of its common stock. Share repurchases totaled $32 million in 2001, $187 million in 2000 and $42 million in 1999. These repurchases were funded with operating cash flows and additional debt. In December 2000, the company announced an authorization to repurchase up to 5 million additional shares of common stock.

[GRAPH]

        In 2001, the company increased its annual dividend rate for the tenth consecutive year. The company has paid dividends on its common stock for 65 consecutive years. Cash dividends declared per share of common stock, by quarter, for each of the last three years were as follows:

	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Year
2001	$	0.13	$	0.13	$	0.13	$	0.135	$	0.525
2000	0.12		0.12		0.12		0.13		0.49
1999	0.105		0.105		0.105		0.12		0.435

Liquidity and Capital Resources

The company currently expects to fund all of the requirements which are reasonably foreseeable for 2002, including new program investments, scheduled debt repayments, dividend payments, possible acquisitions, and share repurchases from operating activities, including cash flows from the recently acquired Henkel-Ecolab operations, and funds raised through the February 2002 Eurobond issuance and commercial paper issuance. Cash provided by operating activities reached an all-time high of $364 million in 2001, despite the impact of deteriorating economic conditions on key customer segments. While cash flows could be negatively affected by a decrease in revenues, the company does not believe that its revenues are highly susceptible,  over the short run, to rapid changes in technology within our industry.  The company has a $450 million U.S. commercial paper program and a 200 million Australian dollar commercial paper program. Both programs are rated A-1 by Standard & Poor’s and P-1 by Moody’s. To support its commercial paper programs, the company maintains a $275 million multi-year committed credit agreement (terminating December 2005) and a $175 million 364-day committed credit facility (terminating December 2002). The company can draw directly on both credit facilities. As of February 14, 2002, approximately $167.5 million of these credit facilities were committed to support outstanding commercial paper, leaving $282.5 million available for other uses.  Additional details on the company’s credit facilities are included in Note 6 of the notes to consolidated financial statements.

        The company does not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purposes entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes. As such, the company is not materially exposed to any financing, liquidity, market or credit risk that could arise if Ecolab had engaged in such relationships.

28

        A schedule of the company’s obligations under various long-term debt agreements and operating leases with noncancelable terms in excess of one year are summarized in the following table:

	Payments due by Period
Contractual Obligations	Total		Less than 1 Year		2-3 Years		4-5 Years		After 5 Years
Long-term debt	$	515,367	$	3,087	$	12,790	$	77,020	$	422,470
Operating leases	90,807		25,885		33,895		18,528		12,499
Total contractualcash obligations	$	606,174	$	28,972	$	46,685	$	95,548	$	434,969

        The company does not have significant unconditional purchase obligations, or significant other commercial commitments such as commitments under lines of credit, standby letters of credit, guarantees, standby repurchase obligations or other commercial commitments.

        The company is in compliance with all covenants and other requirements of its credit agreements and indentures. Additionally,  the company does not have any rating triggers that would accelerate the maturity dates of its debt.

        However, a downgrade in the company’s credit rating would limit or preclude the company’s ability to issue commercial paper under its current programs. A credit rating downgrade could also adversely affect the company’s ability to renew existing, or negotiate new credit facilities in the future and could increase the cost of such facilities.  Should this occur, the company could seek additional sources of funding, including issuing term notes or bonds. In addition, the company has the ability at its option to draw upon its $450 million committed credit facilities prior to their termination.

Market Risk

The company enters into contractual arrangements (derivatives) in the ordinary course of business to manage foreign currency exposure and interest rate risks. The company does not enter into derivatives for trading purposes. The company’s use of derivatives is subject to internal policies that provide guidelines for control, counterparty risk and ongoing monitoring and reporting and is designed to reduce the volatility associated with movements in foreign exchange and interest rates on the company’s income statement.

        The company enters into forward contracts, swaps, and foreign currency options to hedge certain intercompany financial arrangements, and to hedge against the effect of exchange rate fluctuations on transactions related to cash flows and net investments denominated in currencies other than U.S. dollars. At December 31, 2001, the company had approximately $320 million of foreign currency forward exchange contracts with face amounts denominated primarily in euros.  The majority of these contracts related to short-term financing of the acquisition of Henkel-Ecolab and matured in February 2002. The remaining contracts generally expire within one year.

        The company manages interest expense using a mix of fixed and floating rate debt. To help manage borrowing costs, the company may enter into interest rate swaps. Under these arrangements, the company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional principal amount. At year-end 2001, the company had an interest rate swap agreement on the first 50 million Australian dollars (approximately $26 million U.S. dollars) of anticipated Australian floating rate debt. This agreement is effective through November 2004 and has a fixed annual pay rate of approximately 6%.

        Based on a sensitivity analysis (assuming a 10 percent adverse change in market rates) of the company’s foreign exchange and interest rate derivatives and other financial instruments, changes in exchange rates or interest rates would not materially affect the company’s financial position and liquidity. The effect on the company’s results of operations would be substantially offset by the impact of the hedged items.

Subsequent Events

In January 2002, the company announced that it plans to undertake restructuring and other cost-saving actions during 2002 in order to streamline and improve its global operations. These anticipated actions will result in pretax charges of $50 to $60 million in 2002. These charges will be partially offset by gains attributable to certain benefit plan changes. Approximately $6 million of those gains will be reported in the first quarter of 2002 and an estimated $16 million of net unrealized gains are expected to be amortized over 8 years and will reduce future benefit costs. The restructuring includes a reduction of the company’s global workforce by approximately 2 percent (350-450 positions) during 2002, the closing of several facilities, the discontinuance of selected product lines and other potential actions. The expected cost savings related to the restructuring and benefit plan changes are expected to begin in 2002, have a full impact in 2003, and continue to grow in future years. Upon completion of the plan in 2003, the company expects annual pretax savings of $25 million to $30 million ($15 million to $18 million after tax).

        Effective March 2002, the company will change its postretirement benefits plan. The company will discontinue its employer subsidy of postretirement health care benefits for most of its active employees.  The subsidized benefits will continue to be provided to certain defined active employees and all existing retirees. As a result of these actions,  the company will record a curtailment gain of approximately $6 million in the first quarter of 2002, as mentioned in the preceding paragraph.  In addition, the company will make changes in March 2002 to its 401(k) savings plan. Employee before-tax contributions of up to 3 percent of eligible compensation will be matched 100 percent by the company and employee before-tax contributions between 3 percent and 5 percent will be matched 50 percent by the company and will be 100 percent vested immediately.

        In February 2002, the company issued euro 300 million ($265.9 million) of Eurobonds, due February 2007. The proceeds from this debt issuance were used to repay a portion of outstanding commercial paper as of December 31, 2001. The commercial paper had been issued to finance the acquisition of the remaining 50 percent of Henkel-Ecolab that the company purchased on November 30, 2001.

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Consolidated statement of income

Year ended December 31 (thousands, except per share)	2001		2000			1999
Net sales	$	2,354,723	$	2,264,313		$	2,080,012
Operating expenses (income)
Cost of sales (including restructuring income of $566 in 2001 and expenses of $1,948 in 2000)	1,089,631		1,025,906			937,612
Selling, general and administrative expenses	946,089		916,004			852,449
Gain on sale of Jackson business			(25,925		)
Special charges	824		5,189
Operating income	318,179		343,139			289,951
Interest expense, net	28,434		24,605			22,713
Income before income taxes and equity in earnings of Henkel-Ecolab	289,745		318,534			267,238
Provision for income taxes	117,408		129,495			109,769
Equity in earnings of Henkel-Ecolab	15,833		19,516			18,317
Income before cumulative effect of change in accounting	188,170		208,555			175,786
Cumulative effect of change in accounting for revenue recognition			(2,428		)
Net income	$	188,170	$	206,127		$	175,786
Basic income per common share
Income before change in accounting	$	1.48	$	1.63		$	1.36
Change in accounting			(0.02		)
Net income	$	1.48	$	1.61		$	1.36
Diluted income per common share
Income before change in accounting	$	1.45	$	1.58		$	1.31
Change in accounting			(0.02		)
Net income	$	1.45	$	1.56		$	1.31
Weighted-average common shares outstanding
Basic	127,416		127,753			129,550
Diluted	129,928		131,946			134,419

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Consolidated balance sheet

December 31 (thousands, except per share)	2001		2000		1999
Assets
Current assets
Cash and cash equivalents	$	41,793	$	43,965	$	47,748
Accounts receivable, net	514,074		326,937		299,751
Inventories	279,785		168,220		176,369
Deferred income taxes	53,781		50,709		41,701
Other current assets	40,150		10,737		11,752
Total current assets	929,583		600,568		577,321
Property, plant and equipment, net	644,323		501,640		448,116
Investment in Henkel-Ecolab			199,642		219,003
Goodwill, net	596,925		252,022		205,330
Other intangible assets, net	178,951		55,034		44,426
Other assets	175,218		105,105		91,750
Total assets	$	2,525,000	$	1,714,011	$	1,585,946
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt	$	233,393	$	136,592	$	112,060
Accounts payable	199,772		146,428		122,701
Compensation and benefits	132,720		88,330		90,618
Income taxes	18,887				5,743
Other current liabilities	243,180		160,684		139,552
Total current liabilities	827,952		532,034		470,674
Long-term debt	512,280		234,377		169,014
Postretirement health care and pension benefits	183,281		117,790		97,527
Other liabilities	121,135		72,803		86,715
Shareholders’ equity (common stock, par value $1. 00 per share; shares outstanding: 2001 — 127,900; 2000 — 127,161; 1999 — 129,416)	880,352		757,007		762,016
Total liabilities and shareholders’ equity	$	2,525,000	$	1,714,011	$	1,585,946

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Consolidated statement of cash flows

Year ended December 31 (thousands)	2001			2000			1999
Operating Activities
Net income	$	188,170		$	206,127		$	175,786
Adjustments to reconcile net income to cash provided by operations:
Cumulative effect of change in accounting				2,428
Depreciation	128,020			119,072			109,946
Amortization	34,970			29,364			24,584
Deferred income taxes	(2,950		)	(11,604		)	(3,903		)
Equity in earnings of Henkel-Ecolab	(15,833		)	(19,516		)	(18,317		)
Henkel-Ecolab royalties and dividends	23,928			15,914			21,826
Restructuring expenses — asset disposals	(566		)	2,786
Gain on sale of Jackson business				(25,925		)
Other, net	(1,373		)	(913		)	(303		)
Changes in operating assets and liabilities:
Accounts receivable	20,570			(30,635		)	(44,643		)
Inventories	(8,014		)	(22,585		)	(8,913		)
Other assets	(26,049		)	(7,332		)	(23,842		)
Accounts payable	(7,451		)	16,626			(4,512		)
Other liabilities	31,059			41,679			65,785
Cash provided by operating activities	364,481			315,486			293,494
Investing Activities
Capital expenditures	(157,937		)	(150,009		)	(145,622		)
Property disposals	3,027			2,092			6,293
Businesses acquired and investments in affiliates	(469,804		)	(90,603		)	(45,991		)
Sale of businesses and assets				35,803			12,090
Other, net							(1,246		)
Cash used for investing activities	(624,714		)	(202,717		)	(174,476		)
Financing Activities
Net issuances of notes payable	204,218			124,080			43,896
Long-term debt borrowings	149,817						62,552
Long-term debt repayments	(16,283		)	(21,777		)	(122,096		)
Reacquired shares	(32,164		)	(186,516		)	(42,395		)
Cash dividends on common stock	(66,456		)	(61,644		)	(54,333		)
Other, net	18,381			30,622			13,263
Cash provided by (used for) financing activities	257,513			(115,235		)	(99,113		)
Effect of exchange rate changes on cash	548			(1,317		)	(582		)
Increase (Decrease) in Cash and Cash Equivalents	(2,172		)	(3,783		)	19,323
Cash and cash equivalents, beginning of year	43,965			47,748			28,425
Cash and cash equivalents, end of year	$	41,793		$	43,965		$	47,748

32

Consolidated statement of comprehensive income

and shareholders’ equity

(thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings			Deferred Compensation			Accumulated Other Comprehensive Loss			Treasury Stock			Total
Balance December 31, 1998	$	144,706	$	198,212	$	637,147		$	(10,998	)	$	(29,880	)	$	(248,646	)	$	690,541
Net income					175,786												175,786
Foreign currency translation											(29,483		)				(29,483		)
Comprehensive income																	146,303
Cash dividends declared					(56,332		)										(56,332		)
Stock options	850		15,211														16,061
Stock awards, net issuances			9,867					(8,006		)				874			2, 735
Business acquisitions														(187		)	(187		)
Reacquired shares														(42,395		)	(42,395		)
Amortization								5,290									5,290
Balance December 31, 1999	145,556		223,290		756,601			(13,714		)	(59,363		)	(290,354		)	762,016
Net income					206,127												206,127
Foreign currency translation											(29,712		)				(29,712		)
Comprehensive income																	176,415
Cash dividends declared					(62,769		)										(62,769		)
Stock options	2,190		44,633														46,823
Stock awards, net issuances			1,949					595						(704		)	1,840
Business acquisitions	424		13,715											(165		)	13,974
Reacquired shares														(186,516		)	(186,516		)
Amortization								5,224									5,224
Balance December 31, 2000	148,170		283,587		899,959			(7,895		)	(89,075		)	(477,739		)	757,007
Net income					188,170												188,170
Foreign currency translation											(5,962		)				(5,962		)
Other comprehensive loss											(586		)				(586		)
Comprehensive income																	181,622
Cash dividends declared					(67,080		)										(67,080		)
Stock options	1,564		34,985														36,549
Stock awards, net issuances			880					14						(180		)	714
Business acquisitions														(501		)	(501		)
Reacquired shares														(32,164		)	(32,164		)
Amortization								4,205									4,205
Balance December 31, 2001	$	149,734	$	319,452	$	1,021,049		$	(3,676	)	$	(95,623	)	$	(510,584	)	$	880,352

Common Stock Activity

	2001			2000			1999
Year ended December 31 (shares)	Common Stock	Treasury Stock		Common Stock	Treasury Stock		Common Stock	Treasury Stock
Shares, beginning of year	148,169,930	(21,009,195	)	145,556,459	(16,140,244	)	144,705,783	(15,227,043	)
Stock options	1,564,137			2,189,360			850,676
Stock awards, net issuances		21,382			7,009			196,546
Business acquisitions		(15,017	)	424,111	(4,395	)		(5,976	)
Reacquired shares		(831,119	)		(4,871,565	)		(1,103,771	)
Shares, end of year	149,734,067	(21,833,949	)	148,169,930	(21,009,195	)	145,556,459	(16,140,244	)

The accompanying notes are an integral part of the consolidated financial statements.

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Notes to consolidated financial statements

Note 1. Nature of Business

Ecolab Inc. (the company) is the leading global developer and marketer of premium cleaning, sanitizing, pest elimination, maintenance and repair products and services for the hospitality, institutional and industrial markets. Customers include hotels and restaurants; foodservice,  healthcare and educational facilities; quickservice (fast-food) units; commercial laundries; light industry; dairy plants and farms; and food and beverage processors around the world.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the company and all majority-owned subsidiaries. Prior to November 30, 2001, the company accounted for its investment in Henkel-Ecolab under the equity method of accounting. As discussed further in Note 4, on November 30, 2001, the company acquired the remaining 50 percent interest of the Henkel-Ecolab joint venture that it did not previously own, and Henkel-Ecolab became a wholly-owned subsidiary of the company. Because the company consolidates its international operations on the basis of their November 30 fiscal year ends, the balance sheet of Henkel-Ecolab as of November 30, 2001 has been consolidated with the company’s balance sheet as of year-end 2001.  The income statement, however, for the European operations will be consolidated with the company’s operations beginning in 2002.  International subsidiaries, including Henkel-Ecolab, are included in the financial statements on the basis of their November 30 fiscal year ends to facilitate the timely inclusion of such entities in the company’s consolidated financial reporting.

Foreign Currency Translation

Financial position and results of operations of the company’s international subsidiaries, including Henkel-Ecolab, generally are measured using local currencies as the functional currency. Assets and liabilities of these operations are translated at the exchange rates in effect at each fiscal year end. The translation adjustments related to assets and liabilities that arise from the use of differing exchange rates from period to period are included in accumulated other comprehensive loss in shareholders’ equity. Income statement accounts are translated at the average rates of exchange prevailing during the year. The different exchange rates from period to period impact the amount of reported income from the company’s International operations.

Cash and Cash Equivalents

Cash equivalents include highly-liquid investments with a maturity of three months or less when purchased.

Inventory Valuations

Inventories are valued at the lower of cost or market. Domestic chemical inventory costs are determined on a last-in, first-out (lifo) basis. Lifo inventories represented 29 percent, 47 percent and 41 percent of consolidated inventories at year-end 2001, 2000 and 1999, respectively. All other inventory costs are determined on a first-in, first-out (fifo) basis, including the inventory of Henkel-Ecolab which was included in consolidated inventories at year-end 2001.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Merchandising equipment consists principally of various systems that dispense cleaning and sanitizing products and low-temperature dishwashing machines. The dispensing systems are accounted for on a mass asset basis, whereby equipment is capitalized and depreciated as a group and written off when fully depreciated. Depreciation and amortization are charged to operations using the straight-line method over the assets’ estimated useful lives ranging from 5 to 50 years for buildings,  3 to 7 years for merchandising equipment, and 3 to 11 years for machinery and equipment.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arise principally from business acquisitions. Goodwill represents the excess of purchase price over fair value of net assets acquired. Other intangible assets include primarily customer relationships, noncompete agreements and trademarks.  These assets are amortized on a straight-line basis over their estimated economic lives, generally not exceeding 30 years.

Long-Lived Assets

The company periodically reviews its long-lived assets for impairment and assesses whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded,  if any, is calculated by the excess of the asset’s carrying value over its fair value.

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Revenue Recognition

The company has historically recognized revenue as services were performed or products were shipped to customers.  During 2000, the company completed an analysis of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” As a result of this analysis, the company changed certain policies to recognize revenue on product sales at the time title transfers to the customer. The cumulative effect of this change on periods prior to 2000 was $2,428,000 (net of income tax benefits of $1,592,000), or $0.02 per diluted share, and has been included in the company’s consolidated statement of income for 2000.

Income Per Common Share

The computations of the basic and diluted per share amounts for the company’s operations were as follows:

(thousands, except per share)	2001		2000		1999
Income before change in accounting	$ 188,170		$ 208,555		$ 175,786
Weighted-average common shares outstanding
Basic	127,416		127,753		129,550
Effect of dilutive stock options and awards	2,512		4,193		4,869
Diluted	129,928		131,946		134,419
Income before change in accounting per common share
Basic	$	1.48	$	1.63	$	1.36
Diluted	$	1.45	$	1.58	$	1.31

        Stock options to purchase approximately 3. 7 million shares for 2001, 6. 3 million shares for 2000 and 3. 6 million shares for 1999 were not dilutive and, therefore, were not included in the computations of diluted income per common share amounts.

Comprehensive Income

For the company, comprehensive income includes net income, foreign currency translation adjustments and gains and losses on derivative instruments designated and effective as cash flow hedges that are charged or credited to the accumulated other comprehensive loss account in shareholders’ equity.

Use of Estimates

The preparation of the company’s financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141,  “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” 

        The most significant changes made by SFAS No. 141 are: 1) requiring that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and 2) establishing specific criteria for the recognition of intangible assets separately from goodwill.

        SFAS No. 142 primarily addresses the accounting for acquired goodwill and other intangible assets (i.e. , the post-acquisition accounting). The provisions of SFAS No. 142 will be effective for the company beginning in 2002. The most significant changes made by SFAS No. 142 are: 1) goodwill and indefinite-lived intangible assets will no longer be amortized; 2) goodwill and indefinite-lived intangible assets will be tested for impairment at least annually; and 3) the amortization period of intangible assets with finite lives will no longer be limited to forty years.

        The company adopted SFAS No. 141 effective July 1, 2001, and SFAS No. 142 will be adopted effective January 1, 2002. Goodwill and other intangible assets acquired after June 30, 2001, are subject immediately to the nonamortization and amortization provisions of this statement. These standards only permit prospective application of the new accounting; accordingly, adoption of these standards will not affect previously reported financial information. The principal effect of SFAS No. 142 will be the elimination of goodwill amortization. The company estimates the impact of not amortizing historical goodwill existing prior to the new goodwill generated by the Henkel-Ecolab transaction described in Note 4 to be an after-tax benefit of approximately $19 million, or 15 cents per diluted share for the year ended December 31, 2001. The company is currently assessing whether it will record a cumulative effect of a change in accounting for transitional goodwill impairment in 2002 upon adoption of SFAS No. 142.

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Reclassifications

Certain reclassifications have been made to the previously reported 2000 and 1999 balance sheet amounts to conform with the 2001 presentation. These reclassifications had no impact on previously reported net income or shareholders’ equity. In addition, in connection with adopting EITF 01-09 “Accounting for Consideration Given by a Vendor to a Customer”, the company will reclassify certain customer incentive costs from selling, general and administrative expenses to a component of revenue during 2002, the impact of which will decrease revenue by approximately $35 million. Also beginning in 2002, the company will reclassify repair part costs from selling, general and administrative expense to cost of sales, the impact of which will increase cost of sales by approximately $30 million.

Note 3. Special Charges

During the fourth quarter of 2000 management approved various actions to improve the long-term efficiency and competitiveness of the company and to reduce costs. These actions included personnel reductions, discontinuance of certain product lines, changes to certain manufacturing and distribution operations and the closing of selected sales and administrative offices. As a result of these actions the company recorded restructuring expenses of $7,137,000 ($4,311, 000 after tax), or $0.03 per diluted share in 2000. These restructuring expenses and subsequent reductions to the related liability accounts included the following:

(thousands)	Employee Termination Benefits			Asset Disposals			Other			Total
Initial expense and accrual	$	2,938		$	2,786		$	1,413		$	7,137
Cash payments	(175		)				(123		)	(298		)
Non-cash charges				(2,786		)				(2,786		)
Restructuring liability, December 31, 2000	2,763			0			1,290			4,053
Cash payments	(2,594		)				(1,343		)	(3,937		)
Revision to prior estimates	(169		)	(566		)	53			(682		)
Non-cash charges				566						566
Restructuring liability, December 31, 2001	$	0		$	0		$	0		$	0

        Restructuring expenses have been included in “special charges” on the consolidated statement of income, with a portion of the expenses classified as cost of sales. The expenses have been included in the company’s corporate operating income for segment reporting purposes.  Restructuring liabilities for employee termination benefits were classified in compensation and benefits in current liabilities and restructuring liabilities for other costs were classified in other current liabilities.

        Employee termination benefit expenses included 86 personnel reductions through voluntary and involuntary terminations primarily in the sales, marketing and corporate administrative functions of the company. Cash payments for these benefits were completed during 2001.

        Asset disposals included inventory and property, plant and equipment write-downs. Inventory write-downs totaled $1,948,000 and reflect the discontinuance of product lines which were not consistent with the company’s long-term strategies. Revisions of prior year estimates related to inventory write-downs reduced current year cost of sales by $566,000. Property, plant and equipment write-downs of $838,000 reflected the closing of sales and administrative offices and changes to certain manufacturing and distribution operations.

        Other restructuring expenses included lease termination and other facility exit costs related to the closing of sales and administrative offices.

        During the fourth quarter of 2001, the company incurred $940,000 in special charges to facilitate the acquisition of Henkel-Ecolab and to begin the integration process following the acquisition. These costs have been included in “special charges” on the consolidated statement of income and have been included in corporate operating income for segment reporting purposes.

        During the first quarter of 2002, management announced its plans to undertake further restructuring and cost saving actions during 2002, primarily related to the integration of Henkel-Ecolab. These actions are expected to include workforce reductions, facility closings, employee benefit changes and product discontinuations. The company anticipates these actions will result in pretax charges of $50 million to $60 million in 2002, which will be partially offset by a benefit of approximately $6 million from changes to certain benefit plans. These actions are expected to produce significant annual cost savings.

Note 4.  Henkel-Ecolab

Prior to November 30, 2001, the company and Henkel KGaA, Düsseldorf, Germany (“Henkel”), each owned 50 percent of Henkel-Ecolab, a joint venture of their respective European institutional and industrial cleaning and sanitizing businesses. The company accounted for its investment in Henkel-Ecolab under the equity method of accounting prior to November 30, 2001. On November 30, 2001, Ecolab purchased the remaining 50 percent interest of this joint venture it did not previously own from Henkel. Because the company consolidates its international operations on the basis of their November 30 fiscal year ends, the balance sheet of Henkel-Ecolab as of November 30, 2001 has been consolidated with the company’s balance sheet as of year-end 2001. The income statement for the European operations will be consolidated with the company’s operations beginning in 2002.

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        Henkel-Ecolab results of operations and the company’s equity in earnings of Henkel-Ecolab included:

(thousands)	2001			2000			1999
Henkel-Ecolab
Net sales	$	869,487		$	869,824		$	937,817
Gross profit	419,635			429,405			465,988
Income before income taxes	67,286			82,652			82,529
Net income	$	40,043		$	47,659		$	46,643
Ecolab equity in earnings
Ecolab equity in net income	$	20,022		$	23,829		$	23,322
Ecolab royalty income from Henkel-Ecolab, net of income taxes	2,123			2,240			2,570
Amortization expense for the excess of cost over the underlying net assets of Henkel-Ecolab	(6,312		)	(6,553		)	(7,575		)
Equity in earnings of Henkel-Ecolab	$	15,833		$	19,516		$	18,317

        Prior year gross profit amounts have been adjusted to reflect the reclassification of shipping and handling charges as cost of sales.  Shipping and handling charges totaled $60.0 million, $58.3 million and $60.5 million for 2001, 2000 and 1999, respectively.

        In 2001, 2000, and 1999, the company and its affiliates sold products and services in the amounts of approximately $507,000, $625,000 and $568,000 to Henkel or its affiliates, and purchased products and services in the amount of approximately $4,628,000, $5,183,000 and $3,530,000 from Henkel or its affiliates. The company also acquired access to certain technology of Henkel during 2000 and 1999 in return for annual payments of approximately $1,700,000 and $1,300,000, respectively. The transactions were made at prices comparable to prices charged to unrelated third parties.

        Prior to November 30, 2001, the company’s investment in Henkel-Ecolab included the unamortized excess of the company’s investment over its equity in Henkel-Ecolab net assets. This excess was $92 million at November 30, 2001 and was included in goodwill, net at year-end 2001. The excess is being amortized on a straight-line basis over estimated economic useful lives of up to 30 years. This historical goodwill plus the new goodwill generated by the acquisition of the remaining 50 percent of Henkel-Ecolab will be subject to provisions of SFAS No. 142.

        Condensed balance sheet information for Henkel-Ecolab was:

November 30 (thousands)	2000		1999
Current assets	$	335,944	$	351,189
Noncurrent assets	151,161		177,855
Current liabilities	213,597		246,411
Noncurrent liabilities	$	65,614	$	73,807

Henkel owned 36.3 million shares, or approximately 28.4 percent of the company's outstanding common stock on December 31, 2001.

        The company acquired the remaining 50 percent of Henkel-Ecolab for approximately 484 million euros, equal to approximately $433 million at rates of exchange prevailing at the time of the transaction plus $6.5 million of direct transaction related expenses. The purchase price is subject to certain post-closing adjustments.

        The acquisition of Henkel-Ecolab has been accounted for under the purchase method of accounting as a step-acquisition. Accordingly,  the purchase price has been applied to the 50 percent interest of Henkel-Ecolab being acquired.

        The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition.

November 30 (thousands)	2001
Current assets	$	178,705
Property, plant and equipment	66,538
Identifiable intangible assets	119,257
Goodwill	239,737
Other assets	9,185
Total assets acquired	613,422
Current liabilities	115,559
Postretirement health care and pension benefits	38,614
Other liabilities	19,860
Total liabilities assumed	174,033
Purchase price	$	439,389

        Identifiable intangible assets have a weighted-average useful life of approximately 14 years. Included as a component of identifiable intangible assets are customer relationships of $83 million and intellectual property of $31 million. Goodwill was assigned to the International Cleaning & Sanitizing reportable segment.

        As part of the transaction, the stockholder agreement between the company and Henkel was amended and extended. The amended stockholder agreement will provide, among other things, that Henkel is permitted to increase its ownership in the company to 35 percent of the outstanding common stock. Henkel will remain entitled to proportionate representation on the company’s board of directors.

        The following unaudited pro forma financial information reflects the consolidated results of the company and Henkel-Ecolab assuming the acquisition had occurred at the beginning of 2000.

(thousands, except per share)	2001		2000
	(unaudited)		(unaudited)
Net sales	$	3,224,210	$	3,134,137
Income before cumulative effect of change in accounting	192,009		215,651
Diluted income before change in accounting per common share	$	1.48	$	1.63

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        The unaudited pro forma results are presented for information purposes only and include the preliminary purchase accounting as described above. These unaudited pro forma results also do not include the benefits of improvements from synergies the company anticipates it will realize. The results are not necessarily indicative of results that would have occurred had the acquisition been completed at the beginning of 2000, nor are they necessarily indicative of future operating results.

Note 5.  Other Business Acquisitions and Divestitures

Business Acquisitions

Businesses acquired by the company during the years ended December 31, 2001 and 2000, excluding the acquisition of Henkel-Ecolab, were as follows:

Business Acquired	Date of Acquisition	Ecolab Operating Segment — Type of Business	Estimated Annual Sales Prior to Acquisition (millions)
			(unaudited)
2001
Randall International LLC — 25% interest	Jan. 2001	Institutional	$	8
Envirocare Service Pte. Ltd.	March 2001	Asia Pacific	1
Microbiotecnica	July 2001	Latin America	3
Commercial Parts & Service, Inc.	Oct. 2001	GCS	28
2000
Southwest Sanitary Distributing Co. (SSDC)	Feb. 2000	Kay	$	24
Spartan	Feb. 2000	Latin America	20
ARR/CRS	June 2000	GCS	4
Dong Woo Deterpan Co. Ltd.	June 2000	Asia Pacific	6
Stove Parts Supply Co.	Aug. 2000	GCS	19
Facilitec Corp.	Sept. 2000	Institutional	14
Zohar Dalia Soap andDetergent Factory (Israel) — 51% interest	Sept. 2000	Africa/Export	15
Peterson’s Commercial Parts & Service	Nov. 2000	GCS	4
Ecolab S. A.— 23. 5% interest in addition to prior 51% interest	Dec. 2000	Latin America	8

        In addition, 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 and is being accounted for using the equity method.

        The total consideration paid by the company for the above 2001 acquisitions was approximately $30 million, of which approximately $18 million was allocated to goodwill.

        The total consideration paid by the company for the above 2000 acquisitions included cash of approximately $90 million and 424,111 shares of common stock with a market value of approximately $14 million issued in the SSDC acquisition, of which approximately $88 million was allocated to goodwill.

        During 1999, the company acquired substantially all of the assets of Blue Coral Systems. Blue Coral had annual sales of approximately $30 million and was combined with the company’s existing Vehicle Care operations. The company also added to its GCS and South Africa operations through small business acquisitions.

        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.  Net sales and operating income of these businesses were not significant to the company’s consolidated results of operations, financial position and cash flows.

Gain on Sale of Jackson Business

In November 2000, the company sold its Jackson dishmachine manufacturing business for cash proceeds of approximately $36 million.  The company realized a gain of $25,925,000 ($14,988,000 after tax), or $0.11 per diluted share. The gain has been included in corporate operating income for segment reporting purposes. Jackson’s total annual sales were approximately $40 million, including intercompany sales to Ecolab. Jackson will continue to supply dishmachines to the company under a long-term supply agreement.

        Net sales, excluding intercompany sales, for the business were $13.7 million and $13.9 million for 2000 and 1999, respectively.  Operating income, excluding intercompany profit, for the business was $1.4 million and $1.3 million for 2000 and 1999, respectively.  The consolidated financial statements and accompanying notes reflect the operating results of the Jackson dishmachine manufacturing business as a continuing operation in the United States Other Services segment through the date of disposal (November 9, 2000).

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Note 6.  Balance Sheet Information

December 31 (thousands)	2001			2000			1999
Accounts Receivable, Net
Accounts receivable	$	544,371		$	342,267		$	320,720
Allowance for doubtful accounts	(30,297		)	(15,330		)	(20,969		)
Total	$	514,074		$	326,937		$	299,751
Inventories
Finished goods	$	124,657		$	74,392		$	71,395
Raw materials and parts	156,754			96,430			106,239
Excess of fifo cost over lifo cost	(1,626		)	(2,602		)	(1,265		)
Total	$	279,785		$	168,220		$	176,369
Property, Plant and Equipment, Net
Land	$	20,349		$	12,436		$	13,516
Buildings and leaseholds	221,054			174,651			162,955
Machinery and equipment	452,611			290,017			273,101
Merchandising equipment	743,404			556,205			492,160
Construction in progress	22,217			22,235			15,522
	1,459,635			1,055,544			957,254
Accumulated depreciation and amortization	(815,312		)	(553,904		)	(509,138		)
Total	$	644,323		$	501,640		$	448,116
Goodwill, Net
Goodwill	$	763,211		$	311,401		$	257,496
Accumulated amortization	(166,286		)	(59,379		)	(52,166		)
Total	$	596,925		$	252,022		$	205,330
Other Intangible Assets, Net
Other intangible assets	$	235,527		$	76,008		$	62,851
Accumulated amortization	(56,576		)	(20,974		)	(18,425		)
Total	$	178,951		$	55,034		$	44,426
Other Assets
Deferred income taxes	$	56,952		$	26,768		$	24,591
Other	118,266			78,337			67,159
Total	$	175,218		$	105,105		$	91,750
Short-Term Debt
Notes payable	$	230,306		$	68,644		$	96,992
Long-term debt, current maturities	3,087			67,948			15,068
Total	$	233,393		$	136,592		$	112,060
Long-Term Debt
6.875% notes, due 2011	$	148,847
Commercial paper	265,860			$	145,800
7.19% senior notes, due 2006	75,000			75,000			$	75,000
9.68% senior notes, due 1995-2001				14,286			28,571
6.00% medium-term notes, due 2001				52,800			63,500
Other	25,660			14,439			17,011
	515,367			302,325			184,082
Long-term debt, current maturities	(3,087		)	(67,948		)	(15,068		)
Total	$	512,280		$	234,377		$	169,014

        The company has a $275 million Multicurrency Credit Agreement with a consortium of banks that has a term through 2005. The company may borrow varying amounts from time to time on a revolving credit basis, with loans denominated in multiple currencies, if available. The company has the option of borrowing based on various short-term interest rates. The agreement includes a covenant regarding the ratio of total debt to capitalization. No amounts were outstanding under the agreement at year-end 2001, 2000 and 1999.

        In December 2001, the company entered into two additional credit agreements with a consortium of banks to support its commercial paper program. One agreement is a $175 million credit agreement for 364 days. The second agreement is a $275 million credit agreement for 180 days and was effectively terminated by a provision reducing the banks’ commitments under the agreement following the company’s Eurobond offering in February 2002. The company may borrow varying amounts from time to time on a revolving credit basis. The company has the option of borrowing based on various short-term interest rates.  Each agreement includes a covenant regarding total debt to capitalization. No amounts were outstanding at year-end 2001.

        These agreements support the company’s $450 million U.S.  commercial paper program and its 200 million Australian dollar commercial paper program. At December 31, 2001 and 2000, the company had $355.7 million and $145.8 million, respectively, in outstanding U.S. commercial paper with an average annual interest rate of 2.0 percent and 6.7 percent, respectively. The company also had 132.5 million and 34.5 million of Australian dollar denominated commercial paper (in U.S. dollars, approximately $69 million and $18 million, respectively) outstanding at year-end 2001 and 2000, respectively, with an average annual interest rate of 4.5 percent and 6.4 percent,  respectively. The U.S. commercial paper outstanding at December 31, 2001 was primarily used to finance the acquisition of Henkel-Ecolab as discussed in Note 4.

        In February 2002, the company issued euro 300 million ($265.9 million) of 5.375 percent Eurobonds, due February 2007. The proceeds from this debt issuance were used to repay a portion of the U.S. commercial paper outstanding as of December 31, 2001. Therefore, $265.9 million of commercial paper outstanding at December 31, 2001 was classified as long-term debt.

        In January 2001, the company issued $150 million of 6.875 percent notes, due 2011. The proceeds from this debt issuance were used to repay commercial paper outstanding at December 31, 2000. Therefore, commercial paper outstanding at year-end 2000 was also classified as long-term debt.

39

        As of December 31, 2001, the weighted-average interest rate on notes payable was 4.4 percent in 2001, 7.7 percent for 2000 and 7.2 percent for 1999.

        As of December 31, 2001, the aggregate annual maturities of long-term debt for the next five years were: 2002 — $3,087,000; 2003 — $11,524,000; 2004 — $1,266,000; 2005 — $990,000 and 2006 — $76,030,000.

        Interest expense was $31,477,000 in 2001, $26,707,000 in 2000 and $25,053,000 in 1999. Interest income was $3,043,000 in 2001,  $2,102,000 in 2000 and $2,340,000 in 1999. Total interest paid was $26,402,000 in 2001, $27,497,000 in 2000 and $24,451,000 in 1999.

Notes 7.  Financial Instruments

Foreign Currency and Interest Rate Instruments

Effective January 1, 2001, the company adopted Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended (SFAS No. 133).  This statement requires that all derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. The company recorded a transition adjustment, which increased other comprehensive income by $47,000 upon adoption of SFAS No. 133 on January 1, 2001.

        The company does not hold derivative financial instruments of a speculative nature. All of the company’s derivatives are recognized on the balance sheet at their fair value. On the date that the company enters into a derivative contract, it designates the derivative as (1) a hedge of (a) the fair value of a recognized asset or liability or (b) an unrecognized firm commitment (a “fair value” hedge), (2) a hedge of (a) a forecasted transaction or (b) the variability of cash flows that are to be received or paid in connection with a recognized asset or liability (a “cash flow” hedge); or (3) a foreign-currency fair-value or cash flow hedge (a “foreign currency” hedge). Changes in the fair value of a derivative that is highly effective as and that is designated and qualifies as a fair-value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments),  are recorded in current-period earnings. Changes in the fair value of a derivative that is highly effective as and that is designated and qualifies as a cash flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income, until earnings are affected by the variability of cash flows of the hedged transaction. Any hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative exceed the variability in the cash flows of the forecasted transaction) is recorded in current-period earnings.  Changes in the fair value of a derivative that is highly effective as and that is designated and qualifies as a foreign-currency hedge is recorded in either current-period earnings or other comprehensive income,  depending on whether the hedging relationship satisfies the criteria for a fair-value or cash-flow hedge.

        The company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair-value, cash flow or foreign-currency hedges to (1) specific assets and liabilities on the balance sheet or (2) specific firm commitments or forecasted transactions. The company also formally assesses (both at the hedge’s inception and on an ongoing basis) whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of hedging items and whether those derivatives may be expected to remain highly effective in future periods. When it is determined that a derivative is not (or has ceased to be) highly effective as a hedge, the company will discontinue hedge accounting prospectively. It is the company’s policy,  however, that derivative instruments to be used in hedging transactions must always be highly effective as a hedge. As such, the company believes that on an ongoing basis its portfolio of derivative instruments will generally be highly effective as hedges. Hedge ineffectiveness during the year ended December 31, 2001 was not significant.

        The company has entered into foreign currency forward contracts to hedge specific foreign currency exposures related to intercompany debt, its investment in Henkel-Ecolab, subsidiary royalties, product purchases, firm commitments and other intercompany transactions.  The company uses these contracts to hedge against the effect that fluctuations in exchange rates may have on forecasted cash flows.  These contracts generally expire within one year.

        The company had foreign currency forward exchange contracts with a face amount denominated primarily in euros in 2001 and deutsche marks in 2000 and 1999 and totaling approximately $320 million at December 31, 2001, $65 million at December 31, 2000 and $77 million at December 31, 1999. Foreign currency forward exchange contracts at December 31, 2001 included contracts outstanding related to short-term financing of the acquisition of Henkel-Ecolab. These contracts were originated in December 2001 and matured in February 2002. As such, the unrealized gains and losses on these contracts were not significant at December 31, 2001.

        The company also periodically uses interest rate swaps to manage the risk generally associated with interest volatility on variable-rate debt. The company has entered into an interest-rate swap agreement which is effective November 2001 through November 2004 and has used this agreement to provide for a fixed rate of interest on the first 50 million Australian dollars of Australian floating-rate debt. This interest-rate swap is a “cash flow hedge”.

40

Fair Value of Other Financial Instruments

The carrying amount and the estimated fair value of other financial instruments held by the company were:

December 31 (thousands)	2001		2000		1999
Carrying amount
Cash and cash equivalents	$	41,793	$	43,965	$	47,748
Notes payable	230,306		68,644		96,992
Long-term debt (including current maturities)	515,367		302,325		184,082
Fair value
Long-term debt (including current maturities)	$	526,378	$	303,962	$	182,271

        The carrying amounts of cash equivalents and notes payable approximate fair value because of their short maturities.

        The fair value of long-term debt is based on quoted market prices for the same or similar debt instruments.

Note 8.  Shareholders’ Equity

Authorized common stock, par value $1.00 per share, was 200 million shares in 2001, 2000 and 1999. Treasury stock is stated at cost.  Dividends declared per share of common stock were $0.525 for 2001,  $0.49 for 2000 and $0.435 for 1999.

        The company has 15 million shares, without par value, of authorized but unissued preferred stock.

        Each share of outstanding common stock entitles the holder to one-half of a preferred stock purchase right. A right entitles the holder,  upon occurrence of certain events, to buy one one-hundredth of a share of Series A Junior Participating Preferred Stock at a purchase price of $115, subject to adjustment. The rights, however, will not become exercisable unless and until, among other things, any person or group acquires 15 percent or more of the outstanding common stock of the company, or the company’s board of directors declares a holder of 10 percent or more of the outstanding common stock to be an “adverse person” as defined in the rights plan. Upon the occurrence of either of these events, the rights will become exercisable for common stock of the company (or in certain cases common stock of an acquiring company) having a market value of twice the exercise price of a right. The rights provide that the holdings by Henkel KGaA or its affiliates, subject to compliance by Henkel with certain conditions,  will not cause the rights to become exercisable nor cause Henkel to be an “adverse person.” The rights are redeemable under certain circumstances at one cent per right and, unless redeemed earlier,  will expire on March 11, 2006.

        The company reacquired 621,700 shares of its common stock in 2001, 4,781,500 shares in 2000 and 998,200 shares in 1999 through open and private market purchases under prior board authorizations.  In December 2000, the company announced a new authorization to repurchase up to 5.0 million shares of Ecolab common stock for the purpose of offsetting the dilutive effect of shares issued for stock incentive plans and for general corporate purposes. As of December 31, 2001, 4.4 million shares remained to be purchased under this program.  The company also reacquired 209,419 shares of its common stock in 2001, 90,065 shares in 2000 and 105,571 in 1999 related to the exercise of stock options and the vesting of stock awards.

9.  Stock Incentive and Option Plans

The company’s stock incentive and option plans provide for grants of stock options and stock awards. Common shares available for grant as of December 31 were 1,899,571 for 2001, 3,501,782 for 2000 and 6,291,653 for 1999.

        Options may be granted to purchase shares of the company’s stock at not less than fair market value at the date of grant. Options granted in 2000 and 2001 generally become exercisable over three years from date of grant and expire within ten years from date of grant. A summary of stock option activity and average exercise prices is as follows:

Shares	2001			2000			1999
Granted	2,667,026			2,768,975			1,688,190
Exercised	(1,564,137		)	(2,189,360		)	(850,676		)
Canceled	(556,334		)	(142,090		)	(381,844		)
December 31:
Outstanding	12,429,241			11,882,686			11,445,161
Exercisable	7,696,903			5,531,858			6,619,361
Average exercise price per share
Granted	$	38.65		$	39.04		$	40.06
Exercised	12.38			10.56			9.92
Canceled	44.69			33.66			44.26
December 31:
Outstanding	33.73			30.35			24.28
Exercisable	$	30.93		$	17.73		$	13.83

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Note 9. Stock Incentive and Option Plans (continued)

        Information related to stock options outstanding and stock options exercisable as of December 31, 2001, is as follows:

Options Outstanding
Range of Exercise Prices	Options Outstanding	Weighted-Average Remaining Contractual Life	Weighted-Average Exercise Price
$  6.77 — $13.41	1,680,844	2.7 years	$	11.73
$14.88 — $35.81	2,385,111	5.7 years	24.38
$37.92 — $38.53	4,653,055	9.3 years	38.23
$39.44 — $43.91	1,635,231	8.0 years	40.52
$49.00	2,075,000	1.4 years	$	49.00

Options Exercisable
Range of Exercise Prices	Options Exercisable	Weighted-Average Exercise Price
$  6.77 — $13.41	1,680,844	$	11.73
$14.88 — $35.81	2,210,454	23.78
$37.92 — $38.53	893,906	38.53
$39.44 — $43.91	836,699	40.17
$49.00	2,075,000	$	49.00

        Stock awards are subject to forfeiture in the event of termination of employment. The value of a stock award at the date of the grant is charged to income over the periods during which the restrictions lapse.

        The expense associated with shares issued under the company’s restricted stock plan is based on the market price of the company’s stock at the date of grant and is amortized on a straight-line basis over the periods during which the restrictions lapse. Restricted stock awards generally vest over a 4-year period with 50 percent vesting 2 years after grant and the remaining 50 percent vesting 4 years after grant. Stock awards are not performance based and vest with continued employment. In the computation of basic earnings per share,  unvested restricted shares are not considered. The effect of restricted stock awards, cancellations and vesting are included in the computation of diluted earnings per share using the treasury stock method.

        The company measures compensation cost for its stock incentive and option plans using the intrinsic value-based method of accounting.

        Had the company used the fair value-based method of accounting to measure compensation expense for its stock incentive and option plans beginning in 1995 and charged compensation cost against income, over the vesting periods, based on the fair value of options at the date of grant, net income and the related basic and diluted per common share amounts for 2001, 2000 and 1999 would have been reduced to the following pro forma amounts:

(thousands, except per share)	2001			2000		1999
Net income
As reported	$		188,170	$	206,127	$	175,786
Pro forma	177,540			198,442		170,654
Basic net income per common share
As reported	1.48			1 61		1.36
Pro forma	1.39			1.55		1.32
Diluted net income per common share
As reported	1.45			1.56		1.31
Pro forma	$	1.37		$	1.50	$	1.27

        The weighted-average grant-date fair value of options granted in 2001, 2000 and 1999, and the significant assumptions used in determining the underlying fair value of each option grant on the date of grant utilizing the Black-Scholes option-pricing model, were as follows:

	2001			2000			1999
Weighted-average grant-date fair value of options granted
Granted at market prices	$	11.26		$	11.50		$	11.32
Granted at prices exceeding market	$	4.74		$	3.38		$	8.25
Assumptions
Risk-free interest rate	4.7		%	6.2		%	6.2		%
Expected life	6 years			6 years			6 years
Expected volatility	24.8		%	19.6		%	17.8		%
Expected dividend yield	1.3		%	1.1		%	1.2		%

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Note 10.  Income Taxes

Income before income taxes and equity in earnings of Henkel-Ecolab consisted of:

(thousands)	2001		2000		1999
Domestic	$	249,026	$	275,754	$	232,684
Foreign	40,719		42,780		34,554
Total	$	289,745	$	318,534	$	267,238

        The provision for income taxes consisted of:

(thousands)	2001			2000			1999
Federal and state	$	107,055		$	120,318		$	106,582
Foreign	13,303			20,781			7,090
Currently payable	120,358			141,099			113,672
Federal and state	(1,940		)	(8,930		)	(10,229		)
Foreign	(1,010		)	(2,674		)	6,326
Deferred	(2,950		)	(11,604		)	(3,903		)
Provision for income taxes	$	117,408		$	129,495		$	109,769

        The company’s overall net deferred tax assets and deferred tax liabilities were comprised of the following:

December 31 (thousands)	2001			2000			1999
Deferred tax assets
Postretirement health care and pension benefits	$	47,792		$	43,089		$	36,664
Other accrued liabilities	55,758			55,608			46,024
Loss carryforwards	18,679			4,337			2,145
Other, net	17,552			10,923			14,401
Valuation allowance	(1,462		)	(1,462		)	(1,462		)
Total	138,319			112,495			97,772
Deferred tax liabilities
Property, plant and equipment basis differences	40,956			31,183			27,001
Intangible assets	26,381
Other, net	5,403			3,835			4,479
Total	72,740			35,018			31,480
Net deferred tax assets	$	65,579		$	77,477		$	66,292

        A reconciliation of the statutory U.S. federal income tax rate to the company’s effective income tax rate was:

	2001		2000		1999
Statutory U.S. rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal benefit	4.2		3.9		4.2
Foreign operations			0.1		0.6
Other, net	1.3		1.7		1.3
Effective income tax rate	40.5	%	40.7	%	41.1	%

        Cash paid for income taxes was approximately $99 million in 2001,  $128 million in 2000 and $94 million in 1999.

        As of December 31, 2001, undistributed earnings of international subsidiaries, including Henkel-Ecolab, of approximately $220 million,  were considered to have been reinvested indefinitely and, accordingly,  the company has not provided U.S. income taxes on such earnings.  If those earnings were remitted to the company, applicable income taxes would be substantially offset by available foreign tax credits.

Note 11.  Rentals and Leases

The company leases sales and administrative office facilities, distribution center facilities, automobiles and computers and other equipment under operating leases. Rental expense under all operating leases was $60,365,000 in 2001, $55,910,000 in 2000 and $49,164,000 in 1999.  As of December 31, 2001, future minimum payments under operating leases with noncancelable terms in excess of one year, including lease obligations of Henkel-Ecolab, were:

(thousands)
2002	$	25,885
2003	20,384
2004	13,511
2005	9,859
2006	8,669
Thereafter	12,499
Total	$	90,807

Note 12.  Research Expenditures

Research expenditures that related to the development of new products and processes, including significant improvements and refinements to existing products, were $33,103,000 in 2001, $35,504,000 in 2000 and $34,983,000 in 1999.

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Note 13.  Commitments and Contingencies

The company and certain subsidiaries are party to various environmental actions that have arisen in the ordinary course of business. These include possible obligations to investigate and mitigate the effects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other operating or closed facilities. The effect of these actions on the company’s financial position, results of operations and cash flows to date has not been significant. The company is currently participating in environmental assessments and remediation at a number of locations and environmental liabilities have been accrued reflecting management’s best estimate of future costs. At December 31, 2001,  the accrual for environmental remediation costs was approximately $2.8 million. Potential insurance reimbursements are not anticipated in the company’s accruals for environmental liabilities.

        The company is self-insured in North America for most workers compensation, general liability and automotive liability losses subject to per occurrence and aggregate annual liability limitations. The company is insured for losses in excess of these limitations. The company is also self-insured for health care claims for eligible participating employees subject to certain deductibles and limitations. The company determines its liability for claims incurred but not reported on an actuarial basis.

        While the final resolution of these contingencies could result in expenses different than current accruals, and therefore have an impact on the company’s consolidated financial results in a future reporting period, management believes the ultimate outcome will not have a significant effect on the company’s consolidated results of operations, financial position or cash flows.

Note 14.  Retirement Plans

Pension and Postretirement Health Care Benefits Plans

The company has a noncontributory defined benefit pension plan covering most of its U.S. employees. Plan benefits are based on years of service and highest average compensation for five consecutive years of employment. Various international subsidiaries also have defined benefit pension plans.

        The company provides postretirement health care benefits to certain U.S. employees. The plan is contributory based on years of service and family status, with retiree contributions adjusted annually. Employees outside the U.S. are generally covered under government-sponsored programs and the expense and obligation for providing benefits under company plans was not significant.

        A reconciliation of changes in the benefit obligations and fair value of assets of the company’s U.S. pension and postretirement health care benefits plans is as follows:

	Pension Benefits									Postretirement Health Care Benefits
(thousands)	2001			2000			1999			2001			2000			1999
Benefit obligation, beginning of year	$	347,430		$	307,977		$	343,825		$	110,002		$	95,497		$	106,677
Service cost	18,925			16,589			20,049			7,342			6,123			6,999
Interest cost	26,461			24,238			22,926			8,826			7,738			7,062
Participant contributions										1,045			856			1,029
Plan amendments	726
Changes in assumptions	14,723			12,854			(67,573		)	5,001			4,196			(20,939		)
Actuarial loss (gain)	1,064			(3,376		)	(1,586		)	7,531			245			(1,562		)
Benefits paid	(12,502		)	(10,852		)	(9,664		)	(5,631		)	(4,653		)	(3,769		)
Benefit obligation, end of year	$	396,827		$	347,430		$	307,977		$	134,116		$	110,002		$	95,497
Fair value of plan assets, beginning of year	$	317,027		$	337,226		$	278,921		$	27,128		$	27,116		$	20,433
Actual return on plan assets	(19,244		)	(16,587		)	53,586			(1,627		)	(1,179		)	4,114
Company contributions	25,883			7,240			14,383			2,896			4,988			5,309
Participant contributions										1,045			856			1,029
Benefits paid	(12,502		)	(10,852		)	(9,664		)	(5,631		)	(4,653		)	(3,769		)
Fair value of plan assets, end of year	$	311,164		$	317,027		$	337,226		$	23,811		$	27,128		$	27,116

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        A reconciliation of the funded status and the actuarial assumptions for the U.S. pension and postretirement plans is as follows:

	Pension Benefits									Postretirement Health Care Benefits
(thousands)	2001			2000			1999			2001			2000			1999
Funded status	$	(85,663	)	$	(30,403	)	$	29,249		$	(110,305	)	$	(82,874	)	$	(68,381	)
Unrecognized actuarial loss (gain)	73,641			9,748			(42,972		)	20,644			4,122			(3,866		)
Unrecognized prior service cost (benefit)	11,258			12,413			14,294			(6,893		)	(7,444		)	(7,995		)
Unrecognized net transition asset	(4,911		)	(6,314		)	(7,717		)
Accrued benefit costs	$	(5,675	)	$	(14,556	)	$	(7,146	)	$	(96,554	)	$	(86,196	)	$	(80,242	)
Weighted-average actuarial assumptions
Discount rate for service and interest cost, at beginning of year	7.75		%	8.00		%	6.75		%	7.75		%	8.00		%	6.75		%
Projected salary increases	5.10			5.10			5.10
Expected return on assets	9.00			9.00			9.00			9.00			9.00			9.00
Discount rate for year-end benefit obligation	7.50		%	7.75		%	8.00		%	7.50		%	7.75		%	8.00		%

        For postretirement benefit measurement purposes, 6.5 percent (for pre-age 65 retirees) and 5.5 percent (for postage 65 retirees) annual rates of increase in the per capita cost of covered health care were assumed for 2002 and will remain at that level thereafter. Health care costs which are eligible for subsidy by the company are limited to a 4 percent annual increase beginning in 1996 for most employees.

        Pension and postretirement health care benefits expense for the company’s U.S. and International operations was:

	Pension Benefits									Postretirement Health Care Benefits
(thousands)	2001			2000			1999			2001			2000			1999
Service cost — employee benefits earned during the year	$	18,925		$	16,589		$	20,049		$	7,342		$	6,123		$	6,999
Interest cost on benefit obligation	26,461			24,238			22,926			8,826			7,738			7,062
Expected return on plan assets	(28,862		)	(26,655		)	(23,247		)	(2,363		)	(2,366		)	(1,786		)
Recognition of net actuarial loss (gain)							3,120						(2		)	505
Amortization of prior service cost (benefit)	1,881			1,881			1,881			(551		)	(551		)	(551		)
Amortization of net transition asset	(1,403		)	(1,403		)	(1,403		)
Total U.S. expense	17,002			14,650			23,326			13,254			10,942			12,229
International expense	1,641			909			1,390
Total expense	$	18,643		$	15,559		$	24,716		$	13,254		$	10,942		$	12,229

        The company also has noncontributory non-qualified defined benefit plans which provide for benefits to employees in excess of limits permitted under its U.S. pension plan. The recorded obligation for these plans was approximately $14 million at December 31, 2001. The annual expense for these plans was approximately $3 million in 2001, $4 million in 2000 and $3 million in 1999.

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        Assumed health care cost trend rates have a significant effect on the amounts reported for the company’s postretirement health care benefits plan. A one-percentage point change in the assumed health care cost trend rates would have the following effects:

	1 Percentage Point
(thousands)	Increase		Decrease
Effect on total of postretirement service and interest cost components	$	399	$	(382	)
Effect on postretirement benefit obligation	5,760		(5,504		)

        Effective March 2002, the company will change its postretirement health care benefits plan to discontinue the employer subsidy for postretirement health care benefits for most active employees. These subsidized benefits will continue to be provided to certain defined active employees and all existing retirees. As a result of these actions,  the company will record a curtailment gain of approximately $6 million in the first quarter of 2002.

Savings Plan

The company provides a 401(k) savings plan for substantially all U.S. employees. Employee contributions of up to 6 percent of eligible compensation are matched 50 percent by the company. The company’s contributions are invested in Ecolab common stock and amounted to $9,491,000 in 2001, $9,036,000 in 2000 and $8,475,000 in 1999.

        In March 2002, the company will change its 401(k) savings plan and add an employee stock ownership plan (ESOP). Employee before-tax contributions of up to 3 percent of eligible compensation will be matched 100 percent by the company and employee before-tax contributions between 3 percent and 5 percent of eligible compensation will be matched 50 percent by the company. The match will be 100 percent vested immediately.

Henkel-Ecolab Pension Plans

Henkel-Ecolab sponsors several pension plans for its employees throughout Europe including Germany, France, Netherlands, Belgium, Turkey, Greece, the United Kingdom, Italy, Spain, Austria, Slovenia, Norway, Switzerland and Ireland.

        The accrued benefit obligation of Henkel-Ecolab was recorded by the company at the date of acquisition. The benefit obligation, fair value of plan assets, funded status, and actuarial assumptions for these plans as of November 30, 2001 are as follows:

(thousands)	2001
Benefit obligation, end of year	$	142,654
Fair value of plan assets, end of year	72,550
Funded status	(70,104		)
Unrecognized net loss	3,628
Unrecognized prior service cost	(154		)
Unrecognized net transition obligation	1,181
Net amount recognized	$	(65,449	)
Discount rate for year-end benefit obligation	4.00% — 6.25		%
Projected salary increases	4.00% — 8.00		%
Expected return on assets	1.75% — 5.00		%

Note 15.  Operating Segments

The company’s operating segments have generally similar products and services and the company is organized to manage its operations geographically. The company’s operating segments have been aggregated into three reportable segments.

        The “United States Cleaning & Sanitizing” segment provides cleaning and sanitizing products and services to United States markets through its Institutional, Kay, Textile Care, Professional Products,  Vehicle Care, Water Care Services and Food & Beverage operations.

        The “United States Other Services” segment includes all other U.S. operations of the company. This segment provides pest elimination, kitchen equipment repair and maintenance, and commercial dishwashing services through its Pest Elimination, GCS and Jackson operations, prior to the sale of Jackson in November 2000.

        The company’s “International Cleaning & Sanitizing” segment provides cleaning and sanitizing product and service offerings to international markets in Asia Pacific, Latin America, Africa, Canada and through its Export operations. Effective November 30, 2001, Henkel-Ecolab’s total assets (Europe) have also been included in the company’s International Cleaning & Sanitizing operations. European operating data will be included beginning in 2002.

        Information on the types of services and products of each of the company’s operating segments is included on the inside front cover, under “Services/Products” of the Ecolab Overview section of this Annual Report.

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        The company evaluates the performance of its international operations based on fixed management currency exchange rates. All other accounting policies of the reportable segments are consistent with accounting principles generally accepted in the United States of America and the accounting policies of the company described in Note 2 of the notes to consolidated financial statements. The profitability of the company’s operating segments is evaluated by management based on operating income. Intersegment sales and transfers were not significant.

        Financial information for each of the company’s reportable segments is as follows:

	United States								Other
(thousands)	Cleaning & Sanitizing		Other Services		Total United States		International Cleaning & Sanitizing		Foreign Currency Translation			Corporate			Consolidated
Net sales
2001	$	1,582,895	$	273,020	$	1,855,915	$	521,959	$	(23,151	)				$	2,354,723
2000	1,532,033		248,317		1,780,350		465,452		18,511						2,264,313
1999	1,424,037		211,562		1,635,599		420,799		23,614						2,080,012
Operating income
2001	246,936		29,338		276,274		49,770		(2,927		)	$	(4,938	)	318,179
2000	249,182		25,515		274,697		47,240		2,711			18,491			343,139
1999	230,520		25,114		255,634		36,396		2,491			(4,570		)	289,951
Depreciation & amortization
2001	118,298		5,384		123,682		32,061		1,308			5,939			162,990
2000	107,537		5,124		112,661		24,843		4,470			6,462			148,436
1999	96,346		4,442		100,788		24,234		3,195			6,313			134,530
Total assets
2001	983,109		128,338		1,111,447		1,355,813		(16,616		)	74,356			2,525,000
2000	953,534		103,182		1,056,716		377,201		13,126			266,968			1,714,011
1999	831,494		85,617		917,111		321,551		36,772			310,512			1,585,946
Capital expenditures
2001	114,427		6,911		121,338		37,805		(1,906		)	700			157,937
2000	116,666		3,381		120,047		27,710		1,438			814			150,009
1999	$	109,889	$	4,182	$	114,071	$	25,216	$	5,690		$	645		$	145,622

        Corporate operating income generally includes only overhead costs directly related to Henkel-Ecolab. However, consistent with the company’s internal management reporting, for 2000 the gain on sale of the Jackson business ($25.9 million), special charges ($7.1 million) and income related to net reductions in probable losses related to certain environmental matters ($4.4 million) have been included in the corporate operating income segment. Corporate depreciation and amortization is principally amortization of deferred compensation related to stock awards. Corporate assets are principally cash and cash equivalents and the company’s investment in Henkel-Ecolab, prior to November 30, 2001.

        The company has two classes of products and services within its United States and International Cleaning & Sanitizing operations which comprise 10 percent or more of consolidated net sales. Worldwide sales of warewashing products were approximately 25 percent, 26 percent and 27 percent of consolidated net sales in 2001, 2000 and 1999, respectively. Sales of laundry products and services on a worldwide basis were approximately 11 percent, 11 percent and 12 percent of consolidated net sales in 2001, 2000 and 1999, respectively.

        Long-lived assets of the company’s United States and International operations were as follows:

December 31 (thousands)	2001			2000		1999
United States	$	424,478		$	401,671	$	360,541
International	221,966			86,727		79,173
Corporate	4,429			4,715		2,047
Effect of foreign currency translation	(6,550		)	8,527		6,355
Consolidated	$	644,323		$	501,640	$	448,116

47

Note 16.  Quarterly Financial Data (Unaudited)

(thousands, except per share)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter			Year
2001
Net sales
United States Cleaning & Sanitizing	$	398,535		$	402,447		$	416,142		$	365,771		$	1,582,895
United States Other Services	62,277			69,284			69,296			72,163			273,020
International Cleaning & Sanitizing	121,067			130,452			137,710			132,730			521,959
Effect of foreign currency translation	(972		)	(6,375		)	(6,917		)	(8,887		)	(23,151		)
Total	580,907			595,808			616,231			561,777			2,354,723
Cost of sales (including restructuring income of $427 in third quarter and $139 in fourth quarter)	265,230			274,816			280,748			268,837			1,089,631
Selling, general and administrative expenses	238,296			240,940			241,420			225,433			946,089
Special charges				(192		)	(53		)	1,069			824
Operating income
United States Cleaning & Sanitizing	60,793			61,788			71,129			53,226			246,936
United States Other Services	5,602			8,205			8,875			6,656			29,338
International Cleaning & Sanitizing	12,332			12,127			15,802			9,509			49,770
Corporate	(1,226		)	(908		)	(685		)	(2,119		)	(4,938		)
Effect of foreign currency translation	(120		)	(968		)	(1,005		)	(834		)	(2,927		)
Total	77,381			80,244			94,116			66,438			318,179
Interest expense, net	6,668			6,816			7,010			7,940			28,434
Income before income taxes and equity in earnings of Henkel-Ecolab	70,713			73,428			87,106			58,498			289,745
Provision for income taxes	28,639			29,737			35,279			23,753			117,408
Equity in earnings of Henkel-Ecolab	2,340			4,502			5,434			3,557			15,833
Net income	$	44,414		$	48,193		$	57,261		$	38,302		$	188,170
Basic net income per common share	$	0.35		$	0.38		$	0.45		$	0.30		$	1.48
Diluted net income per common share	$	0.34		$	0.37		$	0.44		$	0.30		$	1.45
Weighted-average common shares outstanding
Basic	126,962			127,333			127,675			127,695			127,416
Diluted	130,629			130,068			129,809			129,682			129,928
2000
Net sales
United States Cleaning & Sanitizing	$	360,387		$	388,443		$	407,521		$	375,682		$	1,532,033
United States Other Services	54,548			61,774			67,596			64,399			248,317
International Cleaning & Sanitizing	103,413			114,631			121,096			126,312			465,452
Effect of foreign currency translation	7,912			5,863			4,453			283			18,511
Total	526,260			570,711			600,666			566,676			2,264,313
Cost of sales (including restructuring expenses of $1,948 in fourth quarter)	236,484			259,382			266,951			263,089			1,025,906
Selling, general and administrative expenses	217,095			232,689			235,987			230,233			916,004
Gain on sale of Jackson business										(25,925		)	(25,925		)
Special charges										5,189			5,189
Operating income
United States Cleaning & Sanitizing	53,858			60,702			76,091			58,531			249,182
United States Other Services	5,434			7,147			8,317			4,617			25,515
International Cleaning & Sanitizing	9,672			11,095			13,444			13,029			47,240
Corporate	2,584			(1,173		)	(786		)	17,866			18,491
Effect of foreign currency translation	1,133			869			662			47			2,711
Total	72,681			78,640			97,728			94,090			343,139
Interest expense, net	5,357			5,245			6,528			7,475			24,605
Income before income taxes and equity in earnings of Henkel-Ecolab	67,324			73,395			91,200			86,615			318,534
Provision for income taxes	27,603			30,092			36,232			35,568			129,495
Equity in earnings of Henkel-Ecolab	2,891			5,106			5,370			6,149			19,516
Income before cumulative effect of change in accounting	42,612			48,409			60,338			57,196			208,555
Cumulative effect of change in a accounting for revenue recognition										(2,428		)	(2,428		)
Net income	$	42,612		$	48,409		$	60,338		$	54,768		$	206,127
Basic net income per common share	$	0.33		$	0.38		$	0.47		$	0.43		$	1.61
Diluted net income per common share	$	0.32		$	0.36		$	0.46		$	0.42		$	1.56
Weighted-average common shares outstanding
Basic	128,944			128,346			127,112			126,609			127,753
Diluted	133,330			132,990			131,167			130,331			131,946

Restructuring and special charges are included in corporate operating income. Corporate operating income for the fourth quarter of 2000 includes the gain on the sale of the Jackson business and also includes income related to net reductions in probable losses related to environmental matters in the first quarter ($4.1 million) and third quarter ($0.3 million) of 2000. The 2000 quarterly financial data was not adjusted to reflect the adoption of Staff Accounting Bulletin No. 101 as the impact was not significant.

48

Management and Accountants’ reports

Report of Management

Management is responsible for the integrity and objectivity of the consolidated financial statements. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, include certain amounts based on management’s best estimates and judgments.

        To meet its responsibility, management has established and maintains a system of internal controls that provides reasonable assurance regarding the integrity and reliability of the financial statements and the protection of assets from unauthorized use or disposition. These systems are supported by qualified personnel, by an appropriate division of responsibilities and by an internal audit function. There are limits inherent in any system of internal controls since the cost of monitoring such systems should not exceed the desired benefit. Management believes that the company’s system of internal controls is effective and provides an appropriate cost/benefit balance.

        The Board of Directors, acting through its Audit Committee composed solely of outside directors, is responsible for determining that management fulfills its responsibilities in the preparation of financial statements and maintains financial control of operations. The Audit Committee recommends to the Board of Directors the appointment of the company’s independent accountants, subject to ratification by the shareholders. It meets regularly with management, the internal auditors and the independent accountants.

        The independent accountants provide an objective, independent review as to management’s discharge of its responsibilities insofar as they relate to the fair presentation of the consolidated financial statements. Their report is presented separately.

/s/ Allan L. Schuman

Allan L. Schuman

Chairman of the Board, President and Chief Executive Officer

/s/ Steven L. Fritze

Steven L. Fritze

Senior Vice President and Chief Financial Officer

Report of Independent Accountants

To the Shareholders and Directors

Ecolab Inc.

In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of comprehensive income and shareholders’ equity and of cash flows present fairly, in all material respects, the consolidated financial position of Ecolab Inc. as of December 31, 2001, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Ecolab Inc.’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ Pricewaterhouse Coopers LLP

Minneapolis, Minnesota

February 14, 2002

49

Summary operating and financial data

December 31 (thousands, except per share)	2001			2000			1999			1998			1997			1996			1995			1994			1993			1992			1991
Operations
Net sales
United States	$	1,855,915		$	1,780,350		$	1,635,599		$	1,456,860		$	1,275,828		$	1,148,778		$	1,030,126		$	942,070		$	867,415		$	816,405		$	757,564
International (at average rates of currency exchange during the year)	498,808			483,963			444,413			431,366			364,524			341,231			310,755			265,544			234,981			241,229			201,738
Total	2,354,723			2,264,313			2,080,012			1,888,226			1,640,352			1,490,009			1,340,881			1,207,614			1,102,396			1,057,634			959,302
Cost of sales (including restructuring income of $566 in 2001 and expenses of $1,948 in 2000)	1,089,631			1,025,906			937,612			851,173			722,084			674,953			603,167			533,143			491,306			485,206			447,356
Selling, general and administrative expenses	946,089			916,004			852,449			775,073			699,764			629,739			575,028			529,507			481,639			446,814			393,700
Special charges, sale of business and merger expenses	824			(20,736		)																8,000
Operating income	318,179			343,139			289,951			261,980			218,504			185,317			162,686			136,964			129,451			125,614			118,246
Interest expense, net	28,434			24,605			22,713			21,742			12,637			14,372			11,505			12,909			21,384			35,334			30,489
Income from continuing operations before income taxes and equity in earnings of Henkel-Ecolab	289,745			318,534			267,238			240,238			205,867			170,945			151,181			124,055			108,067			90,280			87,757
Provision for income taxes	117,408			129,495			109,769			101,782			85,345			70,771			59,694			50,444			33,422			27,392			29,091
Equity in earnings of Henkel-Ecolab	15,833			19,516			18,317			16,050			13,433			13,011			7,702			10,951			8,127			8,600			4,573
Income from continuing operations	188,170			208,555			175,786			154,506			133,955			113,185			99,189			84,562			82,772			71,488			63,239
Income (loss) from discontinued operations										38,000																					(274,693		)
Extraordinary loss and changes in accounting principles				(2,428		)																			715						(24,560		)
Net income (loss)	188,170			206,127			175,786			192,506			133,955			113,185			99,189			84,562			83,487			71,488			(236,014		)
Preferred stock dividends																															(4,064		)
Net income (loss) to common shareholders, as reported	188,170			206,127			175,786			192,506			133,955			113,185			99,189			84,562			83,487			71,488			(240,078		)
Pro forma adjustments																						5,902			(2,667		)	(2,797		)	(2,933		)
Pro forma net income (loss) to common shareholders	$	188,170		$	206,127		$	175,786		$	192,506		$	133,955		$	113,185		$	99,189		$	90,464		$	80,820		$	68,691		$	(243,011	)
Income (loss) per common share, as reported
Basic — continuing operations	$	1.48		$	1.63		$	1.36		$	1.20		$	1.03		$	0.88		$	0.75		$	0.63		$	0.61		$	0.53		$	0.51
Basic — net income (loss)	1.48			1.61			1.36			1.49			1.03			0.88			0.75			0.63			0.62			0.53			(2.05		)
Diluted — continuing operations	1.45			1.58			1.31			1.15			1.00			0.85			0.73			0.62			0.60			0.52			0.50
Diluted — net income (loss)	1.45			1.56			1.31			1.44			1.00			0.85			0.73			0.62			0.61			0.52			(2.05		)
Pro forma income (loss) per common share
Basic — continuing operations	1.48			1.63			1.36			1.20			1.03			0.88			0.75			0.67			0.59			0.51			0.48
Basic — net income (loss)	1.48			1.61			1.36			1.49			1.03			0.88			0.75			0.67			0.60			0.51			(2.08		)
Diluted — continuing operations	1.45			1.58			1.31			1.15			1.00			0.85			0.73			0.66			0.58			0.50			0.48
Diluted — net income (loss)	$	1.45		$	1.56		$	1.31		$	1.44		$	1.00		$	0.85		$	0.73		$	0.66		$	0.59		$	0.50		$	(2.08	)
Weighted-average common shares outstanding — basic	127,416			127,753			129,550			129,157			129,446			128,991			132,193			135,100			135,056			134,408			117,050
Weighted-average common shares outstanding — diluted	129,928			131,946			134,419			134,047			133,822			132,817			134,956			137,306			137,421			136,227			118,178
Selected Income Statement Ratios
Gross profit	53.7		%	54.7		%	54.9		%	54.9		%	56.0		%	54.7		%	55.0		%	55.9		%	55.4		%	54.1		%	53.4		%
Selling, general and administrative expenses	40.2			40.5			41.0			41.0			42.7			42.3			42.9			44.6			43.7			42.2			41.1
Operating income	13.5			15.2			13.9			13.9			13.3			12.4			12.1			11.3			11.7			11.9			12.3
Income from continuing operations before income taxes	12.3			14.1			12.8			12.7			12.6			11.5			11.3			10.3			9.8			8.5			9.1
Income from continuing operations	8.0			9.2			8.5			8.2			8.2			7.6			7.4			7.0			7.5			6.8			6.6
Effective income tax rate	40.5		%	40.7		%	41.1		%	42.4		%	41.5		%	41.4		%	39.5		%	40.7		%	30.9		%	30.3		%	33.1		%
Financial Position
Current assets	$	929,583		$	600,568		$	577,321		$	503,514		$	509,501		$	435,507		$	358,072		$	401,179		$	311,051		$	264,512		$	293,053
Property, plant and equipment, net	644,323			501,640			448,116			420,205			395,562			332,314			292,937			246,191			219,268			207,183			198,086
Investment in Henkel-Ecolab				199,642			219,003			253,646			239,879			285,237			302,298			284,570			255,804			289,034			296,292
Other assets	951,094			412,161			341,506			293,630			271,357			155,351			107,573			88,416			105,607			98,135			152,857
Total assets	$	2,525,000		$	1,714,011		$	1,585,946		$	1,470,995		$	1,416,299		$	1,208,409		$	1,060,880		$	1,020,356		$	891,730		$	858,864		$	940,288
Current liabilities	$	827,952		$	532,034		$	470,674		$	399,791		$	404,464		$	327,771		$	310,538		$	253,665		$	201,498		$	192,023		$	240,219
Long-term debt	512,280			234,377			169,014			227,041			259,384			148,683			89,402			105,393			131,861			215,963			325,492
Postretirement health care and pension benefits	183,281			117,790			97,527			85,793			76,109			73,577			70,666			70,882			72,647			63,393			56,427
Other liabilities	121,135			72,803			86,715			67,829			124,641			138,415			133,616			128,608			93,917			29,179			11,002
Shareholders’ equity	880,352			757,007			762,016			690,541			551,701			519,963			456,658			461,808			391,807			358,306			307,148
Total liabilities and shareholders’ equity	$	2,525,000		$	1,714,011		$	1,585,946		$	1,470,995		$	1,416,299		$	1,208,409		$	1,060,880		$	1,020,356		$	891,730		$	858,864		$	940,288
Selected Cash Flow Information
Cash provided by operating activities	$	364,481		$	315,486		$	293,494		$	235,642		$	235,098		$	254,269		$	166,463		$	169,346		$	175,674		$	120,217		$	128,999
Depreciation and amortization	162,990			148,436			134,530			121,971			100,879			89,523			76,279			66,869			60,609			60,443			55,653
Capital expenditures	157,937			150,009			145,622			147,631			121,667			111,518			109,894			88,457			68,321			59,904			53,752
EBITDA from continuing operations	481,169			491,575			424,481			383,951			319,383			274,840			238,965			203,833			190,060			186,057			173,899
Cash dividends declared per common share	$	0.525		$	0.49		$	0.435		$	0.39		$	0.335		$	0.29		$	0.2575		$	0.2275		$	0.1975		$	0.17875		$	0.175
Selected Financial Measures/Other
Total debt and preferred stock	$	745,673		$	370,969		$	281,074		$	295,032		$	308,268		$	176,292		$	161,049		$	147,213		$	151,281		$	236,695		$	407,221
Total debt and preferred stock to capitalization	45.9		%	32.9		%	26.9		%	29.9		%	35.8		%	25.3		%	26.1		%	24.2		%	27.9		%	39.8		%	57.0		%
Book value per common share	$	6.88		$	5.95		$	5.89		$	5.33		$	4.27		$	4.01		$	3.53		$	3.41		$	2.90		$	2.66		$	2.30
Return on beginning equity	24.9		%	26.0		%	25.5		%	28.0		%	25.8		%	24.8		%	21.5		%	21.6		%	23.3		%	23.3		%	13.6		%
Dividends/diluted net income per common share	36.2		%	32.7		%	33.2		%	33.9		%	33.5		%	34.1		%	35.3		%	36.7		%	32.4		%	34.4		%	42.7		%
Annual common stock price range	$	44.19-28.50		$	45.69-28.00		$	44.44-31.69		$	38.00-26.13		$	28.00-18.13		$	19.75-14.56		$	15.88-10.00		$	11.75-9.63		$	11.91-9.07		$	9.57-6.66		$	8.38-4.88
Number of employees	19,326			14,250			12,870			12,007			10,210			9,573			9,026			8,206			7,822			7,601			7,428

Henkel-Ecolab was included effective November 30, 2001. Pro forma results for 1994 and prior years reflect adjustments to eliminate unusual items associated with Ecolab’s merger with Kay Chemical Company in December 1994. All per share, shares outstanding and market price data reflect the two-for-one stock splits declared in 1997 and 1993. Other assets includes net assets of Ecolab Europe and discontinued operations prior to 1992. The ratios of return on beginning equity and dividends/diluted net income per common share exclude the gain on sale of the Jackson business, restructuring expenses and special charges and change in accounting for revenue recognition in 2000 and the change in accounting principle and the loss on the ChemLawn divestiture in 1991. EBITDA from continuing operations is the total of operating income, and depreciation and amortization for the year. Number of employees excludes ChemLawn operations.

50

APPENDIX: Graphics and Image Material

Page Number	Description
20	Bar graph illustrating return on beginning equity for the last five fiscal years as follows:
	2001	24.9		%
	2000	26.0		%
	1999	25.5		%
	1998	28.0		%
	1997	25.8		%
20	Bar graph illustrating total return to shareholders (share appreciation plus dividends) as well as illustrating total return of the Standard & Poor’s 500 Index for the last five fiscal years as follows:
		Ecolab			S&P 500
	2001	(5.6		)%	(11.9	)%
	2000	11.6		%	(9.1	)%
	1999	9.3		%	21.0	%
	1998	31.9		%	28.6	%
	1997	49.0		%	33.4	%
24	Pie chart illustrating the United States Cleaning & Sanitizing business mix for 2001 as well as bar graph illustrating this sector's consolidated net sales (in millions for the last three fiscal years as follows:
	2001 Institutional mix	58		%
	2001 Food & Beverage mix	17		%
	2001 Kay mix	9		%
	2001 Professional Products mix	7		%
	2001 Textile Care mix	4		%
	2001 Vehicle Care mix	3		%
	2001 Water Care Services mix	2		%
	2001 Sales	$	1,583
	2000 Sales	$	1,532
	1999 Sales	$	1,424
24	Pie chart illustrating United States Other Services consolidated business mix for 2001 as well as bar graph illustrating this sector's consolidated net sales (in millions) for the last three fiscal years as follows:
	2001 Pest Elimination mix	62		%
	2001 GCS Service mix	38		%
	2001 Sales	$	273
	2000 Sales	$	248
	1999 Sales	$	212
25	Pie chart illustrating the International Cleaning & Sanitizing business mix for 2001 as well as bar graph illustrating this sector's consolidated net sales (in millions) for the last three fiscal years as follows:
	2001 Asia Pacific mix	49		%
	2001 Latin America mix	21		%
	2001 Canada mix	17		%
	2001 Africa, Export and Other mix	13		%
	2001 Sales	$	522
	2000 Sales	$	465
	1999 Sales	$	421
26	Pie chart illustrating the Henkel-Ecolab business mix for 2001 as well as bar chart illustrating Ecolab's equity in earnings of Henkel-Ecolab (in millions) for the last three fiscal years as follows:
	2001 Institutional mix	37		%
	2001 Food & Beverage mix	26		%
	2001 Professional Products mix	25		%
	2001 Textile Care mix	12		%
	2001 Henkel-Ecolab equity	$	16
	2000 Henkel-Ecolab equity	$	20
	1999 Henkel-Ecolab equity	$	18
27	Pie chart illustrating mix of shareholders' equity and total debt for 2001 as well as bar chart illustrating total debt to capitalization ratio for the last three fiscal years as follows:
	2001 Shareholders' Equity mix	54		%
	2001 Total Debt mix	46		%
	2001 Debt/equity ratio	46		%
	2000 Debt/equity ratio	33		%
	1999 Debt/equity ratio	27		%
28	Bar graph illustrating cash from continuing operating activities (in millions) for the last five fiscal years as follows:
	2000	$	364
	2001	$	315
	1999	$	293
	1998	$	275
	1997	$	235

51

EX-21

Exhibit (21)

Registrant

ECOLAB INC.

	State or Other	Percentage
	Jurisdiction of	of
Name of Affiliate	Incorporation	Ownership
Ecolab (Antigua) Ltd.	Antigua	100
Ecolab S.A.	Argentina	100
Ecolab Australia Pty Limited	Australia	100
Ecolab Finance Pty Limited	Australia	100
Ecolab Pty Limited	Australia	100
Gibson Chemical Industries Pty Limited	Australia	100
Gibson Chemicals Pty Limited	Australia	100
Gibson Chemicals (NSW) Pty Limited	Australia	100
Gibson Chemicals Fiji Pty Limited	Australia	100
Gibson Chemicals Great Britain Pty Limited	Australia	100
Intergrain Timber Finishes Pty Limited	Australia	100
Leonard Chemical Products Pty Limited	Australia	100
Ecolab Water Care Services Pty Limited	Australia	100
Nippon Thermochemical Australia Pty Limited	Australia	60
Puritan/Churchill Chemical Holdings Pty Ltd.	Australia	100
Vessey Chemicals (Holdings) Pty Limited	Australia	100
Vessey Chemicals Pty Limited	Australia	100
Vessey Chemicals (Vic.) Pty Limited	Australia	100
Henkel-Ecolab Ges.m.b.H	Austria	100
Ecolab Limited	Bahamas	100
Ecolab (Barbados) Limited	Barbados	100
Henkel-Ecolab N.V.	Belgium	100
Kay N.V.	Belgium	100
Ecolab Emprecendimentos E Participacoes Ltda.	Brazil	100
Ecolab Quimica Ltda.	Brazil	100
Henkel-Ecolab Bulgaria EOOD	Bulgaria	100
Ecolab Ltd.	Canada	100
Ecolab Finance Ltd.	Canada	100
Ecolab S.A.	Chile	100
Ecolab Colombia S.A.	Colombia	100
Ecolab Sociedad Anonima	Costa Rica	100
Henkel-Ecolab Zabreb d.o.o.	Croatia	100
Henkel-Ecolab spol.s.r.o.	Czech Republic	100
Ecolab A/S	Denmark	100
Ecolab, S.A. de C.V.	El Salvador	100
Oy Henkel-Ecolab Ab	Finland	100
Alpha Holding SAS	France	100
Ecolab S.A.	France	100
Ecolab SNC	France	100
Kleencare Hygiene SA	France	100
Paragerm SNC	France	100
Bionagro GmbH	Germany	100
Ecolab Asset Administration GmbH & Co. KG	Germany	100
Ecolab Beteiligungs GmbH	Germany	100
Ecolab Deutschland GmbH	Germany	100
Ecolab Export GmbH	Germany	100
Ecolab GmbH	Germany	100
Ecolab Institutional Deutschland GmbH & Co. OHG	Germany	100
Ecolab Management GmbH	Germany	100
Ecolab Services GmbH	Germany	100
Floordress Reinigungsgeräte GmbH	Germany	100
Henkel-Ecolab GmbH & Co. OHG	Germany	100
Henkel-Ecolab Technischer Service GmbH	Germany	100
Lang Apparatebau GmbH	Germany	100
Lang Engineering GmbH	Germany	100
Lang Hygiene Systeme GmbH	Germany	100
Ecolab A.E.B.E.	Greece	100
Ecolab, Sociedad Anonima	Guatemala	100
Quimicas Ecolab, S.A.	Honduras	100
Ecolab Limited	Hong Kong	100
Henkel-Ecolab Kft	Hungary	100
P.T. Ecolab Indonesia	Indonesia	100
Eclab Export Limited	Ireland	100
Ecolab Finance Company Limited	Ireland	100
Ecolab (Holdings) Limited	Ireland	100
Ecolab Limited	Ireland	100
Ecolab JVZ Limited	Israel	100
Ecolab Zohar Dalia L.P.	Israel	51
Elton Chemical Srl	Italy	100
Ecolab S.P.A.	Italy	100
Findesadue Srl	Italy	100
Henkel-Ecolab Distribution Srl	Italy	100
Ecolab Limited	Jamaica	100
Ecolab K.K.	Japan	100
Ecolab East Africa (Kenya) Limited	Kenya	100
Ecolab  Korea Ltd.	Korea	100
Ecolab Lebanon S.a.r.l.	Lebanon	100
Ecolab Sdn. Bhd.	Malaysia	100
Ecolab S.A. de C.V.	Mexico	100
Ecolab Holdings Mexico, S.A. de C.V.	Mexico	100
Ecolab Maroc S. A.	Morocco	100
Ecolab (Proprietary) Limited	Namibia	100
Ecolab Finance N.V.	Netherlands Antilles (Curacao)	100
Ecolab Holdings B.V.	Netherlands	100
Ecolab International B.V.	Netherlands	100
Ecolab B.V.	Netherlands	100
Kleencare Hygiene B.V.	Netherlands	100
Ecolab Limited	New Zealand	100
Ecolab Nicaragua, S.A.	Nicaragua	100
Henkel-Ecolab AS	Norway	100
Ecolab S.A.	Panama	100
Gibson Chemicals (PNG) Pty. Limited	Papua New Guinea	100
Ecolab Chemicals Ltd.	People’s Republic of China	85
Ecolab Philippines, Inc.	Philippines	100
Henkel-Ecolab Sp.z o.o	Poland	100
Henkel-Ecolab S.A.	Portugal	100
Henkel-Ecolab S.R.L.	Romania	100
Henkel-Ecolab ZAO	Russia	100
Ecolab Pte. Ltd.	Singapore	100
Ecolab s.r.o.	Slovakia	100
Henkel-Ecolab d.o.o.	Slovania	100
Ecolab (Pty) Ltd.	South Africa	100
Henkel-Ecolab S.A.	Spain	100
Henkel-Ecolab AB	Sweden	100
Ecolab (St. Lucia) Limited	St. Lucia	100
Henkel-Ecolab AG	Switzerland	100
Kleencare Hygiene AG	Switzerland	100
Ecolab Ltd.	Taiwan	100
Ecolab East Africa (Tanzania) Limited	Tanzania	100
Ecolab Ltd.	Thailand	100
Henkel-Ecolab Temizleme Sistemleri A.S.	Turkey	100
Ecolab East Africa (Uganda) Limited	Uganda	100
Henkel-Ecolab LLC	Ukraine	100
Ecolab Ltd.	United Kingdom	100
LHS (UK) Limited	United Kingdom	100
Ecolab S. A.	Uruguay	100
Ecolab Foreign Sales Corp.	U.S. Virgin Islands	100
Ecolab S.A.	Venezuela	74
Ecolab Zimbabwe (Pvt) Ltd.	Zimbabwe	100
United States
Ecolab Finance Inc.	Delaware	100
Ecolab Finance (Australia) Inc.	Delaware	100
Ecolab Holdings Inc.	Delaware	100
Ecolab Holdings (Europe) Inc.	Delaware	100
Ecolab Investment Inc.	Delaware	100
Ecolab Israel Holdings LLC	Delaware	100
Ecolab Leasing Corporation	Delaware	100
Ecolab Manufacturing Inc.	Delaware	100
Ecolab Marketing LLC	Delaware	100
Facilitec Inc.	Delaware	100
FastSource Leasing, Inc.	Delaware	100
GCS Service, Inc.	Delaware	100
Puritan Services Inc.	Georgia	100
Ecolab Foundation	Minnesota	100
Kay Chemical Company	North Carolina	100
Kay Chemical International, Inc.	North Carolina	100
ProForce Inc.	North Carolina	100
Argos Food Equipment	Texas	100
SSDC, Inc.	Texas	100
Stove Parts Supply Company	Texas	100

Certain additional subsidiaries, which are not significant in the aggregate, are not shown.

EX-23.B

Exhibit (23)B

CONSENT OF PRICEWATERHOUSECOOPERS GmbH

TO INCORPORATION BY REFERENCE

We hereby consent to the incorporation by reference in the Registration Statements of Ecolab Inc. 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; 333-35519; 333-40239; 333-95037; 333-50969; 333-62183; and 333-58360) and Form S-3 (Registration No. 333-14771) of our report dated January 11, 2002 relating to the combined financial statements and financial statement schedule of Henkel-Ecolab as of November 30, 2001 and 2000 and for each of the three years in the period ended November 30, 2001, which appears in this Annual Report on Form 10-K of Ecolab Inc.

/s/ PricewaterhouseCoopers GmbH

PricewaterhouseCoopers

Gesellschaft mit beschränkter Haftung

Wirtschaftsprüfungsgesellschaft

Düsseldorf, Germany

March 8, 2002

EX-24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, That the undersigned, a director of Ecolab Inc., a Delaware corporation, does hereby make, nominate and appoint KENNETH A. IVERSON and LAWRENCE T. BELL, and each of them, to be my attorney-in-fact, with full power and authority to sign his name to the Annual Report on Form 10-K of Ecolab Inc. for the fiscal year ended December 31, 2001, and all amendments thereto, provided that the Annual Report and any amendments thereto, in final form, be approved by said attorney-in-fact; and his name, when thus signed, shall have the same force and effect as though I had manually signed said document.

IN WITNESS WHEREOF, I have hereunto affixed my signature this 22^nd day of February, 2002.

/s/ Les S. Biller

Les S. Biller

/s/ Jerry A. Grundhofer

Jerry A. Grundhofer

/s/ Stefan Hamelmann

Stefan Hamelmann

/s/ James J. Howard

James J. Howard

/s/ William L. Jews

William L. Jews

/s/ Joel W. Johnson

Joel W. Johnson

/s/ Ulrich Lehner

Ulrich Lehner

/s/ Jerry W. Levin

Jerry W. Levin

/s/ Robert L. Lumpkins

Robert L. Lumpkins

/s/ Hugo Uyterhoeven

Hugo Uyterhoeven