10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission File No. 1-9328

ECOLAB INC.
(Exact name of registrant as specified in its charter)
Delaware	41-0231510
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
370 Wabasha Street N., St. Paul, Minnesota  55102
(Address of principal executive offices)(Zip Code)
651-293-2233
(Registrant’s telephone number, including area code)
(Not Applicable)
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes     ý     No     o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes     ý     No     o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of June 30, 2004.

257,440,930 shares of common stock, par value $1.00 per share.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

ECOLAB INC.

CONSOLIDATED STATEMENT OF INCOME

	Second Quarter Ended June 30
(amounts in thousands, except per share)	2004			2003
	(unaudited)
Net sales	$	1,042,711		$	946,735
Cost of sales	504,609			466,734
Selling, general and administrative expenses	402,487			358,783
Special charges (income)	(254		)	(147		)
Operating income	135,869			121,365
Interest expense, net	11,217			11,752
Income before income taxes	124,652			109,613
Provision for income taxes	46,359			42,458
Net income	$	78,293		$	67,155
Basic net income per common share	$	0.30		$	0.26
Diluted net income per common share	$	0.30		$	0.25
Dividends declared per common share	$	0.0800		$	0.0725
Weighted-average common shares outstanding
Basic	257,135			261,246
Diluted	260,905			264,553

The accompanying notes are an integral part of the consolidated financial information.

2

ECOLAB INC.

CONSOLIDATED STATEMENT OF INCOME

	Six Months Ended June 30
(amounts in thousands, except per share)	2004		2003
	(unaudited)
Net sales	$	2,022,082	$	1,822,587
Cost of sales	978,703		897,216
Selling, general and administrative expenses	787,820		702,816
Special charges (income)	3,551		(344		)
Operating income	252,008		222,899
Interest expense, net	22,390		22,455
Income before income taxes	229,618		200,444
Provision for income taxes	85,319		77,971
Net income	$	144,299	$	122,473
Basic net income per common share	$	0.56	$	0.47
Diluted net income per common share	$	0.55	$	0.46
Dividends declared per common share	$	0.1600	$	0.145
Weighted-average common shares outstanding
Basic	257,080		260,847
Diluted	260,645		264,236

The accompanying notes are an integral part of the consolidated financial information.

3

ECOLAB INC.

CONSOLIDATED BALANCE SHEET

(amounts in thousands)	June 30 2004		December 31 2003
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	41,246	$	85,626
Accounts receivable (net of allowance of $45,014 at June 30, 2004 and $44,011 at December 31, 2003)	676,158		626,002
Inventories	322,453		309,959
Deferred income taxes	76,359		75,820
Other current assets	64,390		52,933
Total current assets	1,180,606		1,150,340
Property, plant and equipment, net	771,963		736,797
Goodwill, net	890,937		797,211
Other intangible assets, net	228,264		203,859
Other assets, net	341,062		340,711
Total assets	$	3,412,832	$	3,228,918

The accompanying notes are an integral part of the consolidated financial information.

4

ECOLAB INC.

CONSOLIDATED BALANCE SHEET (Continued)

(amounts in thousands, except per share)	June 30 2004		December 31 2003
	(unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term debt	$	100,976	$	70,203
Accounts payable	226,164		212,287
Compensation and benefits	191,496		190,386
Income taxes	48,561		59,829
Other current liabilities	342,233		319,237
Total current liabilities	909,430		851,942
Long-term debt	611,385		604,441
Postretirement health care and pension benefits	250,899		249,906
Other liabilities	246,396		227,203
Shareholders’ equity (common stock, par value $1.00 per share; shares outstanding: June 30, 2004 - 257,441; December 31, 2003 - 257,417)	1,394,722		1,295,426
Total liabilities and shareholders’ equity	$	3,412,832	$	3,228,918

The accompanying notes are an integral part of the consolidated financial information.

5

ECOLAB INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

	Six Months Ended June 30
(amounts in thousands)	2004			2003
	(unaudited)
OPERATING ACTIVITIES
Net income	$	144,299		$	122,473
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation	106,310			100,484
Amortization	16,379			13,285
Deferred income taxes	(70		)	(525		)
Disposal loss	3,980			—
Special charges - asset disposals	—			(7		)
Other, net	(39		)	1,003
Changes in operating assets and liabilities:
Accounts receivable	(29,524		)	(34,798		)
Inventories	(4,411		)	(13,372		)
Other assets	(5,513		)	1,812
Accounts payable	2,316			2,044
Other liabilities	(597		)	28,070
Cash provided by operating activities	$	233,130		$	220,469

The accompanying notes are an integral part of the consolidated financial information.

6

ECOLAB INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

	Six Months Ended June 30
(amounts in thousands)	2004			2003
	(unaudited)
INVESTING ACTIVITIES
Capital expenditures	$	(129,165	)	$	(97,604	)
Property disposals	6,190			3,849
Capitalized software expenditures	(2,111		)	(1,725		)
Businesses acquired and investments in affiliates	(128,931		)	(27,893		)
Sale of businesses and assets	3,292			7,334
Cash used for investing activities	(250,725		)	(116,039		)
FINANCING ACTIVITIES
Net issuances (repayments) of notes payable	31,713			(62,719		)
Long-term debt borrowings	2,273			16
Long-term debt repayments	(1,492		)	(9,964		)
Reacquired shares	(41,336		)	(129,532		)
Cash dividends on common stock	(41,184		)	(37,740		)
Exercise of employee stock options	23,081			114,454
Other, net	206			(80		)
Cash used for financing activities	(26,739		)	(125,565		)
Effect of exchange rate changes on cash	(46		)	2,502
DECREASE IN CASH AND CASH EQUIVALENTS	(44,380		)	(18,633		)
Cash and cash equivalents, beginning of period	85,626			49,205
Cash and cash equivalents, end of period	$	41,246		$	30,572

The accompanying notes are an integral part of the consolidated financial information.

7

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Consolidated Financial Information

The unaudited consolidated financial information as of June 30, 2004 and for the three and six-month periods ended June 30, 2004 and 2003, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows of Ecolab Inc. (“the company”) for the interim periods presented. The financial results for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of December 31, 2003 were derived from the audited consolidated financial statements, but do not include all disclosures required by accounting principles generally accepted in the United States of America.  The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto incorporated in the company’s Annual Report on Form 10-K for the year ended December 31, 2003.

With respect to the unaudited financial information of the company as of June 30, 2004 and for the three and six-month periods ended June 30, 2004 and 2003, included in this Form 10-Q, PricewaterhouseCoopers LLP reported that they have applied limited procedures in accordance with professional standards, which do not require an audit, for a review of such information. Therefore, their separate report dated July 22, 2004 appearing herein, states that they did not audit and they do not express an opinion on that unaudited financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied.  PricewaterhouseCoopers LLP is not subject to the liability provisions of Section 11 of the Securities Act of 1933 (the “Act”) for their report on the unaudited financial information because that report is not a report or a part of a registration statement prepared or certified by PricewaterhouseCoopers LLP within the meaning of Sections 7 and 11 of the Act.

2.Stock-Based Compensation

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 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 the three and six-month periods ended June 30, 2004 and 2003 would have been reduced to the pro forma amounts in the following table.

8

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.Stock-Based Compensation (continued)

	Second Quarter Ended June 30						Six Months Ended June 30
	2004			2003			2004			2003
	(unaudited)						(unaudited)
Net income, as reported	$	78,293		$	67,155		$	144,299		$	122,473
Add: Stock-based employee compensation expense included in reported net income, net of tax	58			428			114			713
Deduct: Total stock-based employee compensation expense under fair value-based method, net of tax	(4,705		)	(4,700		)	(9,496		)	(9,233		)
Pro forma net income	$	73,646		$	62,883		$	134,917		$	113,953
Basic net income per common share
As reported	$	0.30		$	0.26		$	0.56		$	0.47
Pro forma	0.29			0.24			0.52			0.44
Diluted net income per common share
As reported	0.30			0.25			0.55			0.46
Pro forma	$	0.28		$	0.24		$	0.52		$	0.43

3.Selected Balance Sheet Information

(amounts in thousands)	June 30 2004			December 31 2003
	(unaudited)
Inventories
Finished goods	$	161,958		$	159,633
Raw materials and parts	163,886			152,127
Excess of fifo cost over lifo cost	(3,391		)	(1,801		)
Total	$	322,453		$	309,959
Other intangible assets, net
Customer relationships	$	181,413		$	153,479
Intellectual property	34,396			77,793
Trademarks	59,490			52,283
Other intangibles	17,506			16,012
Total	292,805			299,567
Accumulated amortization
Customer relationships	(33,353		)	(27,565		)
Intellectual property	(6,769		)	(45,809		)
Trademarks	(10,779		)	(9,313		)
Other intangibles	(13,640		)	(13,021		)
Other intangible assets, net	$	228,264		$	203,859

9

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3.Selected Balance Sheet Information (continued)

(amounts in thousands)	June 30 2004			December 31 2003
	(unaudited)
Shareholders’ equity
Common stock	$	311,805		$	310,284
Additional paid-in capital	398,262			369,015
Retained earnings	1,463,000			1,359,879
Deferred compensation, net	(224		)	(410		)
Accumulated other comprehensive income	10,604			4,098
Treasury stock	(788,725		)	(747,440		)
Total	$	1,394,722		$	1,295,426

Accumulated other comprehensive income as of June 30, 2004 consists of $11.4 million of net unrealized losses primarily on financial instruments and additional minimum pension liabilities and $22.0 million of cumulative translation income.  Accumulated other comprehensive income as of December 31, 2003 consists of $12.0 million of net unrealized losses primarily on financial instruments and additional minimum pension liabilities and $16.1 million of cumulative translation income.

4.Financial Instruments

In February 2002, the company issued euro 300 million of 5.375 percent Euronotes, due February 2007. The company designated a portion (euro 300 million as of the end of the second quarter 2004) of this Euronote debt as a hedge of existing foreign currency exposures related to net investments the company has in certain European subsidiaries.  Accordingly, the transaction gains and losses on the portion of the Euronotes that are designated and are effective as hedges of the company’s net investments have been included as a component of the cumulative translation account.  Total transaction gains and losses related to the Euronotes charged or credited to shareholders’ equity were gains of $8.7 million and losses of $26.9 million for the second quarter of 2004 and 2003, respectively, and losses of $5.9 million and $44.0 million for the first six months of 2004 and 2003, respectively.

10

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.Comprehensive Income

Comprehensive income was as follows:

	Second Quarter Ended June 30						Six Months Ended June 30
(amounts in thousands)	2004			2003			2004		2003
	(unaudited)						(unaudited)
Net income	$	78,293		$	67,155		$	144,299	$	122,473
Foreign currency translation	(18,082		)	37,996			5,926		72,283
Derivative instruments, net of tax	326			(760		)	580		(1,782		)
Comprehensive income	$	60,537		$	104,391		$	150,805	$	192,974

6.  Special Charges

In the first quarter of 2002, management approved plans to undertake restructuring and cost saving actions during 2002, including costs related to the integration of the company’s European operations.  These actions included global workforce reductions, facility closings, and product line discontinuations.  These actions were substantially completed by December 31, 2003.  Remaining amounts accrued primarily represent contractual periodic payments to be made over time.

The second quarter and six months ended June 30, 2004 includes the reversal of $270,000 and $495,000, respectively, of previously accrued estimated severance and lease termination costs.  Of the $270,000 reversed in the second quarter of 2004, $16,000 is included as a component of cost of sales. Of the $495,000 reversed in the first six months, $66,000 is included as a component of cost of sales.

Also included in “Special Charges” for the first six months of 2004 is a loss related to the disposal of a grease management product line of the Institutional division of the U.S. Cleaning & Sanitizing segment of $4.0 million ($2.4 million after tax).

Restructuring liabilities are classified as a component of other current liabilities.

11

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.Special Charges (continued)

For segment reporting purposes, each of these items have been included in the company’s corporate segment, which is consistent with the company’s internal management reporting.

Changes to the restructuring liability accounts include the following:

(unaudited) (amounts in thousands)	Employee Termination Benefits			Asset Disposals			Other			Total
Initial expense and accrual	$	36,366		$	6,180		$	5,221		$	47,767
Cash payments	(16,033		)				(1,711		)	(17,744		)
Non-cash charges				(6,180		)				(6,180		)
Restructuring liability, December 31, 2002	$	20,333		$	—		$	3,510		$	23,843
Cash payments	(16,770		)				(2,471		)	(19,241		)
Non-cash credits				7						7
Revisions to prior estimates	(1,352		)	(7		)				(1,359		)
Effect of foreign currency translation	1,222						670			1,892
Restructuring liability, December 31, 2003	$	3,433		$	—		$	1,709		$	5,142
Cash payments	(1,451		)				(88		)	(1,539		)
Revisions to prior estimates	(127		)				(98		)	(225		)
Effect of foreign currency translation	211						116			327
Restructuring liability, March 31, 2004	$	2,066		$	—		$	1,639		$	3,705
Cash payments	(327		)				(144		)	(471		)
Revisions to prior estimates	(270		)							(270		)
Effect of foreign currency translation	(36		)				(18		)	(54		)
Restructuring liability, June 30, 2004	$	1,433		$	—		$	1,477		$	2,910

12

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.Business Acquisitions and Investments

In January 2004, the company acquired Nigiko, a Paris-based provider of commercial pest elimination services throughout France.  Nigiko pest elimination has annual sales of approximately $55 million.  These operations became part of our International Cleaning & Sanitizing operations.

In February 2004, the company acquired Daydots International, a Texas-based provider of food safety products.  Daydots has annual sales of approximately $22 million.  These operations became part of our U.S. Cleaning & Sanitizing operations.

In May 2004, the company acquired Elimco, a Cape Town, South Africa-based provider of commercial pest elimination services.  Elimco has annual sales of approximately $4 million.  These operations became part of our International Cleaning & Sanitizing operations.

In June 2004, the company acquired the Restoration and Maintenance business unit of VIC International located in Knoxville, Tennessee.  This business unit has sales of approximately $5 million and will become part of our U.S. Cleaning & Sanitizing operations and our International Cleaning & Sanitizing operations.

The total cash paid for acquisitions and investments in affiliates was $10.7 million and $2.3 million during the second quarter of 2004 and 2003, respectively.  Total cash paid for acquisitions and investments in affiliates was $128.9 million and $27.9 million during the first six months of 2004 and 2003, respectively.  This included payments of restructuring costs related to Henkel-Ecolab that were accrued in 2002.  The aggregate purchase price has been reduced for any cash or cash equivalents acquired with the acquisitions.

Based upon purchase price allocations, which may have components representing preliminary allocations with respect to recent acquisitions, the components of the aggregate purchase prices of the acquisitions made, and the allocation of the purchase prices, were as follows:

(unaudited)	Second Quarter Ended June 30				Six Months Ended June 30
(amounts in millions)	2004		2003		2004			2003
Net tangible assets acquired	$	3	$	1	$	(3	)	$	17
Identifiable intangible assets	4		—		46			10
Goodwill	4		1		86			1
Purchase price	$	11	$	2	$	129		$	28

The allocation of the purchase price contains adjustments to preliminary allocations from prior periods, if any.

13

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.Business Acquisitions and Investments (continued)

The changes in the carrying amount of goodwill for each of the company’s reportable segments for the quarter and six months ended June 30, 2004 were as follows:

	United States
(unaudited) (amounts in thousands)	Cleaning & Sanitizing			Other Services		Total			International Cleaning & Sanitizing			Consolidated
Balance as of December 31, 2003	$	122,346		$	48,929	$	171,275		$	625,936		$	797,211
Goodwill acquired during quarter	18,629			—		18,629			63,799			82,428
Goodwill related to dispositions	(69		)	—		(69		)	—			(69		)
Foreign currency translation	—			—		—			27,672			27,672
Balance as of March 31, 2004	$	140,906		$	48,929	$	189,835		$	717,407		$	907,242
Goodwill acquired during quarter	2,098			—		2,098			1,780			3,878
Foreign currency translation	—			—		—			(20,183		)	(20,183		)
Balance as of June 30, 2004	$	143,004		$	48,929	$	191,933		$	699,004		$	890,937

Goodwill acquired in 2004 also includes adjustments to prior year acquisitions.

Operations of the acquired companies have been included in the operations of the company since the date of the respective acquisition.  The purchase prices have been allocated to assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition.  These acquisitions individually and in the aggregate are not material to the company’s operations.

In April 2004, the company sold its grease management product line to National Fire Services of Gurnee, Illinois effective March 31, 2004.  Sales of the grease management product line totaled approximately $20 million in 2003 and were included in U.S. Cleaning & Sanitizing operations.

14

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.Income Per Common Share

The computations of the basic and diluted net income per share amounts were as follows:

	Second Quarter Ended June 30				Six Months Ended June 30
(amounts in thousands, except per share)	2004		2003		2004		2003
	(unaudited)				(unaudited)
Net income	$	78,293	$	67,155	$	144,299	$	122,473
Weighted-average common shares outstanding
Basic	257,135		261,246		257,080		260,847
Effect of dilutive stock options and awards	3,770		3,307		3,565		3,389
Diluted	260,905		264,553		260,645		264,236
Net income per common share
Basic	$	0.30	$	0.26	$	0.56	$	0.47
Diluted	$	0.30	$	0.25	$	0.55	$	0.46

Stock options to purchase approximately 200,000 shares for the six months ended June 30, 2004 were not dilutive and, therefore, were not included in the computations of diluted common shares outstanding.

15

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9.Pension and Postretirement Plans

The components of net periodic pension and postretirement healthcare benefit costs for the second quarter are as follows:

(unaudited)	U.S. Pension Benefits						International Pension Benefits						U.S. Postretirement Health Care Benefits
(amounts in thousands)	2004			2003			2004			2003			2004			2003
Service cost	$	7,863		$	6,611		$	3,263		$	2,899		$	799		$	736
Interest cost on benefit obligation	8,548			8,052			4,358			3,642			2,368			2,149
Expected return on plan assets	(12,540		)	(10,603		)	(2,741		)	(2,428		)	(465		)	(395		)
Amortization of prior service cost (benefit)	434			482			29			26			(1,424		)	(1,325		)
Amortization of unrecognized transition (asset)/obligation	(351		)	(351		)	81			119			—			—
Recognition of net actuarial loss	1,380			863			430			217			1,737			1,573
Settlements and curtailments	—			—			—			164			—			—
Total expense	$	5,334		$	5,054		$	5,420		$	4,639		$	3,015		$	2,738

The components of net periodic pension and postretirement healthcare benefit costs for the six months ended June 30 are as follows:

(unaudited)	U.S. Pension Benefits						International Pension Benefits						U.S. Postretirement Health Care Benefits
(amounts in thousands)	2004			2003			2004			2003			2004			2003
Service cost	$	15,726		$	13,222		$	6,618		$	5,652		$	1,598		$	1,472
Interest cost on benefit obligation	17,096			16,104			8,850			7,094			4,736			4,298
Expected return on plan assets	(25,080		)	(21,206		)	(5,524		)	(4,725		)	(930		)	(790		)
Amortization of prior service cost (benefit)	868			964			60			50			(2,848		)	(2,650		)
Amortization of unrecognized transition (asset)/obligation	(702		)	(702		)	166			233			—			—
Recognition of net actuarial loss	2,760			1,726			875			423			3,474			3,146
Settlements and curtailments	—			—			—			103			—			—
Total expense	$	10,668		$	10,108		$	11,045		$	8,830		$	6,030		$	5,476

The company previously disclosed in its financial statements for the year ended December 31, 2003, that it was not required to make any contributions to the U.S. pension plan and postretirement healthcare benefit plans in 2004.  As of June 30, 2004, no contributions have been made to those plans. The company is not required to make any contributions to the U.S. pension plan and postretirement healthcare benefit plans for the remainder of 2004.

Certain international pension benefit plans are required to be funded in accordance with local government requirements.  The company contributed $10.7 million and $13.1 million to its international pension benefit plans during the second quarter and six months ended June 30, 2004, respectively. Currently, the company expects that it will contribute $4.7 million to the international pension benefit plans during the remainder of 2004.

16

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10.  Operating Segments

Financial information for each of the company’s reportable segments is as follows:

	Second Quarter Ended June 30					Six Months Ended June 30
(amounts in thousands)	2004		2003			2004			2003
	(unaudited)					(unaudited)
Net Sales
United States
Cleaning & Sanitizing	$	450,625	$	430,901		$	881,359		$	848,200
Other Services	85,875		82,963			163,650			156,292
Total	536,500		513,864			1,045,009			1,004,492
International Cleaning & Sanitizing	485,819		448,744			924,993			864,467
Effect of foreign currency translation	20,392		(15,873		)	52,080			(46,372		)
Consolidated	$	1,042,711	$	946,735		$	2,022,082		$	1,822,587
Operating Income
United States
Cleaning & Sanitizing	$	75,297	$	71,943		$	152,587		$	141,849
Other Services	8,123		6,785			13,321			10,432
Total	83,420		78,728			165,908			152,281
International Cleaning & Sanitizing	50,049		44,524			84,998			75,104
Corporate (expense) income	270		106			(3,485		)	348
Effect of foreign currency translation	2,130		(1,993		)	4,587			(4,834		)
Consolidated	$	135,869	$	121,365		$	252,008		$	222,899

The International Cleaning & Sanitizing amounts included above are based on translation into U.S. dollars at the fixed currency exchange rates used by management for 2004.

Consistent with the company’s internal management reporting, corporate operating income includes income from reductions in restructuring accruals of approximately $0.3 million and $0.1 million for second quarter 2004 and 2003, respectively and approximately $0.5 million and $0.3 million for the six months ended June 30, 2004 and 2003, respectively. Corporate expense for the first six months ended June 30, 2004 also includes a charge of $4.0 million related to the disposal of a grease management product

line.

17

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11.Goodwill and Other Intangible Assets

Under Statement of Financial Accounting Standards (SFAS) No. 142, goodwill must be tested annually for impairment.  As of June 30, 2004, the company has completed its annual test for goodwill impairment, including businesses reporting losses such as GCS Service.  Based on this testing, no adjustment to the carrying value of goodwill is necessary.

Goodwill and other intangible assets arise principally from business acquisitions.  Goodwill represents the excess of the purchase price over the fair value of net assets acquired.  Other intangible assets include primarily customer relationships, trademarks, patents and other technology. Other intangible assets are amortized on a straight-line basis over their estimated economic lives that results in a weighted average useful life of 14 and 12 years as of June 30, 2004 and 2003, respectively.

The straight-line method of amortization reflects an appropriate allocation of the cost of the intangible assets to earnings in proportion to the amount of economic benefits obtained by the company in each reporting period.  Total amortization expense related to other intangible assets during the second quarter ended June 30, 2004 and 2003 was approximately $5.8 million and $4.4 million, respectively.  Total amortization expense related to other intangible assets during the six months ended June 30, 2004 and 2003 was approximately $11.2 million and $9.4 million, respectively.  As of June 30, 2004, future estimated amortization expense related to amortizable other identifiable intangible assets will be (amounts in thousands):

Fiscal Year
Remainder 2004 (six-month period)	$	11,700
2005	22,644
2006	21,919
2007	21,620
2008	21,464

18

ECOLAB INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12.New Accounting Pronouncements

On December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition.  The staff updated and revised the existing revenue recognition in Topic 13, Revenue Recognition, to make its interpretive guidance consistent with current accounting guidance, principally EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables.”  Also, SAB 104 incorporates portions of the Revenue Recognition in Financial Statements – Frequently Asked Questions and Answers document that the SEC staff considered relevant and rescinds the remainder. The company’s revenue recognition policies are consistent with this guidance; therefore, this guidance did not have an immediate impact on the company’s consolidated financial statements.

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans.  The company’s U.S. Postretirement Health Care Benefits plan offers prescription drug benefits and the company expects to benefit from this legislation.  The company does not anticipate that its plan will need to be amended to obtain the benefits provided under the Act.  In accordance with the FASB’s original guidance on the accounting for the Act, the company elected to defer recognition of the effects of the Act and any measures of benefit cost or benefit obligation in the financial statements or accompanying notes.  In April 2004, the FASB issued FASB Staff Position No. FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 which provided additional accounting guidance.  The company expects to begin recording the favorable benefits provided by the Act in the third quarter of 2004 consistent with this guidance and is currently considering whether to adopt the Act prospectively or retroactively to the date of this Act’s enactment.  The company has estimated an annual after-tax benefit in the range of $1.5 to $2.0 million related to the Act in 2004.

13.Subsequent Event

On July 30, 2004, the company closed on the purchase of Alcide Corporation (NASDQ: ALCD).  Alcide is a Redmond, Washington-based producer of biocidal and sanitation products that are primarily used in the dairy, meat and poultry industries.  Pursuant to the merger agreement, a wholly-owned acquisition subsidiary of the company was merged with and into Alcide. Based on an exchange ratio of 0.6744, we will issue approximately 1,830,000 shares of Ecolab common stock plus additional cash-in-lieu of fractional shares to the former shareholders of Alcide, in exchange for 2,721,683 shares of Alcide Corporation common stock outstanding as of July 30, 2004.  In addition, Ecolab assumed certain outstanding options granted by Alcide; after adjustment for the merger, the Alcide stock options entitle 16 holders to purchase an aggregate of approximately 20,100 shares of Ecolab common stock, at adjusted prices ranging from $17.79 to $93.42.  The options expire at various times through April 30, 2011.

19

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Directors

Ecolab Inc.

We have reviewed the accompanying consolidated balance sheet of Ecolab Inc. as of June 30, 2004, and the related consolidated statements of income for each of the three and six-month periods ended June 30, 2004 and 2003, and of cash flows for the six-month periods ended June 30, 2004 and 2003.  These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2003, and the related consolidated statements of income, of comprehensive income and shareholders’ equity, and of cash flows for the year then ended (not presented herein); and in our report dated February 26, 2004, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2003, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota

July 22, 2004

20

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2.  Mangement’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis provides information that management believes is useful in understanding the company’s operating results, cash flows and financial condition.  The discussion should be read in conjunction with the consolidated financial statements and related notes included in this Form 10-Q.

The following discussion contains various “Forward-Looking Statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We refer readers to the company’s statement entitled “Forward-Looking Statements and Risk Factors” located at the end of Part I of this report.  Additional risk factors may be described from time to time in Ecolab’s filings with the Securities and Exchange Commission.

Overview for the Quarter Ended June 30, 2004

The second quarter showed another quarter of earnings gains, improved sales growth and operational improvement as diluted net income per share rose 20% to 30 cents per share.  The strong earnings performance leveraged our improving market conditions during the second quarter.  These better trends and continued margin strength from our U.S. and international businesses were bolstered by favorable currency and lower tax rate, and enabled us to outperform the industry and to gain market share.

Operating Performance

•Second quarter sales for our United States Cleaning & Sanitizing operations rose 5% to $451 million, showing improving sales trends for every division.  Kay sales were up 16%, led by strong gains in quick-service restaurants and food retail.  Institutional sales trends are improving as economic indicators in the hospitality and foodservice industries are showing a recovery is underway.  Food & Beverage sales growth accelerated in the second quarter, increasing 6%.

•Our United States Other Services sales increased 4% to $86 million in the second quarter.  Pest Elimination sales growth of 8% was offset by a sales decrease at GCS Service.

•Sales of our International Cleaning & Sanitizing operations rose 8% in the second quarter when measured at fixed currency rates to $486 million.  Strong sales in Latin America and Canada were offset by slower growth in Europe and Asia Pacific.  At public currency rates, International Cleaning and Sanitizing sales increased 17%.

•We continued to invest in future growth during the second quarter of 2004. This included investing in our sales-and-service force, research and development, information technology, as well as acquiring Elimco (pest elimination business in South Africa) and the Restoration and Maintenance business unit of VIC International.

21

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Performance

•Cash provided by operating activities for the second quarter continued to be strong and helped us to make acquisitions and finance other cash requirements.

•Currency translation had a positive impact on our financial results during the second quarter, adding approximately $2.5 million to net income.  For the first six months of 2004, currency translation added $5.1 million to net income.

•An improvement in our annual effective income tax rate from 38.9 percent for the first six months of 2003 to 37.2 in 2004 added approximately $2.1 million to net income for the second quarter and $4.0 for the first six months of 2004.

•Diluted net income per share was $0.30 for the second quarter of 2004, up 20 percent from $0.25 in the comparable period of 2003.  For the first six months, net income per share was $0.55 in 2004 compared to $0.46 in 2003. Earnings for the first six months of 2004 include an after-tax charge of $2.4 million related to the disposal of a grease management product line in the first quarter of 2004.

Results of Operations - Second Quarter and Six Months Ended June 30, 2004

Consolidated net sales for the second quarter ended June 30, 2004 were $1.043 billion, an increase of 10 percent over net sales of $0.947 billion in the second quarter of last year.  For the first six months of 2004, net sales increased 11 percent to $2.022 billion from $1.823 billion in the comparable period of 2003.  Excluding acquisitions and divestitures, consolidated net sales increased 8 percent in the second quarter and 9 percent for the first six months of 2004.  Changes in currency translation positively impacted sales growth by approximately 4 percentage points for the second quarter and approximately 5 percentage points for the six months ended June 30, 2004.

The gross profit margin (defined as the difference between net sales less cost of sales divided by net sales) was 51.6 percent and 50.7 percent of net sales for the quarter ended June 30, 2004 and 2003, respectively.  For the six-month periods, the gross profit margins were 51.6 percent in 2004 and 50.8 percent in 2003.  The increase in the gross margins for the second quarter and year-to-date periods compared with the 2003 gross margins is due to the benefits of improved business and product mix as well as cost savings initiatives.

Selling, general and administrative expenses were 38.6 percent of consolidated net sales for the second quarter of 2004, an increase from 37.9 percent of net sales in the comparable quarter of last year.  For the six-month period, selling, general and administrative expenses also increased as a percentage of net sales to 39.0 percent in 2004 from 38.6 percent in 2003. This increase for the quarter and year-to-date periods is due to an increase in sales force investments, as well as higher sales commissions and incentives.

22

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - Second Quarter and Six Months Ended June 30, 2004 (continued)

Net income totaled $78 million for the second quarter of 2004 and $67 million for the comparable period of 2003.  On a per share basis, diluted net income per common share was $0.30 for the second quarter of 2004 and increased 20 percent over diluted net income per share of $0.25 in the second quarter of last year.  For the first six months of 2004, net income was $144 million as compared to net income of $122 million in the comparable period of last year.  Diluted net income per share increased 20 percent to $0.55 for the six months ended June 30, 2004 from $0.46 for the first six months of last year.  Net income for the first six months of 2004 includes a charge of $2.4 million related to the disposal of a grease management product line in the first quarter of 2004.  Currency translation benefited net income by approximately $2.5 million for the second quarter and $5.1 million for the first six months of 2004.  The comparison of net income also benefited from a lower effective tax rate in 2004.

Sales for each of our reportable segments is as follows:

	Second Quarter Ended June 30					Six Months Ended June 30
(amounts in thousands)	2004		2003			2004		2003
	(unaudited)					(unaudited)
Net Sales
United States
Cleaning & Sanitizing	$	450,625	$	430,901		$	881,359	$	848,200
Other Services	85,875		82,963			163,650		156,292
Total	536,500		513,864			1,045,009		1,004,492
International Cleaning & Sanitizing	485,819		448,744			924,993		864,467
Effect of foreign currency translation	20,392		(15,873		)	52,080		(46,372		)
Consolidated	$	1,042,711	$	946,735		$	2,022,082	$	1,822,587

23

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - Second Quarter and Six Months Ended June 30, 2004 (continued)

The following table shows the increase or growth in sales by operating segment for the second quarter ended June 30, 2004 over the second quarter of 2003 and for the six months ended June 30, 2004 over the first six months of 2003:

	Percent Change
	Second Quarter		Six Months
Net Sales
United States Cleaning & Sanitizing
Institutional	4	%	4	%
Kay	16		14
Textile Care	3		(1	)
Professional Products	(16	)	(21	)
Healthcare	—		(2	)
Water Care Services	13		12
Vehicle Care	(1	)	(3	)
Food & Beverage	6		5
Total United States Cleaning & Sanitizing	5	%	4	%
United States Other Services
Pest Elimination	8	%	9	%
GCS Service	(4	)	(3	)
Total United States Other Services	4	%	5	%
Total United States	4	%	4	%
International Cleaning & Sanitizing
Europe	8	%	7	%
Asia Pacific	5		3
Latin America	13		13
Canada	7		4
Total International Cleaning & Sanitizing	8	%	7	%
Consolidated (management rates)	6	%	5	%
Consolidated (public rates)	10	%	11	%

24

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - Second Quarter and Six Months Ended June 30, 2004 (continued)

Sales of our United States Cleaning & Sanitizing operations were $451 million, an increase of 5 percent compared with sales of $431 million in the second quarter of last year.  United States Cleaning & Sanitizing sales were $881 million for the first six months of 2004, up 4 percent over net sales of $848 million in the comparable period of last year.  Excluding acquisitions and dispositions, sales increased 4 percent and 3 percent for the quarter and six months ended June 30, 2004, respectively.  Sales benefited from double-digit growth in Kay and Water Care Services and good growth in Institutional and Food & Beverage, which were partially offset by lower sales in Professional Products due to the exit of a non-strategic business line.  The increase in sales in our Institutional division reflects an increase in new accounts, the successful introduction of new products and the benefits of our improved service initiatives.  Institutional’s results include sales increases in most market segments, particularly travel and casual dining.  Improving trends in the hospitality, foodservice and healthcare markets are also expected to help sales growth in the remainder of 2004.  Excluding the acquisition of Daydots and the disposition of a grease management product line, sales growth for Institutional was 4 percent for both the quarter and six months ended June 30, 2004.  Kay’s sales growth reflects strong growth in its food retail services business and to its core quickservice customers.  New products and programs, such as those sold to our specialty retail customers, are also showing good results.  Textile Care sales increased during the second quarter due to new corporate accounts and improved customer retention.  For the first six months of 2004, Textile Care sales growth is slightly negative as the division begins to recover from account losses in the second half of 2003.  Sales growth in corporate accounts in our Professional Products operations was offset by the planned phase down of the janitorial equipment distribution business.  The sales growth in our Healthcare division was flat for the second quarter and slightly negative for the first six months of 2004 due to the exit of a private label product line.  Adjusting for this, our Healthcare division achieved good growth in both skin care and surgical instrument care revenues.  Our Food & Beverage operations reported an increase in sales due to improved sales to the agri, dairy, soft drink, meat and poultry and food markets.  Water Care Services had strong sales growth in our major markets, especially the food and beverage market.  Our “Circle the Customer” strategy has produced new account gains as our Water Care division works with our Food & Beverage, Healthcare and Textile Care divisions to drive its sales growth.  Vehicle Care sales declined for both the quarter and year-to-date periods.  The second quarter sales were hurt by the very wet weather in May and June and the year-to-date sales were also impacted by the severe U.S. winter weather in January.

Sales of our United States Other Services operations totaled $86 million for the second quarter of 2004, an increase of 4 percent over net sales of $83 million in the second quarter of last year.  United States Other Services sales were $164 million for the first six months of 2004, an increase of 5 percent over net sales of $156 million in the comparable period of last year.  Pest Elimination sales increased with good growth in core pest elimination contract services and continuing growth in non-contract services such as one-shot services, the Stealth fly program and its food safety audit

25

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - Second Quarter and Six Months Ended June 30, 2004 (continued)

business.  GCS Service sales decreased for both the second quarter and six months of 2004 as an increase in direct part sales was more than offset by a decrease in service sales.

Management rate sales for our International Cleaning & Sanitizing operations were $486 million for the second quarter of 2004, an increase of 8 percent over sales of $449 million in the comparable quarter of last year. For the first six months of 2004, sales increased 7 percent to $925 million from $864 million during the comparable period last year.  Excluding the effects of acquisitions and divestitures, sales increased 4 percent for both the second quarter and for the six-month periods ended June 30, 2004.  Sales in Europe, excluding acquisitions and divestitures, increased 3 percent for both the second quarter and first six months of 2004, primarily due to successful new product launches being partially offset by the effects of a weak European economy.  Sales growth for Asia Pacific was positive, led by strong sales growth in East Asia being offset by flat sales growth in Japan and Australia.  Latin America had double-digit sales increases in almost all countries and benefited from increased tourism as well as continued success with food retail programs.  Sales in Canada increased as trends in the hospitality industry improve and the market recovers from the impact of last year’s SARS outbreak.

Operating income for each of our reportable segments is:

	Second Quarter Ended June 30					Six Months Ended June 30
(amounts in thousands)	2004		2003			2004			2003
	(unaudited)
Operating Income
United States
Cleaning & Sanitizing	$	75,297	$	71,943		$	152,587		$	141,849
Other Services	8,123		6,785			13,321			10,432
Total	83,420		78,728			165,908			152,281
International Cleaning & Sanitizing	50,049		44,524			84,998			75,104
Corporate (expense) income	270		106			(3,485		)	348
Effect of foreign currency translation	2,130		(1,993		)	4,587			(4,834		)
Consolidated	$	135,869	$	121,365		$	252,008		$	222,899

26

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - Second Quarter and Six Months Ended June 30, 2004 (continued)

Operating income of our United States Cleaning & Sanitizing operations increased 5 percent and 8 percent over operating income in the second quarter and first six months of 2003, respectively.  Excluding acquisitions and divestitures, operating income increased 3 percent and 6 percent over operating income in the second quarter and first six months of 2003, respectively.  The operating income margin for the U.S. Cleaning & Sanitizing segment was 16.7 percent of net sales in both the second quarter of 2004 and 2003 and increased to 17.3 percent of sales from 16.7 percent of net sales for the six-month period.  Operating income margin comparisons reflect a favorable business mix and cost efficiency improvements in several divisions partially offset by sales force and other investments.

Second quarter 2004 operating income of our United States Other Services operations increased 20 percent from the second quarter of last year. For the six-month period, operating income increased 28 percent from the comparable period last year.  The operating income margin for United States Other Services increased to 9.5 percent from 8.2 percent in the second quarter of last year.  For the six-month period, the operating income margin was 8.1 percent, an increase from 6.7 percent for the same period last year. Other Services benefited from a $0.6 million patent settlement in the second quarter of 2004 and $2.1 million in the first six months of 2004.  In addition, Pest Elimination showed profit gains while GCS Service showed comparatively larger operating losses for the quarter and year-to-date periods.

Operating income of our International Cleaning & Sanitizing operations increased 12 percent from the second quarter of last year.  For the first six months of 2004, operating income increased 13 percent from the comparable period of last year.  Excluding acquisitions and divestitures, operating income increased 9 percent over the comparable quarter of last year and 8 percent for the six-month period.  The operating income margin increased to 10.3 percent of net sales in the second quarter of 2004 from 9.9 percent in the comparable period of last year.  For the six-month period ended June 30, 2004, the operating income margin increased to 9.2 percent of net sales from 8.7 percent in the comparable period of last year.  Excluding acquisitions and divestitures, the operating income margin for International increased to 10.2 percent of net sales from 9.7 percent in the second quarter of last year and increased to 9.1 percent of net sales from 8.7 percent for the six-month period.  Profits were up across all regions and were achieved through higher sales and careful cost management.

27

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations - Second Quarter and Six Months Ended June 30, 2004 (continued)

Corporate operating income was $0.3 million for the second quarter of 2004 as compared to $0.1 million for the comparable quarter last year.  For the six-month period, corporate operating income (expense) was ($3.5) million as compared to $0.3 million for the comparable period last year.  Corporate operating expense for the first six months of 2004 includes a charge of $4.0 million related to the disposal of a grease management product line in the first quarter offset by a reduction in restructuring accruals of $0.5 million.  Corporate operating income in the first six months of 2003 is income from the reduction in restructuring accruals.

Net interest expense totaled $11.2 million in the second quarter of 2004, a decrease of 5 percent from net interest expense of $11.8 million in the second quarter of 2003.  For the six-month period, net interest expense was $22.4 million and $22.5 million in 2004 and 2003, respectively.

The provision for income taxes for the first six months of 2004 reflected an effective income tax rate of 37.2 percent as compared to an effective income tax rate of 38.9 percent for the first six months of 2003.  The reduction in the 2004 effective tax rate is primarily due to a lower international rates and tax savings efforts.

Financial Position and Liquidity

Total assets were $3.413 billion at June 30, 2004, an increase of $184 million, or 6 percent, over total assets at year-end 2003.  Approximately $15 million of the increase in assets was related to the strengthening of foreign currencies.  In addition, the net increase in assets (excluding cash and cash equivalents) acquired and disposed of was approximately $170 million for the first six months of 2004.

Total debt was $712 million at June 30, 2004, up from total debt of $675 million at year-end 2003.  The ratio of total debt to capitalization was 34 percent at June 30, 2004, unchanged from December 31, 2003 due to an increase in debt being offset by an increase in shareholders’ equity.  We are in compliance with all of our debt covenants and we believe we have ample borrowing capacity to meet foreseeable business needs.

Cash provided by operating activities totaled $233 million and $220 million, for the first six months of 2004 and 2003, respectively.  Operating cash flows for 2004 increased over 2003 primarily due to higher sales in the first six months compared to the prior year which were partially offset by increased federal tax payments in 2004 compared to 2003.

We currently expect to fund all of the cash requirements which are reasonably foreseeable for the remainder of 2004, including new program investments, scheduled debt repayments, dividend payments, possible acquisitions and planned share repurchases from operating activities, cash reserves and short-term borrowings.  In the event of a significant acquisition or other significant funding need, funding may occur through additional long-term borrowing.

28

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Subsequent Event

On July 30, 2004, we closed on the purchase of Alcide Corporation (NASDQ: ALCD).  Alcide is a Redmond, Washington-based producer of biocidal and sanitation products that are primarily used in the dairy, meat and poultry industries.  Pursuant to the merger agreement, a wholly-owned acquisition subsidiary of the company was merged with and into Alcide. Based on an exchange ratio of 0.6744, we will issue approximately 1,830,000 shares of Ecolab common stock plus additional cash-in-lieu of fractional shares to the former shareholders of Alcide, in exchange for 2,721,683 shares of Alcide Corporation common stock outstanding as of July 30, 2004.  In addition, Ecolab assumed certain outstanding options granted by Alcide; after adjustment for the merger, the Alcide stock options entitle 16 holders to purchase an aggregate of 20,100 shares of Ecolab common stock, at adjusted prices ranging from $17.79 to $93.42.  The options expire at various times through April 30, 2011.

Item 3.Quantitative and Qualitative Disclosures about Market Risk.

We primarily use interest rate swaps, foreign currency forward contracts and foreign currency debt to manage risks generally associated with interest rate volatility, foreign exchange risk and net investments in our foreign operations.  To the extent applicable, all derivative instruments are designated and effective as hedges, in accordance with accounting principles generally accepted in the United States of America.  We do not hold derivative financial instruments of a speculative nature.  For a more detailed discussion of derivative instruments, refer to the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2003.

Item 4.Controls and Procedures.

As of June 30, 2004, we carried out an evaluation, under the supervision and with the participation of our management, including the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based upon that evaluation, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures are effective, among other things, in timely alerting them to material information relating to us (including our consolidated subsidiaries) required to be included in our reports filed under the Securities Exchange Act of 1934, as amended.

During the period April 1 through June 30, 2004, there were no changes in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

29

ECOLAB INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Risk Factors

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.  In this report on Form 10-Q, we discuss expectations regarding future performance of the company which include improving business trends, expected strategic investments in the business, favorable liquidity and similar business and financial 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, we may refer to this section of the Form 10-Q 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 us. As such, they are based on certain assumptions and estimates and are subject to certain risks and uncertainties.  We caution that undo 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, we hereby identify important factors, which could affect our financial performance and could cause our actual results for future periods to differ materially from our anticipated results or other expectations expressed in our 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 containing the forward-looking statement.

Risks and uncertainties that may affect operating results and business performance include: the vitality of the foodservice, hospitality and travel industries; restraints on pricing flexibility due to competitive factors and customer and vendor 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 (i) laws and regulations relating to the environment and to the manufacture, storage, distribution, efficacy and labeling of our products and (ii) changes in tax, fiscal, governmental and other regulatory policies; economic factors such as the worldwide economy, interest rates and currency movements, including, in particular, our exposure to foreign currency risk; the occurrence of (a) litigation or claims, (b) the loss or insolvency of a major customer or distributor, (c) war, (d) natural or manmade disasters (including acts of terrorism or other hostilities which impact our markets) and, (e) severe weather conditions or public health epidemics affecting the foodservice, hospitality, and travel industries; loss of, or changes in, executive management; our ability to continue product introductions and technological innovations; and other uncertainties or risks reported from time-to-time in our reports to the Securities and Exchange Commission.  In addition, we note that our stock price can be affected by fluctuations in quarterly earnings. There can be no assurances that our earnings levels will meet investors’ expectations.

30

PART II.  OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds.

(e) Issuer Purchases of Equity Securities

Period	(a) Total number of shares purchased	(b) Average price paid per share (1)		(c) Number of shares purchased as part of publicly announced plans or programs(2)	(d) Maximum number of shares that may yet be purchased under the plans or programs
April 1-30, 2004	206,555	$	28.5954	180,000	8,907,900
May 1-31, 2004	13,740	$	29.4764	0	8,907,900
June 1-30, 2004	4,706	$	30.5931	0	8,907,900
Total	225,001	$	28.6910	180,000	8,907,900

(1) Includes brokerage commissions paid, plus the value of 45,001 shares reacquired from employees and/or directors as swaps for the cost of stock options or shares surrendered to satisfy minimum statutory tax obligations under the Company’s Stock Incentive Plans.

(2) On October 17, 2003, we announced that our Board of Directors authorized the repurchase of up to 10,000,000 shares of Common Stock, including shares to be repurchased under Rule 10b5-1. We intend to repurchase all shares under such authorization, for which no expiration date has been established, subject to market conditions.

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

Our Annual Meeting of Stockholders was held on May 7, 2004.  At the meeting, 85.5% of the outstanding shares of our voting stock were represented in person or by proxy. The first proposal voted upon was the election of five Class III Directors for a term ending at the annual meeting in 2007.  The five persons nominated by our Board of Directors received the following votes and were elected:

Name	For	Withheld
Richard U. De Schutter	216,309,569	3,861,427
William L. Jews	215,773,787	4,397,209
Joel W. Johnson	215,512,412	4,658,584
Ulrich Lehner	214,426,056	5,744,940
Beth M. Pritchard	217,471,263	2,699,733

In addition, the terms of office of the following directors continued after the meeting:  Class I Directors for a term ending in 2005 – Douglas M. Baker, Jr., Stefan Hamelmann, James J. Howard, Jerry W. Levin and Robert L. Lumpkins; Class II Directors for a term ending in 2006 – Les S. Biller, Jerry A. Grundhofer, Jochen Krautter and Allan L. Schuman.

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The second proposal voted upon was to re-approve the Ecolab Inc. Management Performance Incentive Plan.  The proposal received the following votes and was approved:

For	Against	Abstain	Broker Non-Votes
213,552,001	5,473,136	1,145,859	0

The third proposal voted upon was to approve the Ecolab Stock Purchase Plan.  The proposal received the following votes and was approved:

For	Against	Abstain	Broker Non-Votes
185,567,077	15,561,897	683,423	18,358,599

The fourth proposal voted upon was the ratification of the appointment of PricewaterhouseCoopers LLP as our registered public accounting firm for the year ending December 31, 2004.

The proposal received the following votes and was ratified:

For	Against	Abstain	Broker Non-Votes
216,377,417	3,311,460	482,119	0

Item 6.	Exhibits and Reports on Form 8-K.
	(a)	The following documents are filed as exhibits to this report:
		(10) A.	Sample forms of agreement under the Ecolab Inc. 2002 Stock Incentive Plan.
			(i)Non-Statutory Stock Option Agreement as in effect for grants beginning May 11, 2002 through August 12, 2003.
			(ii)Non-Statutory Stock Option Agreement as in effect for grants beginning August 13, 2003.
		(10) B.	Sample forms of agreement under the Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000.
			(i)Non-Statutory Stock Option Agreement as in effect for grants through May 12, 2000.
			(ii)Non-Statutory Stock Option Agreement as in effect for grants beginning  May 13, 2000 through May 10, 2002.

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	(10) C.	Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 1993 Stock Incentive Plan, as in effect for grants beginning May 14, 1993 through May 8, 1997.
	(10) D.	Sample forms of agreement under the Ecolab Inc. 2001 Non-Employee Director  Stock Option and Deferred Compensation Plan.
		(i)Master Agreement Relating to Options (as in effect through May 7, 2004).
		(ii)Master Agreement Relating to Periodic Options, as amended effective as of May 1, 2004.
	(15)	Letter regarding unaudited interim financial information.
	(31)	Rule 13a - 14(a) Certifications.
	(32)	Section 1350 Certifications.
(b)	Reports on Form 8-K:
	During the quarter ended June 30, 2004 we furnished a Current Report dated April 22, 2004 to the SEC under Item 12 of Form 8-K to disseminate our earnings for the first quarter ended March 31, 2004.  On May 5, 2004, we filed an amendment to Form 8-K under Item 12 to report a $7,698,000 adjustment to the Consolidated Balance Sheet that accompanied our April 22, 2004 earnings release.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	ECOLAB INC.
Date:  August 6, 2004	By:	/s/ Daniel J. Schmechel
		Daniel J. Schmechel
		Vice President and Controller (duly authorized Officer and Chief Accounting Officer)

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EXHIBIT INDEX

Exhibit No.	Document	Method of Filing
(10) A.	Sample forms of agreement under the Ecolab Inc. 2002 Stock Incentive Plan.
	(i)Non-Statutory Stock Option Agreement as in effect for grants beginning May 11, 2002 through August 12, 2003.	Filed herewith electronically
	(ii)Non-Statutory Stock Option Agreement as in effect for grants beginning August 13, 2003.	Filed herewith electronically
(10) B.	Sample forms of agreement under the Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000.
	(i)Non-Statutory Stock Option Agreement as in effect for grants through May 12, 2000.	Filed herewith electronically
	(ii)Non-Statutory Stock Option Agreement as in effect for grants beginning  May 13, 2000 through May 10, 2002.	Filed herewith electronically
(10) C.	Sample form of Non-Statutory Stock Option Agreement under the Ecolab Inc. 1993 Stock Incentive Plan, as in effect for grants beginning May 14, 1993 through May 8, 1997.	Filed herewith electronically
(10) D.	Sample forms of agreement under the Ecolab Inc. 2001 Non-Employee Director  Stock Option and Deferred Compensation Plan.
	(i)Master Agreement Relating to Options (as in effect through May 7, 2004).	Filed herewith electronically
	(ii)Master Agreement Relating to Periodic Options, as amended effective as of May 1, 2004.	Filed herewith electronically
(15)	Letter regarding unaudited interim financial information.	Filed herewith electronically
(31)	Rule 13a - 14(a) Certifications.	Filed herewith electronically
(32)	Section 1350 Certifications.	Filed herewith electronically

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EX-10.(A)I

Exhibit 10(A)i

NON-STATUTORY STOCK OPTION AGREEMENT

THIS AGREEMENT is entered into and effective as of this ___ day of _______ (the “Date of Grant”), by and between Ecolab Inc. (the “Company”) and                    (the “Optionee”).

A.The Company has adopted the Ecolab Inc. 2002 Stock Incentive Plan (the “Plan”), authorizing the Board of Directors of the Company, or a committee as provided for in the Plan (the Board or such a committee to be referred to as the “Committee”), to grant non-statutory stock options to employees of the Company and its Subsidiaries.

B.The Company desires to give the Optionee an inducement to acquire a proprietary interest in the Company and an added incentive to advance the interests of the Company by granting to the Optionee an option to purchase shares of common stock of the Company pursuant to the Plan.

Accordingly, the parties agree as follows:

ARTICLE 1.  GRANT OF OPTION.

The Company hereby grants to the Optionee the option (the “Option”) to purchase                            (         ) shares (the “Option Shares”) of the Company’s common stock, $1.00 par value (the “Common Stock”), according to the terms and subject to the conditions hereinafter set forth and as set forth in the Plan.  The Option is not intended to be an “incentive stock option,” as that term is used in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE 2.  OPTION EXERCISE PRICE.

The per share price to be paid by Optionee in the event of an exercise of the Option will be $         .

ARTICLE 3.  DURATION OF OPTION AND TIME OF EXERCISE.

3.1Initial Period of Exercisability.  The Option will be exercisable, on a cumulative basis, as to one-third of the Option Shares (excluding any fractional portion less than one share), on each of the first and second anniversaries of the Date of Grant and as to the remaining Option Shares on the third anniversary of the Date of Grant.  This Option will remain exercisable as to all unexercised Option Shares until 5:00 p.m. (St. Paul, Minnesota time) on the tenth anniversary of the Date of Grant (“Time of Termination”).

3.2Termination of Employment.

(a)In the event that the Optionee’s employment with the Company and all Subsidiaries is terminated by reason of the Optionee’s death or Disability, this Option will become immediately exercisable in full and will remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination).

(b)(i)In the event that the Optionee’s employment with the Company and all Subsidiaries is terminated by reason of the Optionee’s Retirement, then, subject to clause (ii) hereof, this Option, if it has been outstanding at least six months from the Date of Grant, will become exercisable in full immediately prior to such termination and remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination);

(ii)The acceleration of exercisability of the Option provided for in clause (i) hereof will not occur in the event that the Optionee has committed an act which constitutes Cause, which shall be determined by the Committee acting in its sole discretion, irrespective of whether such action or the Committee’s determination occurs before or after termination of the Optionee’s employment with the Company or any Subsidiary.

(c)In the event the Optionee’s employment with the Company and all Subsidiaries is terminated for any reason other than death, Disability or Retirement, all rights of the Optionee under the Plan and this Agreement will immediately terminate without notice of any kind, and this Option will no longer be exercisable; provided, however that if such termination is due to any reason other than termination by the Company or any Subsidiary for Cause, this Option will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event will this Option be exercisable after the Time of Termination).

3.3Change in Control.  In the event of a Change in Control, then this Option, if it has been outstanding for at least six months from the Date of Grant, will become immediately exercisable in full and will remain exercisable in accordance with the provisions of this Agreement.

3.4Effects of Actions Constituting Cause.  Notwithstanding anything in this Agreement to the contrary, in the event that the Optionee is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause, irrespective of whether such action or the Committee’s determination occurs before or after termination of the Optionee’s employment with the Company or any Subsidiary, all rights of the Optionee under the Plan and this Agreement shall terminate and be forfeited without notice of any kind.  The Company may defer the exercise of this Option for up to forty-five (45) days in order for the Committee to make any determination as to the existence of Cause.

ARTICLE 4.  MANNER OF OPTION EXERCISE

4.1Notice.  This Option may be exercised by the Optionee in whole or in part from time to time, subject to the conditions contained in the Plan and in this Agreement, by delivery, in person, by facsimile or electronic transmission or through the mail, to the Company at its principal executive office in St. Paul, Minnesota (Attention:  Sr. Vice President-Human Resources), of a written notice of exercise.  Such notice will be in a form satisfactory to the Committee, will identify the Option, will specify the number of Option Shares with respect to which the Option is being exercised, and will be signed by the person or persons so exercising the Option.  Such notice will be accompanied by payment in full of the total purchase price of the Option Shares purchased.  In the event that the Option is being exercised, as provided by the Plan and Section 3.2 above, by any person or persons other than the Optionee, the notice will be accompanied by appropriate proof of right of such person or persons to exercise the Option.  As soon as practicable after the effective exercise of the Option, the Optionee will be recorded on the stock transfer books of the Company as the owner of the Option Shares purchased, and the Company will deliver to the Optionee one or more duly issued stock certificates evidencing such ownership.  In the event that the Option is being exercised, as provided by resolutions of the Committee and Section 4.2 below, by tender of a Broker Exercise Notice, the Company will deliver such stock certificates directly to the Optionee’s broker or dealer or their nominee.

4.2Payment.  At the time of exercise of this Option, the Optionee will pay the total purchase price of the Option Shares to be purchased solely in cash (including a check, bank draft or money order, payable to the order of the Company); provided, however, that the Committee, in its sole discretion, may allow such payment to be made, in whole or in part, by tender of a Broker Exercise Notice, by tender, or attestation as to ownership, of Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, or by a combination of such methods.  In the event the Optionee is permitted to pay the total purchase price of this Option in whole or in part by tender or attestation as to ownership of Previously Acquired Shares, the value of such shares will be equal to their Fair Market Value on the date of exercise of this Option.

4.3Reload Grants.  To the extent that (a) this Option is exercised in whole or in part during the term of the Optionee’s employment with the Company or any Subsidiary; and (b) the exercise price is satisfied by the Optionee by tender or attestation of ownership of Previously Acquired Shares, then the Optionee will automatically be granted, effective as of such date of exercise, a Reload Option to purchase the number of shares tendered or attested to in exercising this Option and the number of shares tendered, attested to or withheld to satisfy tax obligations associated with that portion of this Option exercised by such tender or attestation, at an exercise price equal to the Fair Market Value on the date of grant.  The Reload Option will be a Non-Qualified Option as defined in the Plan, will be fully vested on the date of grant, and will expire at the

original Time of Termination set forth in Section 3.1, or earlier upon the Optionee’s termination of employment as provided in Section 3.2.  The right to receive a Reload Option under this Section will accrue, on the terms and conditions set forth above, solely to the Optionee, and not to any permitted transferee under the terms of the Plan.  A further Reload Option will not accrue or be granted on a Reload Option.

ARTICLE 5.  NONTRANSFERABILITY.

Neither this Option nor the Option Shares acquired upon exercise may be transferred by the Optionee, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law or otherwise, except as provided in the Plan.  Any attempt to transfer or encumber this Option or the Option Shares other than in accordance with this Agreement and the Plan will be null and void and will void this Option.

ARTICLE 6.  EMPLOYMENT.

Nothing in this Agreement will be construed to (a) limit in any way the right of the Company to terminate the employment or service of the Optionee at any time, or (b) be evidence of any agreement or understanding, express or implied, that the Company will retain the Optionee in any particular position, at any particular rate of compensation or for any particular period of time.

ARTICLE 7.  WITHHOLDING TAXES.

7.1General Rules.  The Company is entitled to (a) withhold and deduct from future wages of the Optionee (or from other amounts which may be due and owing to the Optionee from the Company), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any federal, state or local withholding and employment-related tax requirements attributable to the grant or exercise of this Option or otherwise incurred with respect to this Option, or (b) require the Optionee promptly to remit the amount of such withholding to the Company before acting on the Optionee’s notice of exercise of this Option.  In the event that the Company is unable to withhold such amounts, for whatever reason, the Optionee must promptly pay the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law.

7.2Special Rules.  The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require the Optionee to satisfy, in whole or in part, any withholding or tax obligation as described in Section 7.1 above by electing to tender, or by attestation as to ownership of, Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the

Committee, or by a Broker Exercise Notice, or by a combination of such methods.  For purposes of satisfying a Participant’s withholding or employment-related tax obligation, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value.

ARTICLE 8.  ADJUSTMENTS.

In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off), or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Optionee, will make appropriate adjustment (which determination will be conclusive) as to the number, kind and exercise price of securities subject to this Option.

ARTICLE 9.  SUBJECT TO PLAN.

9.1Terms of Plan Prevail.  The Option has been and the Option Shares granted and issued pursuant to this Agreement will be granted and issued under, and are subject to the terms of, the Plan.  The terms of the Plan are incorporated by reference in this Agreement in their entirety, and the Optionee, by execution of this Agreement, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan, and any ambiguities in this Agreement will be interpreted by reference to the Plan.  In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan will prevail.

9.2Definitions.  Unless otherwise defined in this Agreement, the terms capitalized in this Agreement have the same meanings as given to such terms in the Plan.

ARTICLE 10.  MISCELLANEOUS.

10.1Binding Effect.  This Agreement will be binding upon the heirs, executors, administrators and successors of the parties to this Agreement.

10.2Governing Law.  This Agreement and all rights and obligations under this Agreement will be construed in accordance with the Plan and governed by the laws of the State of Minnesota without regard to conflicts of laws provisions.  Any legal proceedings related to this Agreement will be brought in an appropriate Minnesota court, and the parties to this Agreement consent to the exclusive jurisdiction of the court for this purpose.

10.3Entire Agreement.  This Agreement and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the grant and exercise of this Option and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and exercise of this Option and the administration of the Plan.

10.4Amendment and Waiver.  Other than as provided in the Plan, this Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance.

10.5Captions.  The Article, Section and paragraph captions in this Agreement are for convenience of reference only, do not constitute part of this Agreement and are not to be deemed to limit or otherwise affect any of the provisions of this Agreement.

10.6Counterparts.  For convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart to be deemed an original instrument, and all such counterparts together to constitute the same agreement.

The parties to this Agreement have executed this Agreement effective the day and year first above written.

ECOLAB INC.
By
Its	Sr. Vice President, Human Resources

[By execution of this Agreement, the Optionee acknowledges having received a copy of the Plan.]		OPTIONEE
	By
		(Signature)
	SSN:

EX-10.(A)II

Exhibit 10(A)ii

NON-STATUTORY STOCK OPTION AGREEMENT

THIS AGREEMENT is entered into and effective as of this ___ day of _______ (the “Date of Grant”), by and between Ecolab Inc. (the “Company”) and                                  (the “Optionee”).

A.The Company has adopted the Ecolab Inc. 2002 Stock Incentive Plan (the “Plan”), authorizing the Board of Directors of the Company, or a committee as provided for in the Plan (the Board or such a committee to be referred to as the “Committee”), to grant non-statutory stock options to employees of the Company and its Subsidiaries.

B.The Company desires to give the Optionee an inducement to acquire a proprietary interest in the Company and an added incentive to advance the interests of the Company by granting to the Optionee an option to purchase shares of common stock of the Company pursuant to the Plan.

Accordingly, the parties agree as follows:

ARTICLE 1.  GRANT OF OPTION.

The Company hereby grants to the Optionee the option (the “Option”) to purchase                                (            ) shares (the “Option Shares”) of the Company’s common stock, $1.00 par value (the “Common Stock”), according to the terms and subject to the conditions hereinafter set forth and as set forth in the Plan.  The Option is not intended to be an “incentive stock option,” as that term is used in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE 2.  OPTION EXERCISE PRICE.

The per share price to be paid by Optionee in the event of an exercise of the Option will be $         .

ARTICLE 3.  DURATION OF OPTION AND TIME OF EXERCISE.

3.1Initial Period of Exercisability.  The Option will be exercisable, on a cumulative basis, as to one-third of the Option Shares (excluding any fractional portion less than one share), on each of the first and second anniversaries of the Date of Grant and as to the remaining Option Shares on the third anniversary of the Date of Grant.  This Option will remain exercisable as to all unexercised Option Shares until 5:00 p.m. (St. Paul, Minnesota time) on the tenth anniversary of the Date of Grant (“Time of Termination”).

3.2Termination of Employment.

(a)In the event that the Optionee’s employment with the Company and all Subsidiaries is terminated by reason of the Optionee’s death or Disability, this Option will become immediately exercisable in full and will remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination).

(b)(i)In the event that the Optionee’s employment with the Company and all Subsidiaries is terminated by reason of the Optionee’s Retirement, then, subject to clause (ii) hereof, this Option, if it has been outstanding at least six months from the Date of Grant, will become exercisable in full immediately prior to such termination and remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination);

(ii)The acceleration of exercisability of the Option provided for in clause (i) hereof will not occur in the event that the Optionee has committed an act which constitutes Cause, which shall be determined by the Committee acting in its sole discretion, irrespective of whether such action or the Committee’s determination occurs before or after termination of the Optionee’s employment with the Company or any Subsidiary.

(c)In the event the Optionee’s employment with the Company and all Subsidiaries is terminated for any reason other than death, Disability or Retirement, all rights of the Optionee under the Plan and this Agreement will immediately terminate without notice of any kind, and this Option will no longer be exercisable; provided, however that if such termination is due to any reason other than termination by the Company or any Subsidiary for Cause, this Option will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event will this Option be exercisable after the Time of Termination).

3.3Change in Control.  In the event of a Change in Control, then this Option, if it has been outstanding for at least six months from the Date of Grant, will become immediately exercisable in full and will remain exercisable in accordance with the provisions of this Agreement.

3.4Effects of Actions Constituting Cause.  Notwithstanding anything in this Agreement to the contrary, in the event that the Optionee is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause, irrespective of whether such action or the Committee’s determination occurs before or after termination of the Optionee’s employment with the Company or any Subsidiary, all rights of the Optionee under the Plan and this Agreement shall terminate and be forfeited without notice of any kind.  The Company may defer the exercise of this Option for up to forty-five (45) days in order for the Committee to make any determination as to the existence of Cause.

ARTICLE 4.  MANNER OF OPTION EXERCISE

4.1Notice.  This Option may be exercised by the Optionee in whole or in part from time to time, subject to the conditions contained in the Plan and in this Agreement, by delivery, in person, by facsimile or electronic transmission or through the mail, to the Company at its principal executive office in St. Paul, Minnesota (Attention:  Sr. Vice President-Human Resources), of a written notice of exercise.  Such notice will be in a form satisfactory to the Committee, will identify the Option, will specify the number of Option Shares with respect to which the Option is being exercised, and will be signed by the person or persons so exercising the Option.  Such notice will be accompanied by payment in full of the total purchase price of the Option Shares purchased.  In the event that the Option is being exercised, as provided by the Plan and Section 3.2 above, by any person or persons other than the Optionee, the notice will be accompanied by appropriate proof of right of such person or persons to exercise the Option.  As soon as practicable after the effective exercise of the Option, the Optionee will be recorded on the stock transfer books of the Company as the owner of the Option Shares purchased, and the Company will deliver to the Optionee certificated or uncertificated (“book entry”) shares evidencing such ownership.  In the event that the Option is being exercised, as provided by resolutions of the Committee and Section 4.2 below, by tender of a Broker Exercise Notice, the Company will deliver such shares directly to the Optionee’s broker or dealer or their nominee.

4.2Payment.  At the time of exercise of this Option, the Optionee will pay the total purchase price of the Option Shares to be purchased solely in cash (including a check, bank draft or money order, payable to the order of the Company); provided, however, that the Committee, in its sole discretion, may allow such payment to be made, in whole or in part, by tender of a Broker Exercise Notice, by tender, or attestation as to ownership, of Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, or by a combination of such methods.  In the event the Optionee is permitted to pay the total purchase price of this Option in whole or in part by tender or attestation as to ownership of Previously Acquired Shares, the value of such shares will be equal to their Fair Market Value on the date of exercise of this Option.

ARTICLE 5.  NONTRANSFERABILITY.

Neither this Option nor the Option Shares acquired upon exercise may be transferred by the Optionee, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law or otherwise, except as provided in the Plan.  Any attempt to transfer or encumber this Option or the Option Shares other than in accordance with this Agreement and the Plan will be null and void and will void this Option.

ARTICLE 6.  EMPLOYMENT.

Nothing in this Agreement will be construed to (a) limit in any way the right of the Company to terminate the employment or service of the Optionee at any time, or (b) be evidence of any agreement or understanding, express or implied, that the Company will retain the Optionee in any particular position, at any particular rate of compensation or for any particular period of time.

ARTICLE 7.  WITHHOLDING TAXES.

7.1General Rules.  The Company is entitled to (a) withhold and deduct from future wages of the Optionee (or from other amounts which may be due and owing to the Optionee from the Company), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any federal, state or local withholding and employment-related tax requirements attributable to the grant or exercise of this Option or otherwise incurred with respect to this Option, or (b) require the Optionee promptly to remit the amount of such withholding to the Company before acting on the Optionee’s notice of exercise of this Option.  In the event that the Company is unable to withhold such amounts, for whatever reason, the Optionee must promptly pay the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law.

7.2Special Rules.  The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require the Optionee to satisfy, in whole or in part, any withholding or tax obligation as described in Section 7.1 above by electing to tender, or by attestation as to ownership of, Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, or by a Broker Exercise Notice, or by a combination of such methods.  For purposes of satisfying a Participant’s withholding or employment-related tax obligation, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value.

ARTICLE 8.  ADJUSTMENTS.

In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off), or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Optionee, will make appropriate adjustment (which determination will be conclusive) as to the number, kind and exercise price of securities subject to this Option.

ARTICLE 9.  SUBJECT TO PLAN.

9.1Terms of Plan Prevail.  The Option has been and the Option Shares granted and issued pursuant to this Agreement will be granted and issued under, and are subject to the terms of, the Plan.  The terms of the Plan are incorporated by reference in this Agreement in their entirety, and the Optionee, by execution of this Agreement, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan, and any ambiguities in this Agreement will be interpreted by reference to the Plan.  In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan will prevail.

9.2Definitions.  Unless otherwise defined in this Agreement, the terms capitalized in this Agreement have the same meanings as given to such terms in the Plan.

ARTICLE 10.  MISCELLANEOUS.

10.1Binding Effect.  This Agreement will be binding upon the heirs, executors, administrators and successors of the parties to this Agreement.

10.2Governing Law.  This Agreement and all rights and obligations under this Agreement will be construed in accordance with the Plan and governed by the laws of the State of Minnesota without regard to conflicts of laws provisions.  Any legal proceedings related to this Agreement will be brought in an appropriate Minnesota court, and the parties to this Agreement consent to the exclusive jurisdiction of the court for this purpose.

10.3Entire Agreement.  This Agreement and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the grant and exercise of this Option and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and exercise of this Option and the administration of the Plan.

10.4Amendment and Waiver.  Other than as provided in the Plan, this Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance.

10.5Captions.  The Article, Section and paragraph captions in this Agreement are for convenience of reference only, do not constitute part of this Agreement and are not to be deemed to limit or otherwise affect any of the provisions of this Agreement.

10.6Counterparts.  For convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart to be deemed an original instrument, and all such counterparts together to constitute the same agreement.

The parties to this Agreement have executed this Agreement effective the day and year first above written.

ECOLAB INC.
By
Its	Sr. Vice President, Human Resources

[By execution of this Agreement, the Optionee acknowledges having received a copy of the Plan.]		OPTIONEE
	By
		(Signature)
	SSN:

EX-10.(B)I

Exhibit 10(B)i

NON-STATUTORY STOCK OPTION AGREEMENT

THIS AGREEMENT is entered into and effective as of this       day of                          , 20   (the “Date of Grant”), by and between Ecolab Inc. (the “Company”) and                             (the “Optionee”).

A.            The Company has adopted the Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of May 14, 1999 (the “Plan”), authorizing the Board of Directors of the Company, or a committee as provided for in the Plan (the Board or such a committee to be referred to as the “Committee”), to grant non-statutory stock options to employees of the Company and its Subsidiaries.

B.            The Company desires to give the Optionee an inducement to acquire a proprietary interest in the Company and an added incentive to advance the interests of the Company by granting to the Optionee an option to purchase shares of common stock of the Company pursuant to the Plan.

Accordingly, the parties agree as follows:

ARTICLE 1.  GRANT OF OPTION.

The Company hereby grants to the Optionee the right, privilege, and option (the “Option”) to purchase                         (              ) shares (the “Option Shares”) of the Company’s common stock, $1.00 par value (the “Common Stock”), according to the terms and subject to the conditions hereinafter set forth and as set forth in the Plan.  The Option is not intended to be an “incentive stock option,” as that term is used in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE 2.  OPTION EXERCISE PRICE.

The per share price to be paid by Optionee in the event of an exercise of the Option will be $          .

ARTICLE 3.  DURATION OF OPTION AND TIME OF EXERCISE.

3.1           Initial Period of Exercisability.  The Option will be exercisable, on a cumulative basis, as to 25% of the Option Shares (excluding any fractional portion less than one share), on each of the first, second and third anniversaries of the Date of Grant and as to the remaining Option Shares on the fourth anniversary of the Date of Grant.  This Option will remain exercisable as to all unexercised Option Shares until 5:00 p.m. (St. Paul, Minnesota time) on the tenth anniversary of the Date of Grant (“Time of Termination”).

3.2           Termination of Employment.

(a)           In the event that the Optionee’s employment with the Company and all Subsidiaries is terminated by reason of the Optionee’s death or Disability, this Option will become immediately exercisable in full and will remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination).

(b)(i)       In the event that the Optionee’s employment with the Company and all Subsidiaries is terminated by reason of the Optionee’s Retirement, then, subject to clause (ii) hereof, this Option, if it has been outstanding at least six months from the Date of Grant, will become exercisable in full immediately prior to such termination and remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination);

(ii)           The acceleration of exercisability of the Option provided for in clause (i) hereof will not occur in the event that the Optionee has committed an act which constitutes Cause, which shall be determined by the Committee acting in its sole discretion, irrespective of whether such action or the Committee’s determination occurs before or after termination of the Optionee’s employment with the Company or any Subsidiary.

(c)           In the event the Optionee’s employment with the Company and all Subsidiaries is terminated for any reason other than death, Disability or Retirement, all rights of the Optionee under the Plan and this Agreement will immediately terminate without notice of any kind, and this Option will no longer be exercisable; provided, however that if such termination is due to any reason other than termination by the Company or any Subsidiary for Cause, this Option will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event will this Option be exercisable after the Time of Termination).

(d)           A change in the Optionee’s status from that of an employee of the Company or any Subsidiary to that of a non-employee consultant or advisor of the Company or any Subsidiary will, for purposes of the Plan, be deemed to result in a termination of the Optionee’s employment with the Company and its Subsidiaries, unless the Committee otherwise determines in its sole discretion.

3.3           Change in Control.  If any events constituting a Change in Control of the Company will occur, then this Option, if it has been outstanding for at least six months from the Date of Grant, will become immediately exercisable in full and will remain exercisable in accordance with the terms of this Agreement.

3.4           Effects of Actions Constituting Cause.  Notwithstanding anything in this Agreement to the contrary, in the event that the Optionee is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause, irrespective of whether such action or the Committee’s determination occurs before or after termination of the Optionee’s employment with the Company or any Subsidiary, all rights of the Optionee under the Plan and this Agreement shall terminate and be forfeited without notice of any kind.

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ARTICLE 4.  MANNER OF OPTION EXERCISE; RELOAD GRANTS.

4.1           Notice.  This Option may be exercised by the Optionee in whole or in part from time to time, subject to the conditions contained in the Plan and in this Agreement, by delivery, in person, by facsimile or electronic transmission or through the mail, to the Company at its principal executive office in St. Paul, Minnesota (Attention:  Vice President-Human Resources), of a written notice of exercise.  Such notice will be in a form satisfactory to the Committee, will identify the Option, will specify the number of Option Shares with respect to which the Option is being exercised, and will be signed by the person or persons so exercising the Option.  Such notice will be accompanied by payment in full of the total purchase price of the Option Shares purchased.  In the event that the Option is being exercised, as provided by the Plan and Section 3.2 above, by any person or persons other than the Optionee, the notice will be accompanied by appropriate proof of right of such person or persons to exercise the Option.  As soon as practicable after the effective exercise of the Option, the Optionee will be recorded on the stock transfer books of the Company as the owner of the Option Shares purchased, and the Company will deliver to the Optionee one or more duly issued stock certificates evidencing such ownership.  In the event that the Option is being exercised, as provided by resolutions of the Committee and Section 4.2 below, by tender of a Broker Exercise Notice, the Company will deliver such stock certificates directly to the Optionee’s broker or dealer or their nominee.

4.2           Payment.  At the time of exercise of this Option, the Optionee will pay the total purchase price of the Option Shares to be purchased solely in cash (including a check, bank draft or money order, payable to the order of the Company); provided, however, that the Committee, in its sole discretion, may allow such payment to be made, in whole or in part, by tender of a Broker Exercise Notice, Previously Acquired Shares or by a combination of such methods.  In the event the Optionee is permitted to pay the total purchase price of this Option in whole or in part with Previously Acquired Shares, the value of such shares will be equal to their Fair Market Value on the date of exercise of this Option.

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ARTICLE 5.  NONTRANSFERABILITY.

Neither this Option nor the Option Shares acquired upon exercise may be transferred by the Optionee, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law or otherwise, except as provided in the Plan.  Any attempt to transfer or encumber this Option or the Option Shares other than in accordance with this Agreement and the Plan will be null and void and will void this Option.

ARTICLE 6.  LIMITATION OF LIABILITY.

Nothing in this Agreement will be construed to (a) limit in any way the right of the Company to terminate the employment or service of the Optionee at any time, or (b) be evidence of any agreement or understanding, express or implied, that the Company will retain the Optionee in any particular position, at any particular rate of compensation or for any particular period of time.

ARTICLE 7.  WITHHOLDING TAXES.

7.1           General Rules.  The Company is entitled to (a) withhold and deduct from future wages of the Optionee (or from other amounts which may be due and owing to the Optionee from the Company), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any federal, state or local withholding and employment-related tax requirements attributable to the grant or exercise of this Option or otherwise incurred with respect to this Option, or (b) require the Optionee promptly to remit the amount of such withholding to the Company before acting on the Optionee’s notice of exercise of this Option.  In the event that the Company is unable to withhold such amounts, for whatever reason, the Optionee hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law.

7.2           Special Rules.  The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require the Optionee to satisfy, in whole or in part, any withholding or tax obligation as described in Section 7.1 above by electing to tender Previously Acquired Shares or a Broker Exercise Notice, or by a combination of such methods.

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ARTICLE 8.  ADJUSTMENTS.

In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off), or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Optionee, will make appropriate adjustment (which determination will be conclusive) as to the number, kind and exercise price of securities subject to this Option.

ARTICLE 9.  SUBJECT TO PLAN.

9.1           Terms of Plan Prevail.  The Option and the Option Shares granted and issued pursuant to this Agreement have been granted and issued under, and are subject to the terms of, the Plan.  The terms of the Plan are incorporated by reference in this Agreement in their entirety, and the Optionee, by execution of this Agreement, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan, and any ambiguities in this Agreement will be interpreted by reference to the Plan.  In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan will prevail.

9.2           Definitions.  Unless otherwise defined in this Agreement, the terms capitalized in this Agreement shall have the same meaning as given to such terms in the Plan.

ARTICLE 10.  MISCELLANEOUS.

10.1         Binding Effect.  This Agreement will be binding upon the heirs, executors, administrators and successors of the parties to this Agreement.

10.2         Governing Law.  This Agreement and all rights and obligations under this Agreement will be construed in accordance with the Plan and governed by the laws of the State of Minnesota without regard to conflicts of laws provisions.  Any legal proceedings related to this Agreement will be brought in an appropriate Minnesota court, and the parties to this Agreement consent to the exclusive jurisdiction of the court for this purpose.

10.3         Entire Agreement.  This Agreement and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the grant and exercise of this Option and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and exercise of this Option and the administration of the Plan.

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10.4         Amendment and Waiver.  Other than as provided in the Plan, this Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance.

The parties to this Agreement have executed this Agreement effective the day and year first above written.

ECOLAB INC.

 By

 Its

[By execution of this Agreement, the Optionee acknowledges having received a copy of the Plan.]	OPTIONEE
		(Signature)
		(Name and Address)

6

EX-10.(B)II

Exhibit 10(B)ii

NON-STATUTORY STOCK OPTION AGREEMENT

(INCLUDING A RELOAD FEATURE)

THIS AGREEMENT is entered into and effective as of this        day of                    , 20    (the “Date of Grant”), by and between Ecolab Inc. (the “Company”) and                             (the “Optionee”).

A.            The Company has adopted the Ecolab Inc. 1997 Stock Incentive Plan, as Amended and Restated as of August 18, 2000 (the “Plan”), authorizing the Board of Directors of the Company, or a committee as provided for in the Plan (the Board or such a committee to be referred to as the “Committee”), to grant non-statutory stock options to employees of the Company and its Subsidiaries.

B.            The Company desires to give the Optionee an inducement to acquire a proprietary interest in the Company and an added incentive to advance the interests of the Company by granting to the Optionee an option to purchase shares of common stock of the Company pursuant to the Plan.

Accordingly, the parties agree as follows:

ARTICLE 1.  GRANT OF OPTION.

The Company hereby grants to the Optionee the right, privilege, and option (the “Option”) to purchase              (             ) shares (the “Option Shares”) of the Company’s common stock, $1.00 par value (the “Common Stock”), according to the terms and subject to the conditions hereinafter set forth and as set forth in the Plan.  The Option is not intended to be an “incentive stock option,” as that term is used in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE 2.  OPTION EXERCISE PRICE.

The per share price to be paid by Optionee in the event of an exercise of the Option will be $           .

ARTICLE 3.  DURATION OF OPTION AND TIME OF EXERCISE.

3.1           Initial Period of Exercisability.  The Option will be exercisable, on a cumulative basis, as to one-third of the Option Shares (excluding any fractional portion less than one share), on each of the first and second anniversaries of the Date of Grant and as to the remaining Option Shares on the third anniversary of the Date of Grant.  This Option will remain exercisable as to all unexercised Option Shares until 5:00 p.m. (St. Paul, Minnesota time) on the tenth anniversary of the Date of Grant (“Time of Termination”).

3.2           Termination of Employment.

(a)           In the event that the Optionee’s employment with the Company and all Subsidiaries is terminated by reason of the Optionee’s death or Disability, this Option will become immediately exercisable in full and will remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination).

(b)(i)       In the event that the Optionee’s employment with the Company and all Subsidiaries is terminated by reason of the Optionee’s Retirement, then, subject to clause (ii) hereof, this Option, if it has been outstanding at least six months from the Date of Grant, will become exercisable in full immediately prior to such termination and remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination);

(ii)           The acceleration of exercisability of the Option provided for in clause (i) hereof will not occur in the event that the Optionee has committed an act which constitutes Cause, which shall be determined by the Committee acting in its sole discretion, irrespective of whether such action or the Committee’s determination occurs before or after termination of the Optionee’s employment with the Company or any Subsidiary.

(c)           In the event the Optionee’s employment with the Company and all Subsidiaries is terminated for any reason other than death, Disability or Retirement, all rights of the Optionee under the Plan and this Agreement will immediately terminate without notice of any kind, and this Option will no longer be exercisable; provided, however that if such termination is due to any reason other than termination by the Company or any Subsidiary for Cause, this Option will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event will this Option be exercisable after the Time of Termination).

(d)           A change in the Optionee’s status from that of an employee of the Company or any Subsidiary to that of a non-employee consultant or advisor of the Company or any Subsidiary will, for purposes of the Plan, be deemed to result in a termination of the Optionee’s employment with the Company and its Subsidiaries, unless the Committee otherwise determines in its sole discretion.

3.3           Change in Control.  If any events constituting a Change in Control of the Company will occur, then this Option, if it has been outstanding for at least six months from the Date of Grant, will become immediately exercisable in full and will remain exercisable in accordance with the terms of this Agreement.

3.4           Effects of Actions Constituting Cause.  Notwithstanding anything in this Agreement to the contrary, in the event that the Optionee is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause, irrespective of whether such action or the Committee’s determination occurs before or after termination of the Optionee’s employment with the Company or any Subsidiary, all rights of the Optionee under the Plan and this Agreement shall terminate and be forfeited without notice of any kind.

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ARTICLE 4.  MANNER OF OPTION EXERCISE; RELOAD GRANTS.

4.1           Notice.  This Option may be exercised by the Optionee in whole or in part from time to time, subject to the conditions contained in the Plan and in this Agreement, by delivery, in person, by facsimile or electronic transmission or through the mail, to the Company at its principal executive office in St. Paul, Minnesota (Attention:  Vice President-Human Resources), of a written notice of exercise.  Such notice will be in a form satisfactory to the Committee, will identify the Option, will specify the number of Option Shares with respect to which the Option is being exercised, and will be signed by the person or persons so exercising the Option.  Such notice will be accompanied by payment in full of the total purchase price of the Option Shares purchased.  In the event that the Option is being exercised, as provided by the Plan and Section 3.2 above, by any person or persons other than the Optionee, the notice will be accompanied by appropriate proof of right of such person or persons to exercise the Option.  As soon as practicable after the effective exercise of the Option, the Optionee will be recorded on the stock transfer books of the Company as the owner of the Option Shares purchased, and the Company will deliver to the Optionee one or more duly issued stock certificates evidencing such ownership.  In the event that the Option is being exercised, as provided by resolutions of the Committee and Section 4.2 below, by tender of a Broker Exercise Notice, the Company will deliver such stock certificates directly to the Optionee’s broker or dealer or their nominee.

4.2           Payment.  At the time of exercise of this Option, the Optionee will pay the total purchase price of the Option Shares to be purchased solely in cash (including a check, bank draft or money order, payable to the order of the Company); provided, however, that the Committee, in its sole discretion, may allow such payment to be made, in whole or in part, by tender of a Broker Exercise Notice, by tender, or attestation as to ownership, of Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, or by a combination of such methods.  In the event the Optionee is permitted to pay the total purchase price of this Option in whole or in part by tender or attestation as to ownership of Previously Acquired Shares, the value of such shares will be equal to their Fair Market Value on the date of exercise of this Option.

4.3           Reload Grants.  To the extent that (i) this Option is exercised in whole or in part during the term of the Optionee’s employment with the Company or any Subsidiary; and (ii) the exercise price is satisfied by the Optionee by tender or attestation of ownership of Previously Acquired Shares, then the Optionee will automatically be granted, effective as of such date of exercise, a Reload Option to purchase the number of shares tendered or attested to in exercising this Option and the number of shares tendered, attested to or withheld to satisfy tax obligations associated with that portion of this Option exercised by such tender or attestation, at an exercise price equal to the Fair Market Value on the date of grant.  The Reload Option will be a Non-Qualified Option as defined in the Plan, will be fully vested on the date of grant, and will expire at the Time of Termination set forth in Section 3.1, or earlier upon the Optionee’s termination of employment as provided in Section 3.2.  The right to receive a Reload Option under this Section will accrue, on the

3

terms and conditions set forth above, solely to the Optionee, and not to any permitted transferee under the terms of the Plan.  A Reload Option will not accrue or be granted on a Reload Option.

ARTICLE 5.  NONTRANSFERABILITY.

Neither this Option nor the Option Shares acquired upon exercise may be transferred by the Optionee, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law or otherwise, except as provided in the Plan.  Any attempt to transfer or encumber this Option or the Option Shares other than in accordance with this Agreement and the Plan will be null and void and will void this Option.

ARTICLE 6.  LIMITATION OF LIABILITY.

Nothing in this Agreement will be construed to (a) limit in any way the right of the Company to terminate the employment or service of the Optionee at any time, or (b) be evidence of any agreement or understanding, express or implied, that the Company will retain the Optionee in any particular position, at any particular rate of compensation or for any particular period of time.

ARTICLE 7.  WITHHOLDING TAXES.

7.1           General Rules.  The Company is entitled to (a) withhold and deduct from future wages of the Optionee (or from other amounts which may be due and owing to the Optionee from the Company), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any federal, state or local withholding and employment-related tax requirements attributable to the grant or exercise of this Option or otherwise incurred with respect to this Option, or (b) require the Optionee promptly to remit the amount of such withholding to the Company before acting on the Optionee’s notice of exercise of this Option.  In the event that the Company is unable to withhold such amounts, for whatever reason, the Optionee hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law.

7.2           Special Rules.  The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require the Optionee to satisfy, in whole or in part, any withholding or tax obligation as described in Section 7.1 above by electing to tender, or by attestation as to ownership of, Previously Acquired Shares that have been held for the period of time necessary to avoid a charge to the Company’s earnings for financial reporting purposes and that are otherwise acceptable to the Committee, or by a Broker Exercise Notice, or by a combination of such methods.  For purposes of satisfying a Participant’s withholding or employment-related tax obligation, Previously Acquired Shares tendered or covered by an attestation will be valued at their Fair Market Value.

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ARTICLE 8.  ADJUSTMENTS.

In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off), or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Optionee, will make appropriate adjustment (which determination will be conclusive) as to the number, kind and exercise price of securities subject to this Option.

ARTICLE 9.  SUBJECT TO PLAN.

9.1           Terms of Plan Prevail.  The Option and the Option Shares granted and issued pursuant to this Agreement have been granted and issued under, and are subject to the terms of, the Plan.  The terms of the Plan are incorporated by reference in this Agreement in their entirety, and the Optionee, by execution of this Agreement, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan, and any ambiguities in this Agreement will be interpreted by reference to the Plan.  In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan will prevail.

9.2           Definitions.  Unless otherwise defined in this Agreement, the terms capitalized in this Agreement shall have the same meaning as given to such terms in the Plan.

ARTICLE 10.  MISCELLANEOUS.

10.1         Binding Effect.  This Agreement will be binding upon the heirs, executors, administrators and successors of the parties to this Agreement.

10.2         Governing Law.  This Agreement and all rights and obligations under this Agreement will be construed in accordance with the Plan and governed by the laws of the State of Minnesota without regard to conflicts of laws provisions.  Any legal proceedings related to this Agreement will be brought in an appropriate Minnesota court, and the parties to this Agreement consent to the exclusive jurisdiction of the court for this purpose.

10.3         Entire Agreement.  This Agreement and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the grant and exercise of this Option and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and exercise of this Option and the administration of the Plan.

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10.4         Amendment and Waiver.  Other than as provided in the Plan, this Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance.

The parties to this Agreement have executed this Agreement effective the day and year first above written.

ECOLAB INC.

By

Its

[By execution of this Agreement, the Optionee acknowledges having received a copy of the Plan.]	OPTIONEE
		(Signature)
		(Name and Address)

6

EX-10.(C)

Exhibit 10(C)

NON-STATUTORY STOCK OPTION AGREEMENT

THIS AGREEMENT is entered into and effective as of this        day of                  , 19    (the “Date of Grant”), by and between Ecolab Inc. (the “Company”) and                              (the “Optionee”).

A.            The Company has adopted the Ecolab Inc. 1993 Stock Incentive Plan authorizing the Board of Directors of the Company, or a committee as provided for in the Plan (the Board or such a committee to be referred to as the “Committee”), to grant non-statutory stock options to employees of the Company and its Subsidiaries (as defined in the Plan).

B.            The Company desires to give the Optionee an inducement to acquire a proprietary interest in the Company and an added incentive to advance the interests of the Company by granting to the Optionee an option to purchase shares of common stock of the Company pursuant to the Plan.

Accordingly, the parties agree as follows:

ARTICLE 1.  GRANT OF OPTION.

The Company hereby grants to the Optionee the right, privilege, and option (the “Option”) to purchase                (             ) shares (the “Option Shares”) of the Company’s common stock, $1.00 par value (the “Common Stock”), according to the terms and subject to the conditions hereinafter set forth and as set forth in the Plan.  The Option is not intended to be an “incentive stock option,” as that term is used in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE 2.  OPTION EXERCISE PRICE.

The per share price to be paid by Optionee in the event of an exercise of the Option will be $          .

ARTICLE 3.  DURATION OF OPTION AND TIME OF EXERCISE.

3.1           Initial Period of Exercisability.  The Option will be exercisable, on a cumulative basis, as to 25% of the Option Shares (excluding any fractional portion less than one share), on each of the first, second and third anniversaries of the Date of Grant and as to the remaining Option Shares on the fourth anniversary of the Date of Grant.  This Option will remain exercisable as to all unexercised Option Shares until 5:00 p.m. (St. Paul, Minnesota time) on the tenth anniversary of the Date of Grant (“Time of Termination”).

3.2           Termination of Employment or Other Service

(a)           In the event that the Optionee’s employment or other service with the Company and all Subsidiaries is terminated by reason of the Optionee’s death or Disability (as defined in the Plan), this Option will become immediately exercisable in full and will remain exercisable for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination).

(b)           In the event that the Optionee’s employment or other service with the Company and all Subsidiaries is terminated by reason of the Optionee’s Retirement (as defined in the Plan), this Option will remain exercisable to the extent as of such termination for a period of five years after such termination (but in no event will this Option be exercisable after the Time of Termination).

(c)           In the event the Optionee’s employment or other service with the Company and all Subsidiaries is terminated for any reason other than death, Disability or Retirement, all rights of the Optionee under the Plan and this Agreement will immediately terminate without notice of any kind, and this Option will no longer be exercisable; provided, however that if such termination is due to any reason other than termination by the Company or any Subsidiary for “cause” (as defined in the Plan), this Option will remain exercisable to the extent exercisable as of such termination for a period of three months after such termination (but in no event will this Option be exercisable after the Time of Termination).

3.3           Change in Control.  If any events constituting a Change in Control (as defined in the Plan) of the Company will occur, then this Option, if it has been outstanding for at least six months from the Date of Grant, will become immediately exercisable in full and will remain exercisable in accordance with the terms of this Agreement.

ARTICLE 4.  MANNER OF OPTION EXERCISE.

4.1           Notice.  This Option may be exercised by the Optionee in whole or in part from time to time, subject to the conditions contained in the Plan and in this Agreement, by delivery, in person, by facsimile or electronic transmission or through the mail, to the Company at its principal executive office in St. Paul, Minnesota (Attention:  Vice President-Human Resources), of a written notice of exercise.  Such notice will be in a form satisfactory to the Committee, will identify the Option, will specify the number of Option Shares with respect to which the Option is being exercised, and will be signed by the person or persons so exercising the Option.  Such notice will be accompanied by payment in full of the total purchase price of the Option Shares purchased.  In the event that the Option is being exercised, as provided by the Plan and Section 3.2 above, by any person or persons other than the Optionee, the notice will be accompanied by appropriate proof of right of such person or persons to exercise the Option.  As soon as practicable after the effective exercise of the Option, the Optionee will be recorded on the stock transfer books of the Company as the owner of the Option Shares purchased, and the Company will deliver to the Optionee one or more duly issued stock certificates evidencing such ownership.  In the event that the Option is being exercised, as provided by resolutions of the Committee and Section 4.2 below, by tender of a Broker Exercise Notice, the Company will deliver such stock certificates directly to the Optionee’s broker or dealer or their nominee.

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4.2           Payment.  At the time of exercise of this Option, the Optionee will pay the total purchase price of the Option Shares to be purchased solely in cash (including a check, bank draft or money order, payable to the order of the Company); provided, however, that the Committee, in its sole discretion, may allow such payment to be made, in whole or in part, by tender of a Broker Exercise Notice, Previously Acquired Shares or by a combination of such methods. For purposes of this Agreement, the terms “Broker Exercise Notice” and “Previously Acquired Shares” will have the meaning set forth in the Plan.  In the event the Optionee is permitted to pay the total purchase price of this Option in whole or in part with Previously Acquired Shares, the value of such shares will be equal to their Fair Market Value on the date of exercise of this Option.

ARTICLE 5.  NONTRANSFERABILITY.

Neither this Option nor the Option Shares acquired upon exercise may be transferred by the Optionee, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law or otherwise, except as provided in the Plan.  Any attempt to transfer or encumber this Option or the Option Shares other than in accordance with this Agreement and the Plan will be null and void and will void this Option.

ARTICLE 6.  LIMITATION OF LIABILITY.

Nothing in this Agreement will be construed to (a) limit in any way the right of the Company to terminate the employment or service of the Optionee at any time, or (b) be evidence of any agreement or understanding, express or implied, that the Company will retain the Optionee in any particular position, at any particular rate of compensation or for any particular period of time.

ARTICLE 7.  WITHHOLDING TAXES.

7.1           General Rules.  The Company is entitled to (a) withhold and deduct from future wages of the Optionee (or from other amounts which may be due and owing to the Optionee from the Company), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any federal, state or local withholding and employment-related tax requirements attributable to the grant or exercise of this Option or otherwise incurred with respect to this Option, or (b) require the Optionee promptly to remit the amount of such withholding to the Company before acting on the Optionee’s notice of exercise of this Option.  In the event that the Company is unable to withhold such amounts, for whatever reason, the Optionee hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law.

7.2           Special Rules.  The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require the Optionee to satisfy, in whole or in part, any withholding or tax obligation as described in Section 7.1 above by electing to tender Previously Acquired Shares or a Broker Exercise Notice, or by a combination of such methods.

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ARTICLE 8.  ADJUSTMENTS.

In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off), or any other change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Optionee, will make appropriate adjustment (which determination will be conclusive) as to the number, kind and exercise price of securities subject to this Option.

ARTICLE 9.  SUBJECT TO PLAN.

The Option and the Option Shares granted and issued pursuant to this Agreement have been granted and issued under, and are subject to the terms of, the Plan.  The terms of the Plan are incorporated by reference in this Agreement in their entirety, and the Optionee, by execution of this Agreement, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan, and any ambiguities in this Agreement will be interpreted by reference to the Plan.  In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan will prevail.

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ARTICLE 10.  MISCELLANEOUS.

10.1         Binding Effect.  This Agreement will be binding upon the heirs, executors, administrators and successors of the parties to this Agreement.

10.2         Governing Law.  This Agreement and all rights and obligations under this Agreement will be construed in accordance with the Plan and governed by the laws of the State of Minnesota.

10.3         Entire Agreement.  This Agreement and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the grant and exercise of this Option and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and exercise of this Option and the administration of the Plan.

10.4         Amendment and Waiver.  Other than as provided in the Plan, this Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance.

The parties to this Agreement have executed this Agreement effective the day and year first above written.

		ECOLAB INC.
		By
		Its
[By execution of this Agreement, the Optionee acknowledges having received a copy of the Plan.]	OPTIONEE
			(Signature)
			(Name and Address)

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EX-10.(D)I

Exhibit 10(D)i

MASTER AGREEMENT
RELATING TO OPTIONS GRANTED UNDER THE
ECOLAB INC. 2001 NON-EMPLOYEE DIRECTOR STOCK OPTION
AND DEFERRED COMPENSATION PLAN

THIS AGREEMENT is entered into and effective as of this             day of                            ,        , by and between Ecolab Inc. (the “Company”) and                                      (the “Optionee”).

A.The Company has adopted the Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan (the “Plan”), authorizing the Board of Directors of the Company, or a committee as provided for in the Plan (the Board or such a committee to be referred to as the “Committee”), to grant from time to time Periodic Options to Qualified Directors and to grant as of each Annual Meeting Date and November 1^st Elective Options to those Qualified Directors that have elected to receive credits to their Option Cash Accounts in lieu of Share Unit Compensation pursuant to Section 5.3 of the Plan or have elected to receive credits to their Option Cash Accounts in lieu of all or part of their Other Director Compensation pursuant to Section 5.2 of the Plan.

B.The Company desires to advance the interests of the Company and its stockholders by enabling the Company to attract and retain the services of experienced and knowledgeable non-employee directors and to provide an incentive for such directors to increase their proprietary interest in the Company’s long-term success and progress.

Accordingly, the parties agree as follows:

ARTICLE 1.  GRANT OF OPTIONS.

Effective as of each of the dates (each, a “Date of Grant”) set forth in a written notification a grant, which written notification will be provided by the Company to the Optionee from time to time as Options (as hereinafter defined) are granted under the Plan, the Company hereby grants to the Optionee the right, privilege, and option (the “Option” and collectively, the “Options”) to purchase that number of shares (the “Option Shares”) of the Company’s common stock, $1.00 par value (the “Common Stock”) as set forth opposite such Date of Grant on the written notification, according to the terms and subject to the conditions hereinafter set forth and as set forth in the Plan.  None of the Options are intended to be “incentive stock options,” as that term is used in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE 2.  EXERCISE PRICE.

The per share price to be paid by the Optionee in the event of an exercise of any of the Options will be the respective price set forth opposite such Option in the written notification of grant referred to in Article 1 above.

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ARTICLE 3.  DURATION OF OPTIONS AND TIME OF EXERCISE.

3.1Exercisability and Duration.  Each Option will be immediately exercisable in full and will remain exercisable until 5:00 p.m. (St. Paul, Minnesota time) on the tenth anniversary of such Option’s respective Date of Grant (“Time of Termination”).  At the Time of Termination of an Option, such Option will become void and expire as to all unexercised Option Shares.

3.2Termination of Service as a Director of the Company.  If the Optionee ceases to serve as a director of the Company for any reason, then each Option will remain exercisable until the earlier of the expiration of five years after the date the Optionee ceased to serve as a director of the Company or the remaining term of such Option, at which time such Option will terminate and no longer be exercised.

3.3Effects of Actions Constituting Cause.  Notwithstanding anything in this Agreement to the contrary, in the event that the Optionee is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause, irrespective of whether such action or the Committee’s determination occurs before or after the Optionee ceases to serve as a director of the Company, all rights of the Optionee under the Plan and this Agreement attributable to unexercised Periodic Options then held by the Optionee will terminate and be forfeited without notice of any kind.

ARTICLE 4.  MANNER OF OPTION EXERCISE; RELOAD GRANTS.

4.1Notice.  Each Option may be exercised by the Optionee in whole or in part from time to time, subject to the conditions contained in the Plan and in this Agreement, by delivering, in person, by facsimile or electronic transmission or through the mail, a written notice of exercise to the Company at its principal executive office in St. Paul, Minnesota (Attention:  Corporate Secretary, or such other person as may, from time to time, be authorized by the Corporate Secretary to receive such notices).  Such notice must be in a form satisfactory to the Committee, identify the particular Option that is being exercised (by the Date of Grant and total number of Option Shares subject to such Option), specify the number of Option Shares with respect to which such Option is being exercised, and signed by the person or persons so exercising such Option.  Such notice must be accompanied by payment in full of the total purchase price of the Option Shares purchased.  In the event that an Option is being exercised, as provided by the Plan and Sections 5.2 and 5.3 below, by any person or persons other than the Optionee, the notice must be accompanied by appropriate proof of right of such person or persons to exercise such Option.  As soon as practicable after the effective exercise of such Option, the Optionee will be recorded on the stock transfer books of the Company as the owner of the Option Shares purchased, and the Company will deliver to the Optionee one or more duly issued stock certificates evidencing such ownership.  In the event that such Option is being exercised, as provided by resolutions of the Committee and Section 4.2 below, by tender of a Broker Exercise Notice, the Company will deliver such stock certificates directly to the Optionee’s broker or dealer or their nominee.

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4.2At the time of exercise of an Option, the Optionee will pay the total purchase price of the Option Shares to be purchased entirely in cash (including a check, bank draft or money order, payable to the order of the Company); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payment to be made, in whole or in part, by tender of a Broker Exercise Notice, by tender, or attestation as to ownership, of Previously Acquired Shares, or by a combination of such methods. In the event the Optionee is permitted to pay the total purchase price of such Option in whole or in part by tender or attestation as to ownership of Previously Acquired Shares, the value of such Previously Acquired Shares will be equal to their Market Price on the date of exercise of such Option.  Notwithstanding the foregoing, the exercise price payable upon the exercise of an Option by the Optionee if the Optionee has a deferral election in effect under Section 5.4 of the Plan and Section 4.3 of this Agreement must be made solely by attestation as to ownership, of Previously Acquired Shares.

4.3Deferral of Receipt of Option Shares Issuable Upon the Stock-for-Stock Exercise of Options.  So long as the Optionee is a Qualified Director, the Optionee may elect, in accordance with Section 5.4 of the Plan and this section and any other rules and procedures the Committee deems appropriate, to defer receipt of all or a portion of the Option Shares issuable upon the stock-for-stock exercise of an Option.  An election made pursuant to this section will not be effective unless it is made on a properly completed election form received by the Committee at least six months prior to the Optionee’s exercise of the Option covered by the deferral election.  An election made pursuant to this section will not be effective unless the Optionee is a Qualified Director both at the time of execution of the deferral election and at the time of the exercise of the Option, receipt of the Option Shares of which will be deferred.  The Optionee must pay the Option exercise price by attestation as to ownership of Previously Acquired Shares.  Receipt of Option Shares deferred with respect to an Option pursuant to this section will be credited to an Optionee’s Share Account under the Plan as of the day of exercise of such Option.  The number of Share Units credited to the Optionee’s Share Account will equal the number of Option Shares with respect to which the Option was exercised pursuant to this section by the Optionee, net of the number of Shares attested to in payment of the exercise price pursuant to this section.  An election to defer receipt of all or a portion of the Option Shares issuable upon the stock-for-stock exercise of an Option pursuant to this section is irrevocable.

4.4Reload Grants.  To the extent that (i) an Option is exercised in whole or in part at the time the Optionee is a director of the Company; and (ii) the exercise price of such Option is satisfied by the Optionee by tender or attestation as to ownership of Previously Acquired Shares, then the Optionee will automatically be granted, effective as of such date of exercise, a Reload Option to purchase the number of Shares tendered or attested to in exercising such Option, at an exercise price equal to the Market Price on the date of grant.  Such Reload Option will be immediately exercisable, will expire at the Time of Termination set forth in Section 3.1 of the original underlying Option, or earlier upon the Optionee’s termination of service as provided in Section 3.2 and will be subject to the other terms and conditions of the original underlying Option.  The right to receive a Reload Option under this section will accrue, on the terms and conditions set forth above, solely to the Optionee, and not to any permitted transferee under the terms of the Plan.  A Reload Option will not

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accrue or be granted on a Reload Option. Written notification will be provided by the Company to the Optionee from time to time as Reload Options are granted pursuant to this section.

ARTICLE 5.  RESTRICTIONS ON TRANSFER.

5.1General Restriction on Transfer.  Except as otherwise provided in the Plan and this section, none of the Options nor the Option Shares acquired upon exercise of the Options may be transferred by the Optionee, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law or otherwise.  Any attempt to transfer or encumber any of the Options or the Option Shares other than in accordance with this section and the Plan will be null and void and will void such Option.

5.2Designation of Beneficiary.  The Optionee is entitled to designate a beneficiary to receive an Option upon the Optionee’s death, and in the event of the Optionee’s death, payment of any amounts due under the Plan will be made to, and exercise of any of the Options (to the extent permitted pursuant to Article 3) may be made by, the Optionee’s legal representatives, heirs and legatees.

5.3Gifts to Related Parties.  So long as the Optionee is a director of the Company, the Optionee is entitled to transfer all or a portion of an Option, other than for value, to the Optionee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing the Optionee’s household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent of the beneficial interests, a foundation in which any of the foregoing (or the Optionee) control the management of assets, and any other entity in which these persons (or the Optionee) own more than fifty percent of the voting interests.  Any permitted transferee will remain subject to all the terms and conditions applicable to the Optionee prior to the transfer except that a transferee will have no rights to receive Reload Options under Section 4.4.  A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including, but not limited to execution and/or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee.

ARTICLE 6.  LIMITATION OF RIGHTS.

6.1No Right to Continue As a Director.  Neither the Plan, nor the granting of any of the Options under the Plan and this Agreement, nor any other action taken pursuant to the Plan, will constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain the Optionee as a director of the Company for any period of time, or at any particular rate of compensation.

6.2Rights as a Stockholder.  The Optionee will have no rights as a stockholder with respect to any Option Shares covered by an Option until the Optionee has exercised such Option, paid the exercise price and become the holder of record of such Option Shares, and, except as otherwise provided in Article 8 below, no adjustment will be made for dividends or other

4

distributions or other rights as to which there is a record date preceding the date the Optionee becomes the holder of record of such Option Shares.

ARTICLE 7.  WITHHOLDING TAXES.

7.1General Rules.  The Company is entitled to (a) withhold and deduct from the Optionee’s compensation and all other amounts which may be due and owing to the Optionee from the Company), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any federal, state or local withholding and other tax requirements attributable to the grant or exercise of any Option or otherwise incurred with respect to such Option, or (b) require the Optionee promptly to remit the amount of such withholding to the Company before taking any action on the Optionee’s notice of exercise of any Option, including issuing any Option Shares, with respect to such Option.  In the event that the Company is unable to withhold such amounts, for whatever reason, the Optionee hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law.

7.2Special Rules.  The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require the Optionee to satisfy, in whole or in part, any withholding or other tax obligation as described in Section 7.1 above by remitting such amounts to the Company, by electing to tender, or attest as to ownership of, Previously Acquired Shares, by delivery of a Broker Exercise Notice or a combination of such method.  For purposes of satisfying the Optionee’s withholding or other tax obligation, Previously Acquired Shares tendered or covered by an attestation will be valued at their Market Price.

ARTICLE 8.  ADJUSTMENTS.

In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off), or any other similar change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Optionee, will make appropriate adjustment (which determination will be conclusive) as to the number, kind and exercise price of securities subject to each Option.

ARTICLE 9.  SUBJECT TO PLAN.

9.1Terms of Plan Prevail.  Each Option and the Option Shares granted and issued pursuant to this Agreement have been granted and issued under, and are subject to the terms of, the Plan.  The terms of the Plan are incorporated by reference in this Agreement in their entirety, and the Optionee, by execution of this Agreement, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan, and any ambiguities in this Agreement will be interpreted by reference to the Plan.  In the event that any provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan will prevail.

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9.2Definitions.  Unless otherwise defined in this Agreement, the terms capitalized in this Agreement will have the same meaning as given to such terms in the Plan.

ARTICLE 10.  MISCELLANEOUS.

10.1Binding Effect.  This Agreement will be binding upon the heirs, executors, administrators, designated beneficiaries and successors of the parties to this Agreement.

10.2Governing Law.  This Agreement and all rights and obligations under this Agreement will be construed in accordance with the Plan and governed by the laws of the State of Minnesota without regard to conflicts of laws provisions.  Any legal proceedings related to this Agreement will be brought in an appropriate Minnesota court, and the parties to this Agreement consent to the exclusive jurisdiction of the court for this purpose.

10.3Entire Agreement.  This Agreement (including any written notification of the grant of an Option) and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the grant and exercise of each Option and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and exercise of such Option and the administration of the Plan.

10.4Amendment and Waiver.  This Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance.

[Remainder of page intentionally left blank]

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The parties to this Agreement have executed this Agreement effective the day and year first above written.

	ECOLAB INC.
	By
		Kenneth A. Iverson
		Vice President and Secretary
[By execution of this Agreement, the Optionee acknowledges having received a copy of the Plan.]	OPTIONEE (Name)

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EX-10.(D)II

Exhibit 10(D)ii

MASTER AGREEMENT
RELATING TO PERIODIC OPTIONS GRANTED UNDER THE
ECOLAB INC. 2001 NON-EMPLOYEE DIRECTOR STOCK OPTION
AND DEFERRED COMPENSATION PLAN

(as amended effective as of May 1, 2004)

THIS AGREEMENT is entered into and effective as of this         day of                            ,         , by and between Ecolab Inc. (the “Company”) and                               (the “Optionee”).

A.The Company has adopted the Ecolab Inc. 2001 Non-Employee Director Stock Option and Deferred Compensation Plan, as amended effective as of May 1, 2004 (the “Plan”), authorizing the Board of Directors of the Company, or a committee as provided for in the Plan (the Board or such a committee to be referred to as the “Committee”), to grant from time to time Periodic Options to Qualified Directors.

B.The Company desires to advance the interests of the Company and its stockholders by enabling the Company to attract and retain the services of experienced and knowledgeable non-employee directors and to provide an incentive for such directors to increase their proprietary interest in the Company’s long-term success and progress.

Accordingly, the parties agree as follows:

ARTICLE 1.GRANT OF PERIODIC OPTIONS.

Effective as of each of the dates (each, a “Date of Grant”) set forth in a written notification of the grant, which written notification will be provided by the Company to the Optionee from time to time as Periodic Options are granted under the Plan, the Company hereby grants to the Optionee the right, privilege, and option to purchase that number of shares (the “Option Shares”) of the Company’s common stock, $1.00 par value (the “Common Stock”) as set forth opposite such Date of Grant on the written notification, according to the terms and subject to the conditions hereinafter set forth and as set forth in the Plan.  None of the Periodic Options are intended to be “incentive stock options,” as that term is used in Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”).

ARTICLE 2.EXERCISE PRICE.

The per share price to be paid by the Optionee in the event of an exercise of any of the Periodic Options will be the respective price set forth opposite such Periodic Option in the written notification of grant referred to in Article 1 above.

ARTICLE 3.DURATION OF PERIODIC OPTIONS AND TIME OF EXERCISE.

3.1Exercisability and Duration.  Each Periodic Option will be immediately exercisable in full and will remain exercisable until 5:00 p.m. (St. Paul, Minnesota time) on the tenth anniversary of

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such Periodic Option’s respective Date of Grant (“Time of Termination”).  At the Time of Termination of a Periodic Option, such Option will become void and expire as to all unexercised Option Shares.

3.2Termination of Service as a Director of the Company.  If the Optionee ceases to serve as a director of the Company for any reason, then each Periodic Option will remain exercisable until the earlier of the expiration of five years after the date the Optionee ceased to serve as a director of the Company or the remaining term of such Periodic Option, at which time such Periodic Option will terminate and no longer be exercised.

3.3Effects of Actions Constituting Cause.  Notwithstanding anything in this Agreement to the contrary, in the event that the Optionee is determined by the Committee, acting in its sole discretion, to have committed any action which would constitute Cause, irrespective of whether such action or the Committee’s determination occurs before or after the Optionee ceases to serve as a director of the Company, all rights of the Optionee under the Plan and this Agreement attributable to unexercised Periodic Options then held by the Optionee will terminate and be forfeited without notice of any kind.

ARTICLE 4.MANNER OF PERIODIC OPTION EXERCISE.

4.1Notice.  Each Periodic Option may be exercised by the Optionee in whole or in part from time to time, subject to the conditions contained in the Plan and in this Agreement, by delivering, in person, by facsimile or electronic transmission or through the mail, a written notice of exercise to the Company at its principal executive office in St. Paul, Minnesota (Attention:  Corporate Secretary, or such other person as may, from time to time, be authorized by the Corporate Secretary to receive such notices).  Such notice must be in a form satisfactory to the Committee, identify the particular Periodic Option that is being exercised (by the Date of Grant and total number of Option Shares subject to such Periodic Option), specify the number of Option Shares with respect to which such Periodic Option is being exercised, and signed by the person or persons so exercising such Periodic Option.  Such notice must be accompanied by payment in full of the total purchase price of the Option Shares purchased.  In the event that a Periodic Option is being exercised, as provided by the Plan and Sections 5.2 and 5.3 below, by any person or persons other than the Optionee, the notice must be accompanied by appropriate proof of right of such person or persons to exercise such Periodic Option.  As soon as practicable after the effective exercise of such Periodic Option, the Optionee will be recorded on the stock transfer books of the Company as the owner of the Option Shares purchased, and the Company will deliver to the Optionee one or more duly issued stock certificates evidencing such ownership.  In the event that such Periodic Option is being exercised, as provided by resolutions of the Committee and Section 4.2 below, by tender of a Broker Exercise Notice, the Company will deliver such stock certificates directly to the Optionee’s broker or dealer or their nominee.

4.2At the time of exercise of a Periodic Option, the Optionee will pay the total purchase price of the Option Shares to be purchased entirely in cash (including a check, bank draft or money order, payable to the order of the Company); provided, however, that the Committee, in its sole discretion and upon terms and conditions established by the Committee, may allow such payment to

2

be made, in whole or in part, by tender of a Broker Exercise Notice, by tender, or attestation as to ownership, of Previously Acquired Shares, or by a combination of such methods. In the event the Optionee is permitted to pay the total purchase price of such Periodic Option in whole or in part by tender or attestation as to ownership of Previously Acquired Shares, the value of such Previously Acquired Shares will be equal to their Market Price on the date of exercise of such Periodic Option.

ARTICLE 5.RESTRICTIONS ON TRANSFER.

5.1General Restriction on Transfer.  Except as otherwise provided in the Plan and this section, none of the Periodic Options nor the Option Shares acquired upon exercise of the Periodic Options may be transferred by the Optionee, either voluntarily or involuntarily, or subjected to any lien, directly or indirectly, by operation of law or otherwise.  Any attempt to transfer or encumber any of the Periodic Options or the Option Shares other than in accordance with this section and the Plan will be null and void and will void such Periodic Option.

5.2Designation of Beneficiary.  The Optionee is entitled to designate a beneficiary to receive a Periodic Option upon the Optionee’s death, and in the event of the Optionee’s death, payment of any amounts due under the Plan will be made to, and exercise of any of the Periodic Options (to the extent permitted pursuant to Article 3) may be made by, the Optionee’s legal representatives, heirs and legatees.

5.3Gifts to Related Parties.  So long as the Optionee is a director of the Company, the Optionee is entitled to transfer all or a portion of a Periodic Option, other than for value, to the Optionee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, any person sharing the Optionee’s household (other than a tenant or employee), a trust in which any of the foregoing have more than fifty percent of the beneficial interests, a foundation in which any of the foregoing (or the Optionee) control the management of assets, and any other entity in which these persons (or the Optionee) own more than fifty percent of the voting interests.  Any permitted transferee will remain subject to all the terms and conditions applicable to the Optionee prior to the transfer.  A permitted transfer may be conditioned upon such requirements as the Committee may, in its sole discretion, determine, including, but not limited to execution and/or delivery of appropriate acknowledgements, opinion of counsel, or other documents by the transferee.

ARTICLE 6.LIMITATION OF RIGHTS.

6.1No Right to Continue As a Director.  Neither the Plan, nor the granting of any of the Periodic Options under the Plan and this Agreement, nor any other action taken pursuant to the Plan, will constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain the Optionee as a director of the Company for any period of time, or at any particular rate of compensation.

6.2Rights as a Stockholder.  The Optionee will have no rights as a stockholder with respect to any Option Shares covered by a Periodic Option until the Optionee has exercised such Periodic Option, paid the exercise price and become the holder of record of such Option Shares, and, except as otherwise provided in Article 8 below, no adjustment will be made for dividends or other

3

distributions or other rights as to which there is a record date preceding the date the Optionee becomes the holder of record of such Option Shares.

ARTICLE 7.WITHHOLDING TAXES.

7.1General Rules.  The Company is entitled to (a) withhold and deduct from the Optionee’s compensation and all other amounts which may be due and owing to the Optionee from the Company), or make other arrangements for the collection of, all legally required amounts necessary to satisfy any federal, state or local withholding and other tax requirements attributable to the grant or exercise of any Periodic Option or otherwise incurred with respect to such Periodic Option, or (b) require the Optionee promptly to remit the amount of such withholding to the Company before taking any action on the Optionee’s notice of exercise of any Periodic Option, including issuing any Option Shares, with respect to such Periodic Option.  In the event that the Company is unable to withhold such amounts, for whatever reason, the Optionee hereby agrees to pay to the Company an amount equal to the amount the Company would otherwise be required to withhold under federal, state or local law.

7.2Special Rules.  The Committee may, in its sole discretion and upon terms and conditions established by the Committee, permit or require the Optionee to satisfy, in whole or in part, any withholding or other tax obligation as described in Section 7.1 above by remitting such amounts to the Company, by electing to tender, or attest as to ownership of, Previously Acquired Shares, by delivery of a Broker Exercise Notice or a combination of such method.  For purposes of satisfying the Optionee’s withholding or other tax obligation, Previously Acquired Shares tendered or covered by an attestation will be valued at their Market Price.

ARTICLE 8.ADJUSTMENTS.

In the event of any reorganization, merger, consolidation, recapitalization, liquidation, reclassification, stock dividend, stock split, combination of shares, rights offering, divestiture or extraordinary dividend (including a spin-off), or any other similar change in the corporate structure or shares of the Company, the Committee (or, if the Company is not the surviving corporation in any such transaction, the board of directors of the surviving corporation), in order to prevent dilution or enlargement of the rights of the Optionee, will make appropriate adjustment (which determination will be conclusive) as to the number, kind and exercise price of securities subject to each Periodic Option.

ARTICLE 9.SUBJECT TO PLAN.

9.1Terms of Plan Prevail.  Each Periodic Option and the Option Shares granted and issued pursuant to this Agreement have been granted and issued under, and are subject to the terms of, the Plan.  The terms of the Plan are incorporated by reference in this Agreement in their entirety, and the Optionee, by execution of this Agreement, acknowledges having received a copy of the Plan. The provisions of this Agreement will be interpreted as to be consistent with the Plan, and any ambiguities in this Agreement will be interpreted by reference to the Plan.  In the event that any

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provision of this Agreement is inconsistent with the terms of the Plan, the terms of the Plan will prevail.

9.2Definitions.  Unless otherwise defined in this Agreement, the terms capitalized in this Agreement will have the same meaning as given to such terms in the Plan.

ARTICLE 10.MISCELLANEOUS.

10.1Binding Effect.  This Agreement will be binding upon the heirs, executors, administrators, designated beneficiaries and successors of the parties to this Agreement.

10.2Governing Law.  This Agreement and all rights and obligations under this Agreement will be construed in accordance with the Plan and governed by the laws of the State of Minnesota without regard to conflicts of laws provisions.  Any legal proceedings related to this Agreement will be brought in an appropriate Minnesota court, and the parties to this Agreement consent to the exclusive jurisdiction of the court for this purpose.

10.3Entire Agreement.  This Agreement (including any written notification of the grant of a Periodic Option) and the Plan set forth the entire agreement and understanding of the parties to this Agreement with respect to the grant and exercise of each Periodic Option and the administration of the Plan and supersede all prior agreements, arrangements, plans and understandings relating to the grant and exercise of such Periodic Option and the administration of the Plan.

10.4Amendment and Waiver.  This Agreement may be amended, waived, modified or canceled only by a written instrument executed by the parties hereto or, in the case of a waiver, by the party waiving compliance.

[Remainder of page intentionally left blank]

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The parties to this Agreement have executed this Agreement effective the day and year first above written.

ECOLAB INC.
By
	Timothy P. Dordell
	Associate General Counsel - Corporate and Assistant Secretary

[By execution of this Agreement, the Optionee acknowledges having received a copy of the Plan.]	OPTIONEE
	(Name)

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EX-15

Exhibit (15)

August 6, 2004

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

RE:Ecolab Inc. Registration Statements on Form S-8 (Registration Nos. 2-60010; 2-74944; 33-1664; 33-41828; 2-90702; 33-18202; 33-55986; 33-56101;333-95043; 33-26241; 33-34000; 333-56151; 333-18627; 33-39228; 33-56125; 333-70835; 33-60266; 333-95041; 33-65364; 333-18617; 333-79449; 333-35519; 333-40239; 333-95037; 333-50969; 333-58360; 333-97927; 333-115568; and 333-115568) and Registration Statement on Form S-4 (Registration No. 333-114869).

Commissioners:

We are aware that our report dated July 22, 2004, on our reviews of interim financial information of Ecolab Inc. (the “Company”) as of June 30, 2004 and for the three and six month periods ended June 30, 2004 and 2003 included in the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2004, is incorporated by reference in its Registration Statements listed above.

Yours very truly,

/s/ PricewaterhouseCoopers LLP

PRICEWATERHOUSECOOPERS LLP

Minneapolis, Minnesota

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EX-31

Exhibit (31)

CERTIFICATIONS

I, Douglas M. Baker, Jr., certify that:

1.I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2004 of Ecolab Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2004

/s/ Douglas M. Baker, Jr.

Douglas M. Baker, Jr.
President and Chief Executive Officer

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I, Steven L. Fritze, certify that:

1.I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2004 of Ecolab Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2004

/s/ Steven L. Fritze

Steven L. Fritze
Executive Vice President and Chief Financial Officer

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EX-32

Exhibit (32)

Section 1350 Certifications

Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of Ecolab Inc. does hereby certify that:

(a)the Quarterly Report on Form 10-Q of Ecolab Inc. for the quarter ended June 30, 2004 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(b)information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Ecolab Inc.

Dated:  August 6, 2004	/s/ Douglas M. Baker, Jr.
	Douglas M. Baker, Jr.
	President and Chief Executive Officer
Dated:  August 6, 2004	/s/ Steven L. Fritze
	Steven L. Fritze
	Executive Vice President and
	Chief Financial Officer

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