<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ECOLAB INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO]
ECOLAB INC.
- --------------------------------------------------------------------------------
Ecolab Center
370 N. Wabasha Street
St. Paul, Minnesota 55102
612/293-2233
March 28, 1997
DEAR FELLOW STOCKHOLDER:
You are cordially invited to join us for our Annual Meeting of Stockholders, to
be held this year at 10:00 a.m. on Friday, May 9, 1997, at the McKnight Theatre
in the Ordway Music Theatre, 345 Washington Street, St. Paul, Minnesota 55102.
The Notice of Annual Meeting and the Proxy Statement that follow describe the
business to be conducted at the meeting. We urge you to read both carefully.
We hope you plan to attend the meeting. However, if you will not be able to join
us, we encourage you to exercise your right as a stockholder and vote. Please
sign, date and promptly return the accompanying proxy card using the enclosed
self-addressed envelope.
Sincerely,
/s/ ALLAN L. SCHUMAN /s/ MICHAEL E. SHANNON
Allan L. Schuman Michael E. Shannon
President and Chief Executive Officer Chairman of the Board
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE AND RETURN THE
ACCOMPANYING PROXY AS SOON AS POSSIBLE.
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 9, 1997
TO THE STOCKHOLDERS OF ECOLAB INC.:
The Annual Meeting of Stockholders of Ecolab Inc. will be held on Friday, May 9,
1997, at 10:00 a.m. at the McKnight Theatre in the Ordway Music Theatre, 345
Washington Street, St. Paul, Minnesota 55102, for the following purposes (which
are more fully explained in the Proxy Statement):
(1) To elect four Class II Directors to a term to end at the third
subsequent annual meeting.
(2) To approve the Ecolab Inc. 1997 Stock Incentive Plan.
(3) To approve the Ecolab Inc. 1997 Non-Employee Director Deferred
Compensation Plan.
(4) To ratify the appointment of Coopers & Lybrand L.L.P. as the Company's
independent accountants for the current year ending December 31, 1997.
(5) To transact such other business as may properly come before the meeting
and any adjournment thereof.
The Board of Directors has fixed the close of business on March 18, 1997, as the
record date for the determination of stockholders entitled to notice of and to
vote at the meeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. IF YOU
ATTEND THE MEETING, YOU MAY VOTE YOUR SHARES IN PERSON EVEN THOUGH YOU HAVE
PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.
By Order of the Board of Directors
KENNETH A. IVERSON,
Vice President and Secretary
March 28, 1997
<PAGE>
ECOLAB INC.
Ecolab Center, 370 N. Wabasha Street, St. Paul, Minnesota 55102
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 1997
This Proxy Statement, which is first being mailed to stockholders on or about
March 28, 1997, is furnished in connection with the solicitation of proxies on
behalf of the Board of Directors of Ecolab Inc., a Delaware corporation
(hereinafter called the "Company"), from holders of Common Stock of the Company,
to be voted at the Annual Meeting of Stockholders to be held at 10:00 a.m. on
Friday, May 9, 1997, and at any adjournment thereof.
Holders of Common Stock of record at the close of business on March 18, 1997,
will be entitled to vote at the meeting and any adjournment thereof. At that
time, the Company had outstanding and entitled to vote 64,798,984 shares of
Common Stock. Each of such shares is entitled to one vote on each matter
presented at the meeting. The presence at the meeting, in person or by proxy, of
the holders of a majority of the issued and outstanding shares of Common Stock
entitled to vote, is required for a quorum for the transaction of business. In
accordance with the laws of the State of Delaware, shares represented by a
limited proxy (i.e., a broker non-vote) or represented by a proxy with
instructions to abstain will be counted in determining whether a quorum is
present. However, as described elsewhere in this Proxy Statement, such broker
non-votes or abstained shares will not be counted for purposes of determining
the election of directors or for passage or ratification of matters submitted to
stockholders.
If the stockholder is a participant in the Company's Dividend Reinvestment Plan
or a non-objecting beneficial owner participant in the Company's Employee Stock
Purchase Plan, the proxy represents the number of shares held on account of the
participant in those plans as well as shares held of record by the participant.
With respect to participants and beneficiaries of the Company's defined
contribution 401(k) Savings Plan, the proxy also serves as the voting
instruction card to the plan trustee and represents the stockholder's
proportional interest in shares of Common Stock beneficially held by the
trustee.
Proxies in proper form received by the time of the meeting will be voted as
specified. A stockholder giving a proxy may revoke it at any time before it is
exercised by submitting a written revocation, a subsequently dated proxy, or by
attending the meeting and voting in person.
The Company will bear the cost of the preparation and solicitation of proxies,
including the charges and expenses of brokerage firms, banks or other nominees
for forwarding proxy material to beneficial owners. In addition to solicitation
by mail, proxies may be solicited by telephone, telegraph or personally. The
Company has retained Georgeson & Company Inc., Wall Street Plaza, New York, NY
10005, to aid in the solicitation of proxies for a fee of $8,000 plus expenses.
Proxies may also be solicited by certain directors, officers and employees of
the Company without extra compensation.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as to entities which have reported to
the Securities and Exchange Commission ("SEC") or have advised the Company that
they are a "beneficial owner," as defined by the SEC rules and regulations, of
more than five percent of the Company's outstanding Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
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<S> <C> <C> <C>
Common Henkel KGaA 8,137,056(2) 12.6%
Henkelstrasse 67
Postfach 1100
40191 Dusseldorf 13
Germany
Common HC Investments, Inc. 7,333,332(3) 11.3%
1105 North Market Street
Suite 1300
Wilmington, DE 19899
Common Southeastern Asset 4,681,041(4) 7.2%
Management, Inc.
6075 Poplar Avenue
Suite 900
Memphis, TN 38119
Common Trimark Financial 4,351,200(5) 6.7%
Corporation
One First Canadian Place
Suite 5600, P. O. Box 487
Toronto, Ontario M5X 1E5
</TABLE>
(1) The percent of class is based on the number of voting shares outstanding as
of March 18, 1997, and the beneficial owner's most recent report of share
ownership.
(2) Henkel KGaA is a partnership limited by shares organized under the laws of
Germany. The Company understands that the majority of the voting stock of
Henkel KGaA is controlled by members of the Henkel family. Voting shares of
the Company beneficially owned by Henkel KGaA are subject to an agreement
containing certain restrictions pertaining to, among other things, maximum
shareholding, transfer and voting rights. For a description of the
agreement, see the information found at page 20 hereof under the heading
"Certain Transactions."
(3) HC Investments, Inc., a Delaware corporation, is an indirect, wholly-owned
subsidiary of Henkel KGaA. Voting shares of the Company beneficially owned
by HC Investments, Inc. are bound by the terms of the agreement between the
Company and Henkel KGaA, as described at page 20 hereof.
(4) On January 31, 1997, Southeastern Asset Management, Inc., an investment
advisor, reported that it had sole dispositive authority and sole voting
power over 4,007,241 and 3,608,441, respectively, of the shares; shared
dispositive authority and shared voting power over 595,700 of the shares; no
dispositive authority over 78,100 of the shares; and no voting power over
476,900 of the shares.
(5) On February 5, 1997, Trimark Financial Corporation ("TFC"), a parent
holding company, reported that certain Trimark mutual funds (the "Funds")
are owners of record of the voting shares of the Company in the above table.
The investment advisor and manager of the Funds is Trimark Investment
Management Inc. ("TIMI"), which is registered under the Securities Act
(Ontario). TFC owns 100% of the voting equity securities of TIMI and may be
deemed to be the beneficial owner of the shares in the above table. TFC
reported that it had sole dispositive authority and sole voting power over
all 4,351,200 shares.
2
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following information with regard to the beneficial ownership of the
Company's Common Stock at March 14, 1997 has been furnished by the respective
directors, nominees, or executive officers or obtained from the records of the
Company.
<TABLE>
<CAPTION>
PERCENT OF COMMON
AMOUNT AND NATURE OF STOCK BENEFICIALLY
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OWNED
<S> <C> <C>
Allan L. Schuman 419,157(1)(3) *
Michael E. Shannon 316,952(1)(2)(3) *
John P. Spooner 33,752(1)(3) *
Gerald K. Carlson 168,977(1)(3) *
James L. McCarty 44,624(1)(3) *
Ruth S. Block 13,963(3) *
Russell G. Cleary 38,813(3)(4) *
James J. Howard 12,413(3) *
Joel W. Johnson 2,436(3) *
Jerry W. Levin 10,273(3) *
Reuben F. Richards 14,813(3) *
Richard L. Schall 16,813(3) *
Roland Schulz 9,546(3) *
Philip L. Smith 13,013(3) *
Hugo Uyterhoeven 9,399(3) *
Albrecht Woeste 11,988(3) *
Current Directors and Executive Officers 1,589,192(5) 2.5%
as a Group (23 persons)
</TABLE>
* Percentage of shares beneficially owned does not exceed one percent.
(1) Includes the following shares held by officers in the Ecolab Savings Plan
as of the last Plan report: Mr. Schuman, 5,868; Mr. Shannon, 18,463; Mr.
Spooner, 663; Mr. Carlson, 5,353; and Mr. McCarty, 20,819.
(2) Includes 29,434 shares held by Mr. Shannon's wife.
(3) Includes the following shares which could be purchased by Messrs. Schuman,
Shannon, Spooner, McCarty and Carlson under the Company's 1977 and 1993
Stock Incentive Plans and, in the case of non-employee directors, under the
1988 and 1995 Non-Employee Director Stock Option Plans, within 60 days from
March 14, 1997: Mr. Schuman, 271,450; Mr. Shannon, 177,295; Mr. Spooner,
22,500; Mr. Carlson, 117,937; Mr. McCarty, 14,662; Ms. Block, 9,600; Mr.
Cleary, 9,600; Mr. Howard, 7,200; Mr. Johnson 2,000; Mr. Levin, 5,600; Mr.
Richards, 5,600; Mr. Schall, 9,600; Mr. Schulz, 4,800; Mr. Smith, 8,800; Mr.
Uyterhoeven, 6,400; Mr. Woeste, 6,400.
(4) Mr. Cleary is president and director of a charitable trust as to which he
has investment and voting power. Four thousand (4,000) shares of the
Company's Common Stock are owned by that trust and are reported herein as
shares beneficially owned by Mr. Cleary. Mr. Cleary disclaims a pecuniary
interest in such shares.
(5) Includes 53,667 shares held by or on behalf of family members of directors
and executive officers, 11,213 shares held in trusts over which certain
directors or executive officers have voting authority and/ or power of
disposition, 80,143 shares held for executive officers in Company-sponsored
employee benefit plans as of the last plan reports, 961,225 shares to which
these persons have the right to acquire beneficial ownership within sixty
days of March 14, 1997, by the exercise of stock options granted under the
Company's 1977 and 1993 Stock Incentive Plans or the 1988 and 1995
Non-Employee Director Stock Option Plans and 91,300 shares held by executive
officers under restricted stock awards granted under the Company's 1977 and
1993 Stock Incentive Plans and which are subject to events of forfeiture.
3
<PAGE>
ELECTION OF DIRECTORS
The business and affairs of the Company are managed under the overall direction
of the Board of Directors. To assist it in carrying out its duties, the Board
has delegated certain authority to four standing committees: Audit,
Compensation, Finance and Governance.
There were four meetings of the Board of Directors during the year ended
December 31, 1996. Each director except Messrs. Levin and Schulz, attended at
least 75 percent of Board and Committee meetings. Messrs. Levin and Schulz each
attended 73 percent of such meetings. Overall attendance at Board and Committee
meetings was 89 percent.
The Audit Committee, currently comprised of Messrs. Cleary, Richards, Schall
(Chairman), Uyterhoeven and Woeste, met four times during the past year. The
Committee, which is comprised entirely of independent directors, assists the
Board of Directors in overseeing management's discharge of its duties for the
preparation of interim and annual financial statements and for maintaining
financial control of operations. Principal responsibilities include (a)
oversight of the accuracy of public financial reports, including review of the
plan and scope of the annual audit, the results of the audit and the
independence of the independent accountants, (b) providing oversight assurance
that the Company has an effective system of internal controls and (c) providing
oversight assurance that the Company has effective controls against employee
conflict of interest and fraud and reasonably complies with related laws. The
Committee also recommends to the Board of Directors with regard to the retention
of the Company's independent accountants. In addition, the Committee assists the
Board of Directors in overseeing the accounting controls and policies and
reporting practices of the Henkel-Ecolab Joint Venture, an entity described at
page 20 hereof under the heading "Certain Transactions" and whose financial
statements are filed as a part of the Company's Annual Report on Form 10-K. The
Committee meets regularly with the Company's management and internal auditors,
and with the Company's independent accountants.
The Compensation Committee, currently comprised of Ms. Block and Messrs. Howard,
Johnson, Levin and Smith (Chairman), met four times during the past year. The
Committee is comprised entirely of independent directors. The principal
functions of this Committee are to review and approve (a) the Company's overall
compensation policy and executive salary plan, (b) the base salary of the five
most highly compensated and certain other executive officers, and (c) the
design, amendment, establishment and termination of the Company's employee
benefit plans and related trusts. The Committee also administers the Company's
stock and cash-based incentive plans for executives, and makes recommendations
to the Board with respect to (a) the base salary and other compensation of
officers of the Company who also serve as directors, and (b) the design and
establishment of long-term executive compensation and executive benefit plans.
To assist the Committee in the design and review of executive compensation
programs, the Board has selected and retained an independent compensation
consultant who reports directly to the Committee. A report by the Committee on
executive compensation is located on pages 11 through 13 hereof.
The Finance Committee, currently comprised of Ms. Block and Messrs. Johnson,
Richards (Chairman), Schall, Schulz, Shannon and Uyterhoeven, met four times
during the past year. The principal functions of this Committee are to review
and make recommendations to the Board concerning (a) the financial condition,
financial policies and standards, and long-range financial objectives of the
Company, (b) the Company's financing requirements, including the evaluation of
management's proposals concerning funding vehicles to meet such requirements,
(c) debt limits, (d) dividends, (e) the Company's capital expenditures budget,
(f) adequacy of insurance coverage and (g) the financial structure and policies
of the Henkel-Ecolab Joint Venture with particular attention to their impact on
the financial condition of the Company. The Committee also evaluates
acquisitions and divestitures of businesses from a financial standpoint. The
Committee oversees a management committee which is charged with monitoring the
performance of trust assets held in the Company's benefit plans.
The Governance Committee, currently comprised of Messrs. Cleary, Howard
(Chairman), Levin, Schuman, Smith and Woeste, met three times during the past
year. The Governance Committee (a) reviews and recommends to the Board policies
for the composition of the Board, (b) identifies, interviews, evaluates and
recommends to the Board prospective director nominees, (c) reviews and makes
recommendations to the Board with regard to compensation for Board service, (d)
reviews and recommends to the Board changes in the Company's Certificate of
Incorporation and By-Laws, (e) reviews and recommends to the Board with
4
<PAGE>
respect to Board organization, management succession and corporate governance
issues, social responsibility and the Company's environmental practices, (f)
leads the Board's CEO evaluation and Board effectiveness review processes, and
(g) undertakes projects which do not fall within the jurisdiction of other
committees of the Board. Recommendations by stockholders of potential director
nominees may be directed to the Governance Committee in care of the Secretary of
the Company, at the Company address located at the top of page 1.
Under the Company's Restated Certificate of Incorporation, the number of
directors is determined exclusively by the Board. Currently, the Board has fixed
the number of directors at 13.
Pursuant to the agreement between the Company and Henkel KGaA described at page
20 hereof under the heading "Certain Transactions," Henkel is entitled to
designate a number of persons to be nominated for election to the Company's
Board of Directors proportionate to Henkel's shareholding in the Company rounded
to the nearest whole number. As of March 18, 1997, Henkel beneficially owned
approximately 23.9% of the Company's outstanding Common Stock and was
accordingly entitled to designate three directors. Messrs. Roland Schulz,
Albrecht Woeste and Hugo Uyterhoeven have been appointed or elected to the Board
pursuant to designation by Henkel.
The Board of Directors is divided into three classes. The members of each class
are elected to serve a three-year term with the terms of office of each class
ending in successive years.
The term of Class II Directors expires with this Annual Meeting of Stockholders.
Ms. Block and Messrs. Cleary, Schuman and Shannon are the nominees for election
to the Board as Class II Directors and all have previously served as directors
of the Company. Class II Directors being elected at the current Annual Meeting
will serve until the 2000 Annual Meeting expected to be held in the Spring of
2000, or until their successors have been duly elected and qualified. The
directors of Classes I and III will continue in office. The Board of Directors
has no reason to believe that any of the named nominees is not available or will
not serve if elected.
The directors shall be elected by a plurality of the votes cast. The four
director nominees receiving the highest vote totals will be elected. Shares
represented by proxy which contain instructions to "withhold" voting authority
on one or more nominees will not affect the election of nominees receiving a
plurality of the votes cast. It is intended that proxies solicited by the Board
of Directors will (unless otherwise directed) be voted for the election of the
four nominees named in this Proxy Statement. If, for any reason, any nominee
becomes unavailable for election, the proxies solicited by the Board of
Directors will be voted for such substituted nominee as is selected by the Board
of Directors, or the Board of Directors, at its option, may reduce the number of
directors to constitute the entire Board.
Mr. Cleary, prior to 1988, was Chairman, Chief Executive Officer and President
of G. Heileman Brewing Company, a publicly-traded company. In 1988, Heileman was
acquired in a takeover by Bond Corporation Holdings Ltd., following which Mr.
Cleary terminated his relationship with Heileman. In 1991, Heileman filed for
federal bankruptcy protection. In 1994, Heileman was acquired by the investment
group of Hicks, Muse, Tate & Furst, Inc. and Mr. Cleary, who was a minority
investor, joined the Board of Heileman at the invitation of Hicks Muse.
Following the departure of Heileman's Chief Executive Officer, Mr. Cleary was
asked to serve, on an interim basis along with the Chairman of Heileman, as
Co-Chief Executive Officer of Heileman. This was a part-time position until a
new Chief Executive Officer could be hired. Mr. Cleary's service began in June,
1994 and ended on December 31, 1994 when a new Chief Executive Officer was
hired. In March, 1996, Heileman again filed for federal bankruptcy protection
and was subsequently acquired by the Stroh Brewery Company in July, 1996. Mr.
Cleary has no continuing association with Heileman.
The following information with regard to business experience has been furnished
by the respective directors or nominees or obtained from the records of the
Company.
5
<PAGE>
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NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS -- CLASS II
(FOR A TERM ENDING 2000)
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RUTH S. BLOCK, age 66.
Retired Executive Vice President and Chief Insurance Officer
[PHOTO] of The Equitable, an insurance and investment company.
Director of Ecolab since 1985. Member of the Compensation
Committee and Finance Committee.
Joined Equitable in 1952. Elected Executive Vice President in
1980; Chairman and Chief Executive Officer of EVLICO in 1980
and Chief Insurance Officer of Equitable in 1984; retired in
1987. Director of Alliance Capital Mutual Funds (38 Funds) and
Amoco Corporation.
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RUSSELL G. CLEARY, age 63.
Chairman of the Board and Chief Executive Officer of Cleary
[PHOTO] Management Corporation, a privately-held business and real
estate development corporation. Director of Ecolab since 1981.
Member of the Audit Committee and the Governance Committee.
Served as Chairman of the Board, President and Chief Executive
Officer of G. Heileman Brewing Company, Inc., a producer of
malt beverages and bakery goods, from 1971 to 1988, when
Heileman became a subsidiary of Bond Corporation Holdings
Ltd., a Western Australian company. Returned to Heileman and
served on a part-time basis as Co-Chief Executive Officer from
June through December, 1994 following the purchase of Heileman
by Hicks, Muse, Tate & Furst, Inc., Dallas. Chairman of the
Board of First State Bancorp, Inc. and Director of A. O. Smith
Corporation. Also, Director of the Wisconsin Alumni Research
Foundation and the Protection Mutual Insurance Company.
- --------------------------------------------------------------------------------
ALLAN L. SCHUMAN, age 62.
President and Chief Executive Officer of Ecolab. Director of
[PHOTO] Ecolab since 1991. Member of the Governance Committee.
Joined Ecolab in 1957 and after promotions through all levels
of sales and marketing positions in the Company's
Institutional Division, became a Vice President,
Institutional, Marketing and National Accounts in 1972.
Promoted to Vice President and Director, Institutional
Division in 1979 and to Senior Vice President of the Company
in 1984. In 1985 was named Executive Vice President and in
1988, President, Ecolab Services Group. Promoted to President
and Chief Operating Officer of the Company in August, 1992.
Named President and Chief Executive Officer in March, 1995.
Director of Soap and Detergent Association, International
Foodservice Manufacturers Association, American Marketing
Association Services Council, Hazelden Foundation and the
Ordway Music Theatre. Trustee of the Culinary Institute of
America and of the National Education Foundation of the
National Restaurant Association.
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6
<PAGE>
- --------------------------------------------------------------------------------
MICHAEL E. SHANNON, age 60.
Chairman of the Board, Chief Financial and Administrative
[PHOTO] Officer of Ecolab. Director of Ecolab since 1991. Member of
the Finance Committee.
From 1975 to 1984 held various senior financial positions with
Republic Steel Corporation, including from 1982 to 1984,
Executive Vice President and Chief Financial Officer. In
April, 1984 joined Ecolab as Executive Vice President and
Chief Financial Officer. From December, 1984 to October, 1990
held the additional position of Chief Administrative Officer
and from June, 1988 to October, 1990 was also President of
ChemLawn Services Corporation, a former subsidiary of the
Company, and from October, 1990 to May, 1992 also served as
President of the Residential Services Group of the Company.
Assumed positions of Vice Chairman and Chief Administrative
Officer in August, 1992 and named Chairman of the Board
effective January 1, 1996. Trustee of the Minnesota Mutual
Life Insurance Company and Minnesota Public Radio. Director of
National Association of Manufacturers. Chairman of the
Minnesota Orchestral Association.
- --------------------------------------------------------------------------------
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE -- CLASS III
(FOR A TERM ENDING 1998)
- --------------------------------------------------------------------------------
JOEL W. JOHNSON, age 53.
Chairman of the Board, President and Chief Executive Officer
[PHOTO] of Hormel Foods Corporation, a processor and marketer of meat
and food products. Director of Ecolab since 1996. Member of
the Compensation Committee and Finance Committee.
Following an extensive career at General Foods Corporation,
joined Hormel Foods Corporation in 1991 as Executive Vice
President - Sales & Marketing. Advanced to President in 1992,
Chief Operating Officer and Chief Executive Officer in 1993
and Chairman of the Board in 1995. Director of Hormel Foods
Corporation, The Hormel Foundation, Meredith Corporation,
American Meat Institute and Grocery Manufacturers Association.
Also a Trustee of Hamilton College and member of Board of
Overseers of the Carlson School of Management at the
University of Minnesota.
- --------------------------------------------------------------------------------
PHILIP L. SMITH, age 63.
Former Chairman of the Board, President and Chief Executive
[PHOTO] Officer of The Pillsbury Company. Director of Ecolab since
1989. Chairman of the Compensation Committee and member of the
Governance Committee.
Joined General Foods Corporation in 1966. After holding
various positions with General Foods, assumed the position of
Chairman, President and Chief Executive Officer in 1987. In
August, 1988 became Chairman of the Board, President and Chief
Executive Officer of The Pillsbury Company, a position held
until the acquisition of Pillsbury by Grand Metropolitan
Public Limited Company in January, 1989. Director of Whirlpool
Corporation and U.S. Trust Corporation.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
HUGO UYTERHOEVEN, age 65.
Timken Professor of Business Administration, Graduate School
[PHOTO] of Business Administration, Harvard University. Elected
pursuant to an understanding between the Company and Henkel
(see information found at page 5 hereof under the heading
"Election of Directors"). Director of Ecolab since 1992.
Member of the Audit Committee and Finance Committee.
Member of the Harvard Business School Faculty since 1960 where
he has served as Chairman of the Advanced Management Program,
Chairman of the General Management Area, and Senior Associate
Dean. Director of Bombardier Inc., Harcourt General, Inc. and
The Stanley Works.
- --------------------------------------------------------------------------------
ALBRECHT WOESTE, age 61.
Owner of R. Woeste GmbH & Co. KG, Dusseldorf, Germany, a
[PHOTO] privately-held manufacturer of tube fittings made of steel,
malleable iron and special castings. Member of the Henkel
family which controls Henkel KGaA, Dusseldorf, Germany, a
manufacturer of chemicals, household and personal care
products and adhesives and Chairman of the Shareholders'
Committee and the Supervisory Board of Henkel. Elected
pursuant to an understanding between the Company and Henkel
(see information found at page 5 hereof under the heading
"Election of Directors"). Director of Ecolab since 1991.
Member of the Audit Committee and Governance Committee.
Owner of R. Woeste GmbH & Co. KG, a family business
enterprise, since 1963. Named to the position of Vice Chairman
of the Shareholders' Committee of Henkel KGaA in 1965 and
appointed Chairman in 1990. Chairman of the Supervisory Board
of Henkel KGaA. Member of the Supervisory Board of Deutsche
Bank AG and of ALLIANZ Lebensversicherungs - AG (Life Insur-
ance). President Dusseldorf Chamber of Industry and Commerce.
- --------------------------------------------------------------------------------
8
<PAGE>
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE -- CLASS I
(FOR A TERM ENDING 1999)
- --------------------------------------------------------------------------------
JAMES J. HOWARD, age 61.
Chairman of the Board, President and Chief Executive Officer
[PHOTO] of Northern States Power Company ("NSP"), an operating public
utility primarily engaged in the generation, transmission and
distribution of electricity and the distribution of natural
gas to 1.8 million customers in the Upper Midwest. NSP,
through non-regulated subsidiaries (NRG Energy, Inc., which
operates and has interests in independent, non-regulated power
and energy businesses worldwide; and Cenerprise, Inc., which
markets gas, electricity and energy-related services
nationwide) also conducts operations nationally and
internationally. Director of Ecolab since 1991. Chairman of
the Governance Committee and member of the Compensation
Committee.
After holding various positions with affiliates of the Bell
Companies, in 1983 became President and Chief Operating
Officer of Ameritech, the Chicago- based holding company for
the Bell companies serving that region. Joined NSP as
President and Chief Executive Officer in February 1987, and
became Chairman of the Board in March 1988. Relinquished the
position of President from July 1990 through November 1994.
Director of Honeywell Inc., NSP, ReliaStar Financial Corp.
(formerly The NWNL Companies, Inc.), the Federal Reserve Bank
of Minneapolis and Walgreen Company.
- --------------------------------------------------------------------------------
JERRY W. LEVIN, age 52.
Chairman of Revlon, Inc., a beauty care company and Chairman
[PHOTO] of The Coleman Company, Inc., an outdoor recreational products
company. Executive Vice President of MacAndrews & Forbes.
Director of Ecolab since 1992. Member of the Compensation
Committee and Governance Committee.
Served in a number of senior executive positions with The
Pillsbury Company from 1974 through 1989. In 1989, joined
MacAndrews & Forbes which controls Revlon, Inc. and The
Coleman Company, among other companies. Appointed President of
Revlon in 1991, Chief Executive Officer in 1992 and Chairman
in 1995. Relinquished the positions of President in 1995 and
of Chief Executive Officer in January 1997. Named Chairman of
The Coleman Company, Inc. in February 1997. Prior thereto, was
Chairman of Coleman Holdings, the parent company of The
Coleman Company, Inc. Director of Apogee Enterprises, Inc.,
Coleman Worldwide Corp., The Coleman Company, Inc., First Bank
System Inc., Meridian Sports Inc., Revlon, Inc. and Revlon
Worldwide Corp.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
REUBEN F. RICHARDS, age 67.
Retired Chairman of the Board of Terra Industries Inc., an
[PHOTO] agribusiness. Director of Ecolab since 1983. Chairman of the
Finance Committee and member of the Audit Committee.
Chairman of the Board of Terra Industries Inc. from December,
1982 to May 1, 1996. Served as Chief Executive Officer from
December, 1982 to May, 1991 and as President from July, 1983
to May, 1991. Chairman of the Board of Engelhard Corporation
from May, 1985 to December, 1994 and held positions as
President and CEO and/or Chairman of the Board of Minorco
(U.S.A.) Inc. from May, 1990 to March, 1996. Director of
Potlatch Corporation, Santa Fe Energy Resources, Inc.,
Engelhard Corporation, Minorco, and Grupo Financiero Banorte.
- --------------------------------------------------------------------------------
RICHARD L. SCHALL, age 67.
Consultant since 1985. Retired Vice Chairman of the Board and
[PHOTO] Chief Administrative Officer of Dayton Hudson Corporation, a
national retailer. Director of Ecolab since 1978. Chairman of
the Audit Committee and member of the Finance Committee.
Joined Dayton Hudson in 1972 as Vice President and Controller.
Retired in 1985 as Chief Administrative Officer and Vice
Chairman of the Board, a position he had held since 1977.
Director of Medtronic, Inc., Meritex and First Bank System,
Inc.
- --------------------------------------------------------------------------------
ROLAND SCHULZ, age 55.
Executive Vice President in charge of Human Resources and
[PHOTO] member of the Executive Board of Henkel KGaA, Dusseldorf,
Germany, a manufacturer of chemicals, household and personal
care products and adhesives. Director of Ecolab since August,
1993. Appointed to the Board pursuant to an understanding
between the Company and Henkel (see information found at page
5 hereof under the heading "Election of Directors"). Member of
the Finance Committee.
Joined Henkel in 1972 and held various operational and
marketing executive positions in the Henkel organization.
Appointed Vice President of Henkel KGaA in charge of personnel
in 1990. In 1991, named Executive Vice President and became a
member of the Henkel KGaA Executive Board. Director of Gothaer
Lebensversicherung AG, Goettingen (Life Insurance).
- --------------------------------------------------------------------------------
10
<PAGE>
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Company's Board of Directors
is responsible for the overall executive compensation program and each
component. The Company's management and a compensation consultant provide
competitive data and assistance to help the Committee carry out its
responsibilities. The Board holds authority to ratify certain actions of the
Committee.
The Committee reviews each executive compensation component annually to maintain
alignment with the Company's goals and philosophy.
PHILOSOPHY: The Committee uses compensation to help communicate desired
business results to executives, influencing them to make decisions to produce
those results. The program must be competitive to attract, retain and motivate
executives, and it must reinforce and complement sound management practices. In
addition, the executives' interests must be effectively aligned with those of
our shareholders and, to this end, the Committee has developed executive stock
ownership guidelines to ensure that executives accumulate a significant
ownership stake and are vested in maximizing long-term shareholder returns.
Each component of the executives' compensation is targeted at the median of a
broad range of United States manufacturing and service companies, representing a
broader index for comparison than the Standard and Poor's Chemicals (Specialty)
Index represented in the performance graph on page 17. The Committee consults a
number of general industry surveys which collect a significant portion of their
data from the Standard & Poor's 500 Index or equivalent companies. The data is
adjusted through regression analysis to reflect the Company's size relative to
those companies included in the data. This size-adjusted data of the "comparator
group" of companies is the information relied upon by the Committee to provide a
generally accurate representation of the relevant competitive market.
The overall executive compensation program is designed to deliver median pay for
median Company performance. To the extent the Company's performance exceeds the
general industry median performance, total compensation will also exceed median
levels. Conversely, total compensation will be less than the median if Company
performance falls below the median performance level.
COMPONENTS: The Company's compensation program for executives includes four
components, each of which plays a specific role in the overall total
compensation approach, including:
- Base Salary;
- Management Incentive Plan or Management Performance Incentive Plan;
- Long-term incentives; and
- Benefits/perquisites.
BASE SALARY: The Company's philosophy is to set base salaries at the
competitive market median, as represented by the comparator group. However,
individual performance is also taken into account in determining any
variations from the median. Surveys provide the data needed to determine the
market median base salary opportunities of the comparator group. The
Committee reviews the base salary of executive officers on an annual basis
in light of the market data and the officer's individual performance to
determine whether an increase in base pay is appropriate. In 1996, executive
officers' base salary increases averaged 5.4 percent, excluding promotional
increases.
The Committee increased Mr. Schuman's base salary by 16 percent effective on
March 1, 1996. This increase brought Mr. Schuman's base salary to a level
essentially equivalent to the competitive market median.
11
<PAGE>
MANAGEMENT INCENTIVE PLAN (MIP)/MANAGEMENT PERFORMANCE INCENTIVE PLAN
(MPIP): The MIP is a cash-based annual incentive plan that focuses
executives' attention on achieving competitive annual business goals. The
Committee, with input from management, sets specific performance goals at
the beginning of each year and communicates them to the Company's
executives. A mix of corporate and business unit goals is used to assure
that executives have a reasonable measure of control over the factors
affecting their awards. The Committee also establishes median awards,
expressed as a percentage of base salary. The median award is established at
a level which approximates median annual incentive targets expressed as a
percentage of base salary of the comparator group. Achievement of median
performance goals, as established by the Committee, will result in a median
award, while achievement of performance levels below or above the median
performance goal will result in minimum, premium or maximum awards.
The MPIP is a shareholder approved plan which is essentially the same as the
MIP. The MPIP was adopted in response to Section 162(m) of the Internal
Revenue Code, which disallows deductions by public corporations of certain
executive compensation in excess of $1,000,000 unless the plan meets certain
requirements. For 1996, Mr. Schuman was the only participant in this plan.
Mr. Schuman and Mr. Shannon, as well as other executives with corporate-wide
responsibility, earn awards based solely on the achievement of Earnings Per
Share (EPS) goals. The Committee establishes annual EPS levels that must be
achieved to receive threshold, median, premium and maximum awards. Economic
projections and the compounded annual EPS growth over five-year and ten-year
periods for the Standard & Poor's 500 Index were the basis for the EPS goals
in 1996. Beginning in 1997, the compounded annual EPS growth over three-year
periods for the Standard & Poor's 500 Index will be the basis for the EPS
goals.
Executives with business-unit responsibility earn MIP awards by meeting
unit-specific operating income goals. As long as operating income thresholds
are met, other financial or strategic factors can also affect the size of
the awards. The weight of each performance measure varies among business
units. In 1996, the average weighting of the performance measures for the
majority of the business units was 50% operating income, 37% sales, and 7%
cash flow. The remaining performance measures, which fluctuated more greatly
among units, included measures such as management of assets and working
capital.
The Committee, in general, makes awards based strictly on level of
achievement against pre-established goals. However, under the MIP, the
Committee may, in its sole discretion, make awards at a level higher or
lower than that determined by strict application of achievement against
goals based upon such other business criteria as the Committee determines
appropriate.
The award under the MPIP for 1996 performance was 120% of base salary for
Mr. Schuman. The award was based on the Company's 1996 EPS growth of 16.7%
over 1995 results, and was derived from the EPS performance levels and
corresponding cash award levels established by the
Committee at the beginning of the plan year using the methodology described
above. The potential cash award for 1996, as established by the Committee,
ranged from a threshold of 20% of base salary to a maximum of 120% of base
salary. Under the MPIP, the Committee is allowed only downward discretion in
determining the award, and no adjustment was made to the award.
LONG-TERM INCENTIVES: The Committee uses grants of stock options and
restricted stock to deliver a competitive compensation package that
motivates executives to make decisions that will increase the value of
Company stock, thus providing an appropriate focus on the long-term growth
of the Company. When executives deliver sustained superior returns to
shareholders by outperforming the general industry, they increase their own
compensation accordingly.
Options are granted with exercise prices equal to the fair market value of
the Company's shares on the date of grant, providing no value to the
executive unless the Company's stock price increases after the grants are
made. The options become exercisable cumulatively at the rate of 25, 50, 75
and 100 percent on each anniversary of the date of grant and become
exercisable
12
<PAGE>
earlier upon a Change in Control of the Company as such term is defined in
footnote 4 to the Summary Compensation Table found on page 14 of this Proxy
Statement. The options have a term of ten years.
Restricted stock vests in equal installments on the second and fourth
anniversary of the grant. The Committee uses restricted stock as a component
of long-term executive compensation for two reasons: (1) similar to options,
restricted stock aligns executive pay with shareholder value over the
long-term; and (2) restricted stock grants provide a retention incentive,
decreasing the likelihood of costly, disruptive executive turnover.
The Committee makes stock incentive grants at the median gain opportunity
awarded to executives in similar positions in the comparator group. The
grants consist primarily of stock options. As to executive officers,
restricted stock represents between 20% to 40% of the total long-term
incentive value granted. The mix of restricted shares is set at 20% for
Messrs. Schuman and Shannon, and increases to 30% for the remaining
executive officers named in this proxy statement. This mix between options
and restricted shares has been in place for a number of years and has proven
to be valuable in building alignment with shareholders, providing retention
incentive, and increasing executive share ownership.
On August 16, 1996, the Committee granted to Mr. Schuman options to purchase
75,000 shares with an exercise price of $30.375 and a restricted stock grant
in the amount of 7,000 shares. The Committee based Mr. Schuman's stock
incentives upon the median gain opportunity of the comparator group.
BENEFITS/PERQUISITES: Executive benefits and perquisites are primarily
attraction and retention tools. They provide protection against the
financial catastrophes that can result from illness, disability and death.
They meet basic executive needs, allowing them to focus their attention on
the Company's business goals. The Company surveys the practices of the
comparator group and matches its benefits and perquisites to those provided
by a majority of companies.
POLICY WITH RESPECT TO THE $1 MILLION DEDUCTION LIMIT: Section 162(m) of the
Internal Revenue Code generally limits corporate deduction for compensation paid
to executive officers named in the proxy statement to $1,000,000, unless certain
requirements are met. The Committee's intent is to operate its compensation
programs for the executive officers subject to the deduction limit so the
corporate tax deduction is maximized on compensation paid. However, the
Committee will do so only to the extent practicable, and consistent with the
Company's overall compensation philosophy.
The Committee believes that compensation realized from the exercise of stock
options granted under the 1997 Stock Incentive Plan will be exempt from the
$1,000,000 cap imposed by Section 162(m). That Plan is being recommended by the
Board of Directors for approval of the stockholders under the heading "Proposal
to Adopt the 1997 Stock Incentive Plan" on pages 21 to 26 hereof.
CONCLUSION: The Committee believes that these executive compensation policies
and programs serve the interests of shareholders and the Company effectively.
The various pay vehicles utilized maintain an appropriate balance between
motivating achievement of short-term goals and strategically leading the Company
in a direction to provide long-term success. We will continue to monitor the
effectiveness of the Company's total compensation program to ensure that it
meets the needs of the Company.
Ruth S. Block Jerry W. Levin
James J. Howard Philip L. Smith
Joel W. Johnson
13
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows cash and non-cash compensation for each of the last
three years ended December 31 for the Company's Chief Executive Officer and for
the next four most highly-compensated executive officers who were serving in
those capacities at December 31, 1996. No other individuals served in those
capacities at any time during the year.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------
AWARDS
ANNUAL COMPENSATION ------------------------
---------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY(1) BONUS(1,2) COMPENSATION(3) AWARD(S)(4) OPTIONS COMPENSATION(5)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allan L. Schuman, 1996 $ 566,667 $680,000 $ 7,756 $212,625 75,000 $37,400
President and Chief 1995 $ 483,333 $517,200(6) $ 2,136 $597,653 207,800 $28,516
Executive Officer 1994 $ 400,000 $380,000 -0- $109,375 50,000 $27,900
Michael E. Shannon, 1996 $ 400,000 $399,600 $ 2,944 $208,250 80,000 $23,988
Chairman of the Board, Chief 1995 $ 380,000 $310,000 $ 2,037 $108,873 39,380 $20,700
Financial and Administrative 1994 $ 362,000 $343,900 $ 277 $ 87,500 40,000 $25,677
Officer
John P. Spooner,(7) 1996 $ 333,667 $136,400 -0- $ 45,563 10,000 $14,102
Senior Vice President -- 1995 $ 322,350 $146,700 -0- $133,750 30,000 $14,072
International 1994 $ 168,239 $200,000(8) $105,532 $109,375 30,000 $13,485
Gerald K. Carlson, 1996 $ 280,000 $173,700 $ 363 $ 30,375 8,000 $13,611
Senior Vice President -- 1995 $ 273,300 $ 96,800 $ 147 $ 58,850 13,750 $11,103
Corporate Planning and 1994 $ 273,300 $ 95,700 $ 1,561 $ 48,125 15,000 $15,570
Development
James L. McCarty, 1996 $ 280,000 $147,500 $ 2,561 $ 75,938 15,000 $12,825
Senior Vice President -- 1995 $ 250,000 $165,000 $ 1,296 $ 79,448 19,250 $12,450
Institutional North America 1994 $ 220,000 $155,000 $ 570 $ 59,063 15,200 $ 6,700
</TABLE>
(1) Includes amounts deferred under Section 401(k) of the Internal Revenue
Code, pursuant to the Company's Savings Plan, amounts deferred under a
non-qualified deferred compensation plan maintained by the Company for a
select group of executives and salary reductions per Section 125 of the
Internal Revenue Code.
(2) Represents annual cash awards under the Company's Management Incentive Plan
("MIP") and, if applicable, the Company's Management Performance Incentive
Plan ("MPIP"). The MIP and MPIP are discussed at page 12 hereof in the
"Report of the Compensation Committee on Executive Compensation."
(3) Represents payment by the Company of: (i) certain payroll taxes under the
Company's non-contributory non-qualified supplemental defined benefit plans
referred to in the text following the "Pension Plan Table" on page 18; and
(ii) in the case of Mr. Spooner, certain relocation expenses ($85,343)
incurred in 1994 and certain payroll taxes thereon. The Company maintains
executive death and supplemental long-term disability benefits for a select
group of executives, which benefits are self-funded and for which no
specific allocation of cost is made to any individual executive prior to the
occurrence of an event of death or disability which would give rise to the
payment of benefits.
(4) Represents the cumulative dollar value of restricted stock awards during
the calendar year based on the closing market price of the Company's Common
Stock on the date of grant. The recipients receive dividends declared on,
and have voting power over, the restricted shares. The value and number of
the aggregate shares of restricted stock held by the named executive
officers at December 31, 1996 were as follows: Mr. Schuman, $1,397,016 with
37,130 shares; Mr. Shannon, $551,959 with 14,670 shares; Mr. Spooner,
$338,625 with 9,000 shares; Mr. Carlson, $199,413 with 5,300 shares; and Mr.
McCarty, $284,821 with 7,570 shares.
All shares granted during 1996, 1995 and 1994 vest on the second and fourth
anniversary dates of the grant at the cumulative rate of 50% of each award,
based on continued employment of the recipient.
14
<PAGE>
The number of shares awarded during 1996, 1995 and 1994, respectively, to
the named executive officers were: Mr. Schuman, 7,000, 25,730 and 5,000; Mr.
Shannon, 7,000, 4,070, and 4,000; Mr. Spooner, 1,500, 5,000 and 5,000; Mr.
Carlson, 1,000, 2,200 and 2,200; and Mr. McCarty, 2,500, 2,970 and 2,700.
Restrictions will lapse immediately on all restricted stock awards in the
event of a change in control of the Company. A change in control occurs if:
(i) a person or group acquires 25% or more of the Company's outstanding
voting power. However, if the acquisition was approved by the Board of
Directors, then a change in control occurs at 34% ownership. If the
acquiring person, prior to becoming a 25% shareholder, has entered into (and
is in compliance with) a shareholder agreement which imposes limits on the
person's maximum shareholding, then a change in control occurs only upon
acquisition of 50% of the Company's voting power; (ii) during the period of
two consecutive years, individuals who, at the beginning of such a period,
were members of the Board, cease for any reason to constitute at least a
majority thereof (unless the election or the nomination for election by the
Company's stockholders of each new director was approved by a vote of at
least two-thirds of the directors then still in office who were directors at
the beginning of the period or whose election or nomination were previously
so approved); (iii) the stockholders approve a merger or consolidation of
the Company in which voting securities of the surviving entity will
represent less than 80% of the Company's voting securities prior to the
transaction; or (iv) the stockholders of the Company approve a plan of
complete liquidation or an agreement to sell all or substantially all of the
Company's assets (hereinafter a "Change in Control of the Company").
(5) Amounts reported for 1996 represent: (i) the maximum matching contribution
of $4,500 made by the Company to each of the named executive officers under
the Company's defined contribution 401(k) Savings Plan available generally
to all employees; and (ii) the matching contributions made or to be made by
the Company on base salary and bonus earned in respect of 1996 which the
executive elected to defer under a non-qualified deferred compensation plan
maintained by the Company for a select group of executives, in the following
amounts: Mr. Schuman, $32,900; Mr. Shannon, $19,488; Mr. Spooner, $9,602;
Mr. Carlson, $9,111; and Mr. McCarty, $8,325.
(6) Includes, in addition to the annual cash award under the Company's
incentive plans referenced in note (2) above, a one-time award of $50,000.
(7) Mr. Spooner became an executive officer effective June 20, 1994.
(8) Includes, in addition to the annual cash award under the Company's MIP
referenced in note (2) above, which award was guaranteed, a $50,000 signing
bonus.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT
ASSUMED ANNUAL RATES OF
STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
- ------------------------------------------------------------------------------------------------------------------------
PERCENT
NUMBER OF OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS TO EXERCISE OR
GRANTED(2) EMPLOYEES BASE PRICE EXPIRATION 0% 5% 10%
NAME (#) IN 1996 ($/SH) DATE ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Allan L. Schuman 75,000 12.5% $ 30.375 08/16/06 -0- $1,432,701 $3,630,745
Michael E. Shannon 80,000 13.3% $ 29.75 01/02/06 -0- $1,496,769 $3,793,107
John P. Spooner 10,000 1.7% $ 30.375 08/16/06 -0- $ 191,027 $ 484,099
Gerald K. Carlson 8,000 1.3% $ 30.375 08/16/06 -0- $ 152,821 $ 387,279
James L. McCarty 15,000 2.5% $ 30.375 08/16/06 -0- $ 286,540 $ 726,149
</TABLE>
(1) The dollar amounts under these columns are the results of calculations at
the 0 percent, 5 percent and 10 percent compounded growth rates set or
permitted by the SEC for the purposes of this table over a
15
<PAGE>
period equal to the term of the option. These rates and amounts are not
intended to forecast possible future price appreciation of the Company's
Common Stock. No gain to the optionees is possible without an increase in
stock price.
(2) All options granted during 1996 become exercisable cumulatively at the rate
of 25, 50, 75 and 100 percent on each anniversary of the date of grant and
become exercisable earlier upon a Change in Control of the Company.
AGGREGATED OPTION EXERCISES IN 1996 AND DECEMBER 31, 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Allan L. Schuman 70,000 $1,470,000 221,450 267,550 $ 4,348,447 $3,395,966
Michael E. Shannon -0- -0- 227,295 138,885 $ 4,856,837 $1,410,360
John P. Spooner -0- -0- 22,500 47,500 $ 316,406 $ 551,094
Gerald K. Carlson -0- -0- 117,937 30,813 $ 2,652,725 $ 365,916
James L. McCarty 7,800 $ 127,281 14,662 39,788 $ 206,692 $ 427,398
</TABLE>
(1) Represents the difference between the fair market value of the Company's
Common Stock as of December 31, 1996 and the exercise price of the option.
(2) Represents the difference between the fair market value of the Company's
Common Stock on the exercise date and the exercise price of the option.
16
<PAGE>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN(1)
Prior to July, 1996 the Company was included in the Standard & Poor's
Specialized Service Index (which has been renamed the Service (Commercial &
Consumer) Index) of the Standard & Poor's 500 Index. In July, 1996, the Company
was placed by Standard & Poor's in the Standard & Poor's Chemicals (Specialty)
Index.
The graph below compares the cumulative total shareholder return on the
Company's Common Stock for the five calendar years ended December 31, 1996, with
the cumulative total return on the Standard & Poor's 500 Index, the Standard &
Poor's Service (Commercial & Consumer) Index and the Standard & Poor's Chemicals
(Specialty) Index over the same periods (assuming the investment of $100 in the
Company's Common Stock, the Standard & Poor's 500 Index, the Standard & Poor's
Service (Commercial & Consumer) Index and the Standard & Poor's Chemicals
(Specialty) Index on January 1, 1992, and reinvestment of all dividends).
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P SERVICE
S&P 500 (COMMERCIAL & S&P CHEMICALS
INDEX ECOLAB INC. CONSUMER) INDEX (SPECIALTY) INDEX
<S> <C> <C> <C> <C>
1991 $ 100.00 $ 100.00 $ 100.00 $ 100.00
1992 $ 107.62 $ 126.09 $ 99.02 $ 105.94
1993 $ 118.46 $ 157.31 $ 95.94 $ 120.79
1994 $ 120.03 $ 149.10 $ 87.84 $ 105.45
1995 $ 165.13 $ 218.47 $ 118.64 $ 138.60
1996 $ 203.05 $ 278.78 $ 122.52 $ 142.16
</TABLE>
(1) Total return calculations prepared by Standard & Poor's Compustat.
17
<PAGE>
PENSION PLAN TABLE
<TABLE>
<CAPTION>
COMBINED ANNUAL RETIREMENT INCOME FROM THE
AVERAGE ANNUAL PLANS WITH YEARS OF SERVICE
EARNINGS DURING THE -----------------------------------------------------------------------------------------
HIGHEST FIVE
CONTINUOUS YEARS OF
ELIGIBLE SERVICE 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 40,000 $ 60,000 $ 80,000 $ 100,000 $ 120,000 $ 120,000 $ 120,000
300,000 60,000 90,000 120,000 150,000 180,000 180,000 180,000
400,000 80,000 120,000 160,000 200,000 240,000 240,000 240,000
500,000 100,000 150,000 200,000 250,000 300,000 300,000 300,000
600,000 120,000 180,000 240,000 300,000 360,000 360,000 360,000
700,000 140,000 210,000 280,000 350,000 420,000 420,000 420,000
800,000 160,000 240,000 320,000 400,000 480,000 480,000 480,000
900,000 180,000 270,000 360,000 450,000 540,000 540,000 540,000
1,000,000 200,000 300,000 400,000 500,000 600,000 600,000 600,000
1,100,000 220,000 330,000 440,000 550,000 660,000 660,000 660,000
1,200,000 240,000 360,000 480,000 600,000 720,000 720,000 720,000
</TABLE>
The preceding table shows the estimated annual benefits payable under the
Company's non-contributory qualified defined benefit Pension Plan, the Company's
non-contributory non-qualified defined benefit Mirror Pension Plan and the
Company's Supplemental Executive Retirement Plan (based upon a 15-year period
certain for the supplemental retirement benefit and a straight life annuity for
both the qualified and non-qualified pension benefits) following retirement at
age 65 for sample covered compensation amounts and lengths of plan
participation, without regard to vesting and offsets, if any, for benefits under
the Savings Plan or any predecessor plans and Social Security. At the end of 15
years, payment of amounts attributable solely to the Supplemental Executive
Retirement Plan cease. The amounts shown in the preceding table which are
attributable to the Supplemental Executive Retirement Plan would be reduced by
$7,488, which is the amount attributable to 50 percent of the primary Social
Security annual retirement benefit, based upon 1996 maximum levels for
retirement in 1996 at age 65, and by annuitized amounts presumed to be paid from
the Company's matching contribution made prior to July 1, 1994 under the
Company's Savings Plan and a former profit-sharing plan of the Company.
The table does not show the additional "past service benefit" provided under the
Supplemental Executive Retirement Plan to eligible executives who are unable to
earn the maximum supplemental benefit by retirement at or after age 65 because
the executive was hired by the Company after age 35. The past service benefit
would add an additional benefit of 1 percent of the difference between covered
compensation at retirement and earnings at the time of joining the Company
("first year earnings") for each year of service less than 30 years. Messrs.
Shannon and Spooner are currently subject to these provisions and their first
year earnings and estimated years of service creditable as past service are as
follows: Mr. Shannon, $215,682 with 13.12 years; Mr. Spooner $365,000 with 12.93
years.
Applicable approximate covered compensation and credited years of service as of
December 31, 1996 for the combined pensions and supplemental executive
retirement benefits for the individuals named in the Summary Compensation Table
at page 14 hereof are as follows: Mr. Schuman, $742,405 with 39.2 years; Mr.
Shannon, $599,120 with 12 years; Mr. Spooner, $476,358 with 2 years; Mr.
Carlson, $372,531 with 30.5 years; and Mr. McCarty, $316,273 with 33.9 years.
Covered compensation is based on the executive officer's average annual earnings
during the five continuous years of highest earnings. In general, there is no
material variation between compensation used to determine covered compensation
and the base salary and bonus compensation of executive officers as reported in
the Summary Compensation Table at page 14 hereof.
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DIRECTOR REMUNERATION
The Board's Governance Committee annually reviews the compensation policies for
its outside directors and makes a recommendation to the Board of Directors. The
review takes into consideration the fact that Board compensation should align
the interest of directors with that of the shareholders and assure that
directors are adequately and competitively compensated for their time and
effort. In terms of competitive practice, the Committee looks at national data
of public companies in the size range similar to that of the Company. Directors
who are also Company employees receive no separate remuneration for Board
service.
The following description of compensation for non-employee directors addresses
compensation programs as of the date of this Proxy Statement. The Board is
recommending for approval by the stockholders at this Annual Meeting of
Stockholders certain changes to compensation programs for non-employee
directors. The proposed changes are summarized under the heading "Proposal to
Adopt the 1997 Non-Employee Director Deferred Compensation Plan" located at
pages 27 to 31 hereof.
Members of the Board of Directors who are not employees of the Company are paid
an annual retainer of $22,000 and an attendance fee of $1,000 for each Board or
committee meeting they attend. Committee chairs each receive an additional fee
of $4,500 per annum.
Each non-employee director participates in the Company's Non-Employee Director
Stock-For-Retainer Plan under which 75% of earned annual retainer is paid in
Common Stock as of December 31 and the remaining 25% is paid quarterly in cash.
Under a deferred compensation plan, non-employee directors may elect to defer
some, or all, of the cash portion of their directors fees until a future date or
until occurrence of specified events. Amounts deferred are not subject to
federal income tax until received by the participant and are commingled with the
Company's general operating funds and earn interest at market rates.
Following termination as a member of the Board of Directors for any reason, a
non-employee director who has completed at least three years of service as a
Board member (or in the case of a deceased director, his or her beneficiary) is
entitled, under the Company's Non-Employee Directors' Retirement Plan, to an
annual fee equal to the amount paid as an annual retainer to active non-employee
directors at the date of the termination. Non-employee directors first elected
to the Board prior to March, 1982 are entitled to the same fee, but such fee
shall be adjusted to equal the annual fee payable from time to time to active
non-employee directors. The annual fee in each case is payable for a term equal
to the period of such director's service on the Board up to a maximum of fifteen
years, and is contingent upon the director not engaging in any activity
competitive to the Company's business.
Each non-employee director participates in a Company-provided insurance package
which provides $75,000 group term life insurance and $75,000 accidental death
and dismemberment coverage. Each such director also has $50,000 accident
coverage while traveling on Company business.
Each non-employee director participates in the Company's 1995 Non-Employee
Director Stock Option Plan. Under that Plan, each such director elected at an
annual meeting of stockholders to a full three-year term receives a
non-statutory option to purchase 6,000 shares of Common Stock at the fair market
value of the Common Stock on such date. The option becomes exercisable, on a
cumulative basis, as to 2,000 shares on each of the next three subsequent annual
meetings of stockholders. A director elected or appointed to less than a full
three-year term receives a pro rated grant. In the event a director ceases to
serve due to death or disability, all shares subject to the option become
immediately exercisable.
An option may be exercised for a period of ten years from grant. However, in the
event the director ceases to be a director due to death or disability, or for
any other reason, the exercise period is shortened to the lesser of five years
from such date or the expiration of the original term.
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CERTAIN TRANSACTIONS
The Company and Henkel KGaA ("Henkel") each have a 50% economic interest in a
joint venture engaged in industrial and institutional cleaning and sanitizing
businesses throughout Europe ("Joint Venture"). Neither partner may transfer its
interest without the other's consent. Henkel, by virtue of a tie-breaking vote
on certain operational matters, may control the day-to-day operations of the
Joint Venture. Strategic decisions concerning the Joint Venture require the
agreement of the Company and Henkel. The Company and Henkel are equally
represented on the governing board for the Joint Venture. Messrs. Schuman,
Shannon and Schulz are members of such governing board. The Company includes the
operations of the Joint Venture in its financial statements using the equity
method of accounting.
While the Joint Venture has its own manufacturing, training and research and
development facilities, it also has access to the basic technology of both the
Company and Henkel for which it pays each company an equal royalty based on net
sales. The Joint Venture operates on a stand alone basis but obtains certain
administrative support from Henkel and its affiliates and acquires certain
products from the Company and Henkel as well as from third parties. All such
royalties and prices for administrative services and products are based on arm's
length negotiations.
As part of the 1991 transaction with Henkel in which the Joint Venture was
formed, the Company, as described under the heading "Company Transactions" on
page 21, acquired Henkel businesses in 19 countries outside of Europe. The
Company also acquired options, exercisable through July 11, 2001, to acquire
Henkel's interest in cleaning and sanitizing businesses in certain other
countries at formula prices, in general, based on earnings of the businesses.
Options to acquire such businesses remain for Japan and Korea.
Mr. Schulz is an Executive Vice President of Henkel and Mr. Woeste is Chairman
of the Shareholder's Committee and the Supervisory Board of Henkel. As of March
18, 1997, Henkel and its affiliates owned approximately 15.47 million shares of
the Company's Common Stock as set forth in the table of Security Ownership of
Certain Beneficial Owners located on page 2 hereof.
Henkel's equity ownership in the Company is subject to an agreement
("Stockholder's Agreement") containing certain restrictions pertaining to, among
other things, maximum shareholding, transfer and voting rights. Generally, the
Stockholder's Agreement terminates on June 26, 2009. During the year second
preceding such date, Henkel and the Company will commence negotiations for an
extension of the term. If an agreement to extend such term is not reached,
Henkel would have the right, and in certain circumstances the obligation, to
purchase the Company's interest in the Joint Venture. The purchase price shall
be paid by Henkel in the Company's Common Stock owned by it, with any excess
price payable in cash. If the value of Henkel's Common Stock ownership exceeds
the purchase price, then the Company may acquire such remaining Common Stock at
market value. After any such purchase, the Stockholder's Agreement would remain
in effect for an additional two years. In addition, the Stockholder's Agreement
provides that if the Joint Venture is terminated or Henkel owns less than one
percent of the Company's Common Stock, the Stockholder's Agreement will
terminate two years after the later of such events.
Pursuant to the Stockholder's Agreement, Henkel is precluded from acquiring more
than 26% of the Company's outstanding Common Stock prior to July 11, 2000 and
30% thereafter or from acting, alone or in concert with others, to control or
influence the Company. Henkel may sell its shares of the Company's Common Stock
under certain conditions specified in the Stockholder's Agreement subject to the
Company's right of first refusal. In addition, Henkel has agreed to vote its
shares, in the case of election of directors of the Company or certain
stockholder proposals, in accordance with the recommendation or directions of
the Board. In all other cases, except with respect to certain "strategic
transactions," Henkel may vote, at its option, either in accordance with the
recommendation of the Board or pro rata in the same manner and proportion that
votes of the stockholders of the Company (other than Henkel and officers or
directors of the Company) have been cast. Any vote with respect to
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"strategic transactions" (among other things, a disposition, recapitalization or
dissolution of the Company, a change in the Company's Restated Certificate of
Incorporation or other transaction which could have a material effect upon
Henkel's investment in the Common Stock) may be cast at Henkel's sole
discretion. Henkel also is entitled to designate nominees for election to the
Company's Board of Directors proportionate to the percentage of its holding of
voting securities in the Company (rounded to the nearest whole number). Further
information concerning Henkel directorships is found at page 5 hereof under the
heading "Election of Directors."
COMPANY TRANSACTIONS
During 1996, the Company sold products and services in the amount of
approximately $2,581,000 to Henkel or its affiliates, and purchased products and
services in the amount of approximately $3,541,000 from Henkel or its
affiliates. The sales were made at prices comparable to prices charged to other
customers and the Company believes that the amounts paid for products and
services purchased were comparable with prices charged by other suppliers for
similar products.
In 1991, as part of the transaction with Henkel in which the Joint Venture was
formed, the Company acquired Henkel's industrial and institutional cleaning and
sanitizing businesses in 19 countries outside of Europe. The Company received
the right, in return for the annual payment of 2.5 million Deutsche marks
(approximately $1,700,000), to have access to certain technology of Henkel which
is relevant to most of the Company's businesses. The payment obligation has been
extended to continue until 1999 and was determined through arm's length
negotiation. In addition, pursuant to options granted to the Company by Henkel
as part of the 1991 transaction, and described under the heading "Certain
Transactions" on page 20 hereof, the Company has acquired additional
non-European businesses from Henkel, including in some cases from joint ventures
controlled by Henkel. During 1996 and early 1997, the Company acquired Henkel
cleaning and sanitizing businesses in China, Morocco, Kenya and Tanzania for a
purchase price aggregating approximately $5 million. The businesses acquired
from Henkel obtain certain administrative services and products from Henkel.
These arrangements were determined through arm's length negotiations as part of
the overall 1991 transaction with Henkel or as a part of the arrangements under
which they were purchased pursuant to the options described above. During 1996,
the non-European businesses paid Henkel or its affiliates approximately
$1,280,000 for administrative services and approximately $3,208,000 for products
under supply arrangements.
PROPOSAL TO ADOPT THE 1997 STOCK INCENTIVE PLAN
INTRODUCTION
On December 16, 1996, the Board of Directors adopted, subject to stockholder
approval, the Ecolab Inc. 1997 Stock Incentive Plan (the "1997 Plan"), which
provides for awards to eligible recipients of (i) options to purchase Common
Stock that qualify as "incentive stock options" ("Incentive Options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"); (ii) options to purchase Common Stock that do not qualify as Incentive
Options ("Non-Statutory Options"); (iii) awards of shares of Common Stock that
are subject to certain forfeiture and transferability restrictions ("Restricted
Stock Awards"); and (iv) awards of Common Stock which are not subject to
forfeiture provisions but which may, but need not be, subject to certain other
conditions ("Performance Stock Awards"). Incentive Options and Non-Statutory
Options are collectively referred to herein as "Options," and Options,
Restricted Stock Awards and Performance Stock Awards are collectively referred
to herein as "Incentive Awards."
The purpose of the 1997 Plan is to advance the interests of the Company and its
stockholders by enabling the Company and its subsidiaries to attract and retain
persons of ability to perform services for the Company and its subsidiaries by
providing an incentive to such individuals through equity participation in the
Company and by rewarding such individuals who contribute to the achievement by
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the Company of its economic objectives. The major features of the 1997 Plan are
summarized below, which summary is qualified in its entirety by reference to the
full text of the 1997 Plan, a copy of which may be obtained from the Company.
SUMMARY OF THE 1997 PLAN
GENERAL. All employees (including, without limitation, officers and directors
who are also employees), and non-employee consultants and advisors of the
Company or any subsidiary of the Company, who, in the judgment of the Committee,
have contributed, are contributing or are expected to contribute to the
achievement of economic objectives of the Company or its subsidiaries will be
eligible to participate in the 1997 Plan, except that Incentive Options may not
be granted to non-employees.
Subject to adjustment as described below, the maximum number of shares reserved
for issuance under the 1997 Plan is 3,000,000 shares of Common Stock. Shares of
Common Stock that are issued under the 1997 Plan or that are subject to
outstanding Incentive Awards will be applied to reduce the maximum number of
shares of Common Stock remaining available for use under the 1997 Plan. Any
shares of Common Stock that are subject to an Incentive Award that lapses,
expires, is forfeited or for any reason terminates unexercised or unvested, and
any shares of Common Stock that are subject to an Incentive Award that is
settled or paid in cash or any other form other than shares of Common Stock,
will automatically again become available for issuance under the 1997 Plan. Any
shares of Common Stock that constitute the forfeited portion of a Restricted
Stock Award under the 1997 Plan will not, however, become available for further
use under the 1997 Plan. 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 1997 Plan provides that
appropriate adjustment will be made as to the number and kind of securities
available for issuance under the 1997 Plan and, in order to prevent dilution or
enlargement of the rights of Participants, the number, kind and, where
applicable, the exercise price of securities subject to outstanding Incentive
Awards.
ADMINISTRATION. The 1997 Plan will be administered by the Board or by a
committee of the Board. Any such committee will consist of not less than two
members of the Board, all of whom are "non-employee directors" within the
meaning of Rule 16b-3 under the Exchange Act, and, if the Board so determines in
its sole discretion, who are "outside directors" within the meaning of Section
162(m) of the Code. The Board of Directors or committee, if established, are
referred to as the "Committee." In accordance with and subject to the terms of
the 1997 Plan, the Committee has the authority to determine all provisions of
Incentive Awards as the Committee may deem necessary or desirable, including,
the eligible recipients who will be granted one or more Incentive Awards under
the 1997 Plan ("Participants"), the nature and extent of the Incentive Awards to
be made to each Participant, the time or times when Incentive Awards will be
granted, the duration of each Incentive Award, and the restrictions and other
conditions to which the payment or vesting of Incentive Awards may be subject.
In addition, the Committee has the authority to pay the economic value of any
Incentive Award in the form of cash, Common Stock or any combination of both.
Unless terminated earlier, the 1997 Plan will terminate at midnight on June 30,
2003. Incentive Awards outstanding at the time the 1997 Plan is terminated may
continue to be exercised, or become free of restriction, in accordance with
their terms. The Board may suspend or terminate the 1997 Plan or any portion
thereof at any time. The Board may amend the 1997 Plan from time to time in such
respects as the Board may deem advisable in order that Incentive Awards under
the 1997 Plan will conform to any change in applicable laws or regulations or in
any other respect that the Board may deem to be in the best interests of the
Company; provided, however, that no amendments to the 1997 Plan will be
effective without the approval of the Company's stockholders if such approval is
then required pursuant to Section 422 of the Code or the rules of the New York
Stock Exchange. No termination, suspension or amendment of the 1997 Plan may
adversely affect any outstanding Incentive Award without the consent of the
affected Participant, except for adjustments in the event of changes in
capitalization or a
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Change in Control of the Company as provided in the 1997 Plan. No right or
interest in any Incentive Award may be assigned or transferred by a Participant,
except by will or the laws of descent and distribution, or subjected to any lien
or otherwise encumbered.
OPTIONS. The exercise price to be paid by a Participant at the time an Option
is exercised may not be less than 100% of the Fair Market Value of one share of
Common Stock on the date of grant. "Fair Market Value" under the 1997 Plan means
the average of the reported high and low sale prices of the Common Stock quoted
in THE WALL STREET JOURNAL reports of the New York Stock Exchange-Composite
Transactions as of a specified date. The Committee may grant an Option with an
exercise price above Fair Market Value.
No Participant in the 1997 Plan may be granted any Options, or any other
Incentive Awards with a value based solely on an increase in the value of the
Common Stock after the date of grant, relating to more than 800,000 shares of
Common Stock in the aggregate during any 48-month period (subject to adjustment,
as set forth above).
Payment of an option exercise price may be made either in cash or by transfer of
shares of Common Stock (either previously owned by the Participant or to be
acquired upon Option exercise), by delivery of a broker exercise notice
(pursuant to which the broker or dealer is irrevocably instructed to sell enough
shares or loan the optionee enough money to pay the exercise price and to remit
such sums to the Company) or by a combination of such methods, subject to the
right of the Committee to reject a Participant's election to pay the option
exercise price with previously acquired shares or pursuant to a broker exercise
notice.
Options may be exercised in whole or in installments, as determined by the
Committee, and the Committee may impose conditions or restrictions to the
exercisability of an Option, including, but not limited to, performance goals or
criteria. Except as provided below under the heading "Effect of Termination of
Employment or Other Service," an Option may not be exercisable prior to six
months from its date of grant and an Option will terminate if a Participant's
employment or service to the Company is terminated.
RESTRICTED STOCK AWARDS. A Restricted Stock Award is an award of Common Stock
that vests at such times and in such installments as may be determined by the
Committee and, until it vests, is subject to restrictions on transferability and
the possibility of forfeiture. The Committee may impose such restrictions or
conditions to the vesting of Restricted Stock Awards as it deems appropriate,
including that the Participant remain in the continuous employ or service of the
Company or a subsidiary for a certain period or that the Participant or the
Company (or any subsidiary, division or other subunit of the Company) satisfy
certain performance goals or criteria. Generally, no Restricted Stock Award may
vest prior to six months from its date of grant.
Unless the Committee determines otherwise, any dividends (other than regular
quarterly cash dividends) or distributions paid with respect to shares of Common
Stock subject to the unvested portion of a Restricted Stock Award will be
subject to the same restrictions as the shares to which such dividends or
distributions relate. In addition, the Committee may require that, unless the
Participant elects otherwise, regular quarterly cash dividends paid with respect
to shares of Common Stock subject to a portion of a Restricted Stock Award that
has not vested will be reinvested in shares of Common Stock in accordance with
the Company's regular dividend reinvestment plan.
PERFORMANCE STOCK AWARDS. A Performance Stock Award is an award of Common Stock
that is not subject to risk of forfeiture. A Performance Stock Award may be
awarded on such terms and conditions as the Committee may specify, and may be
granted without any restrictions on the underlying Common Stock, or with
restrictions on transferability on the underlying Common Stock.
CHANGE IN CONTROL OF THE COMPANY. In the event a Change in Control of the
Company occurs, then, if approved by the Committee in its sole discretion either
at the time of the grant of the Incentive Award or at any time after such grant,
all Options that have been outstanding for at least six months will become
immediately exercisable in full and will remain exercisable for the remainder of
their terms; all
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outstanding Restricted Stock Awards that have been outstanding for at least six
months will become immediately fully vested and non-forfeitable; and any
transfer restrictions with respect to Performance Stock Awards will lapse. In
addition, the Committee in its sole discretion may determine that some or all
Participants holding outstanding Options will receive cash in an amount equal to
the excess of the Fair Market Value of such shares immediately prior to the
effective date of such Change in Control over the exercise price per share of
the Options.
For purposes of the 1997 Plan, a "Change in Control of the Company" has the
meaning given it in footnote 4 to the Summary Compensation Table found on page
14 of this Proxy Statement.
EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE. If a Participant ceases
to be employed by the Company and all subsidiaries ("Termination of
Employment"), all Incentive Awards held by the Participant will terminate as set
forth below unless modified by the Committee in its discretion as set forth
below.
Upon Termination of Employment due to death or disability, all outstanding
Options then held by the Participant will become immediately exercisable in full
and will remain exercisable for a period of five years (but in no event after
the expiration date of the Option), all Restricted Stock Awards then held by the
Participant will become fully vested and any assignment or transfer restrictions
with respect to outstanding Performance Stock Awards will lapse.
Upon Termination of Employment due to retirement, all outstanding Options then
held by the Participant will remain exercisable in full to the extent
exercisable as of such termination for a period of five years after such
termination (but in no event after the expiration date of any such Option), all
unvested Restricted Stock Awards then held by the Participant will be terminated
and forfeited and any assignment or transfer restrictions with respect to
Performance Stock Awards that have not lapsed will continue in effect in
accordance with their terms unless otherwise provided in the award agreement
evidencing such Performance Stock Awards.
Upon Termination of Employment for any reason other than death, disability or
retirement, all rights of the Participant under the 1997 Plan and any award
agreements will immediately terminate without notice of any kind, and no Options
then held by the Participant will thereafter be exercisable, all unvested
Restricted Stock Awards will be terminated and forfeited, and any assignment or
transfer restrictions with respect to Performance Stock Awards that have not
lapsed will continue in effect in accordance with their terms unless otherwise
provided in the award agreement evidencing such Performance Stock Awards;
provided, however, that if a termination is for any reason other than cause, all
outstanding Options then held by the Participant will remain exercisable to the
extent exercisable as of such termination for a period of three months
thereafter (but in no event after the expiration date of any such Option). A
non-employee consultant or advisor will not be deemed to have incurred a
Termination of Employment if he or she moves directly from the status of
consultant or advisor to that of an employee of the Company or a subsidiary.
The Committee may at any time, including following Termination of Employment or
other service, cause Options held by the Participant to become or continue to
become exercisable, and cause Restricted Stock Awards and Performance Stock
Awards to vest or continue to vest or become free of restrictions following
Termination of Employment, but no Incentive Award may remain exercisable or
continue to vest for a period ending the earlier of the expiration date of the
Incentive Award or two years beyond the date the Incentive Award would have
terminated but for such modification.
FEDERAL INCOME TAX CONSEQUENCES
The following description of federal income tax consequences is based on current
statutes, regulations and interpretations. The description does not include
state or local income tax consequences. In addition, the description is not
intended to address specific tax consequences applicable to an individual
Participant who receives an Incentive Award.
INCENTIVE OPTIONS. There will not be any federal income tax consequences to
either the Participant or the Company as a result of the grant to an employee of
an Incentive Option under the 1997 Plan.
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The exercise by a Participant of an Incentive Option also will not result in any
federal income tax consequences to the Company or the Participant, except that
(i) an amount equal to the excess of the fair market value of the shares
acquired upon exercise of the Incentive Option, determined at the time of
exercise, over the amount paid for the shares by the Participant will be
includable in the Participant's alternative minimum taxable income for purposes
of the alternative minimum tax, and (ii) the Participant may be subject to an
additional excise tax if any amounts are treated as excess parachute payments
(see explanation below). Special rules will apply if previously acquired shares
of Common Stock are permitted to be tendered in payment of an Option exercise
price.
If the Participant disposes of the Incentive Option shares acquired upon
exercise of the Incentive Option, the federal income tax consequences will
depend upon how long the Participant has held the shares. If the Participant
does not dispose of the shares within two years after the Incentive Option was
granted, or within one year after the Participant exercised the Incentive Option
and the shares were transferred to the Participant, then the Participant will
recognize a long-term capital gain or loss. The amount of the long-term capital
gain or loss will be equal to the difference between (i) the amount the
Participant realized on disposition of the shares, and (ii) the option price at
which the Participant acquired the shares. The Company is not entitled to any
compensation expense deduction under these circumstances.
If the Participant does not satisfy both of the above holding period
requirements (a "disqualifying disposition"), then the Participant will be
required to report as ordinary income, in the year the Participant disposes of
the shares, the amount by which the lesser of (i) the fair market value of the
shares at the time of exercise of the Incentive Option or (ii) the amount
realized on the disposition of the shares, exceeds the option price for the
shares. The Company will be entitled to a compensation expense deduction in an
amount equal to the ordinary income includable in the taxable income of the
Participant. This compensation income may be subject to withholding. The
remainder of the gain recognized on the disposition, if any, or any loss
recognized on the disposition, will be treated as long-term or short-term
capital gain or loss, depending on the holding period.
NON-STATUTORY OPTIONS. Neither the Participant nor the Company incurs any
federal income tax consequences as a result of the grant of a Non-Statutory
Option. Upon exercise of a Non-Statutory Option, a Participant will recognize
ordinary income, subject to withholding, on the date of exercise in an amount
equal to the difference between (i) the fair market value of the shares
purchased, determined on the date of exercise, and (ii) the consideration paid
for the shares. The Participant may be subject to an additional excise tax if
any amounts are treated as excess parachute payments (see explanation below).
Special rules will apply if previously acquired shares of Common Stock are
permitted to be tendered in payment of an Option exercise price.
At the time of a subsequent sale or disposition of any shares of Common Stock
obtained upon exercise of a Non-Statutory Option, any gain or loss will be a
capital gain or loss. Such capital gain or loss will be long-term capital gain
or loss if the sale or disposition occurs more than one year after the date of
exercise and short-term capital gain or loss if the sale or disposition occurs
one year or less after the date of exercise.
In general, the Company will be entitled to a compensation expense deduction in
connection with the exercise of a Non-Statutory Option for any amounts
includable in the taxable income of the Participant as ordinary income, provided
the Company complies with any applicable withholding requirements.
RESTRICTED STOCK AWARDS. With respect to shares issued pursuant to a Restricted
Stock Award that are subject to a substantial risk of forfeiture, a Participant
may file an election under Section 83(b) of the Code within 30 days after the
shares are transferred to include as ordinary income in the year of transfer an
amount equal to the fair market value of the shares received on the date of
transfer (determined as if the shares were not subject to any risk of
forfeiture). The Company will receive a corresponding tax deduction, provided
that proper withholding is made. If a Section 83(b) election is made, the
Participant will not recognize any additional income when the restrictions on
the shares
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issued in connection with the stock award lapse. At the time any such shares are
sold or disposed of, any gain or loss will be treated as long-term or short-term
capital gain or loss, depending on the holding period from the date of receipt
of the Restricted Stock Award.
A Participant who does not make a Section 83(b) election within 30 days of the
transfer of a Restricted Stock Award that is subject to a substantial risk of
forfeiture will recognize ordinary income at the time of the lapse of the
restrictions in an amount equal to the then fair market value of the shares. The
Company will receive a corresponding tax deduction, provided that proper
withholding is made. At the time of a subsequent sale or disposition of any
shares of Common Stock issued in connection with a Restricted Stock Award as to
which the restrictions have lapsed, any gain or loss will be treated as long-
term or short-term capital gain or loss, depending on the holding period from
the date the restrictions lapse.
PERFORMANCE STOCK AWARDS. With respect to shares issued pursuant to a
Performance Stock Award, a Participant will include as ordinary income in the
year of receipt an amount equal to the fair market value of the shares received
as of the date of receipt. The Company will receive a corresponding tax
deduction, provided that proper withholding is made. At the time of a subsequent
sale or disposition of any shares of Common Stock issued in connection with a
Performance Stock Award, any gain or loss will be treated as long-term or
short-term capital gain or loss, depending on the holding period from the date
the shares were received.
EXCISE TAX ON PARACHUTE PAYMENTS. The Code also imposes a 20% excise tax on the
recipient of "excess parachute payments," as defined in the Code and denies tax
deductibility to the Company on excess parachute payments. Generally, parachute
payments are payments in the nature of compensation to employees of a company
who are officers, stockholders, or highly-compensated individuals, which
payments are contingent upon a change in ownership or effective control of the
company, or in the ownership of a substantial portion of the assets of the
company. For example, acceleration of the exercisability of Options, or the
vesting of Restricted Stock Awards, upon a Change in Control of the Company may
constitute parachute payments, and in certain cases, "excess parachute
payments."
INCENTIVE AWARDS UNDER THE 1997 PLAN
As of the date of this Proxy Statement, the Committee has not approved any
awards under the 1997 Plan. Neither the number nor types of future 1997 Plan
awards to be received by or allocated to particular Participants or groups of
Participants is presently determinable; however, no Participant may receive
Options, or any other Incentive Awards with a value based solely on an increase
in the value of Common Stock after the date of grant, relating to more than
800,000 shares of Common Stock in the aggregate during any 48-month period
(subject to adjustment, as set forth above).
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends that the stockholders vote FOR approval of the
1997 Plan. The affirmative vote of a majority of the total votes cast by the
holders of shares present in person or represented by proxy at the Annual
Meeting and entitled to vote is necessary for approval. In accordance with the
By-Laws of the Company, shares represented by a limited proxy (i.e., a broker
non-vote) or represented by a proxy with instructions to abstain will not be
counted as a vote cast for purposes of calculating votes for or against adoption
of the 1997 Plan. Unless a contrary choice is specified, proxies solicited by
the Board of Directors will be voted FOR approval of the 1997 Plan. Incentive
Awards will not be granted under the 1997 Plan if the 1997 Plan is not approved
by the stockholders.
26
<PAGE>
PROPOSAL TO ADOPT THE 1997 NON-EMPLOYEE DIRECTOR
DEFERRED COMPENSATION PLAN
INTRODUCTION
On December 16, 1996, the Board of Directors of the Company adopted the 1997
Non-Employee Director Deferred Compensation Plan (the "New Director Plan"),
subject to approval by the Company's stockholders.
The New Director Plan will provide non-employee directors of the Company
("Qualified Directors") with the following benefits which affect the Company's
existing cash-based Non-Employee Directors' Retirement Plan (the "Director
Retirement Plan") and certain insurance benefits, both affected benefits being
described more fully under the heading "Director Remuneration" on page 19 of
this Proxy Statement.
- Qualified Directors who are currently on the Board will have the
opportunity, on a one-time basis, to convert (the "Conversion Deferral")
their existing accrued benefits under the Director Retirement Plan to
balances in phantom stock accounts established under the New Director Plan
(the "Share Accounts"). The election to convert must be made no later than
April 30, 1997.
- Qualified Directors who make such Conversion Deferrals, as well as
individuals who first become Qualified Directors at or after such time as
the New Director Plan is approved by the Company's stockholders (the
"Effective Time"), will no longer participate in the cash-based Director
Retirement Plan or in a $75,000 term life policy sponsored by the Company.
Instead, such Qualified Directors will receive ongoing periodic credits to
their Share Accounts (the "Periodic Deferrals"). With the assistance of
its compensation consultant, the Board has fixed the value of the Periodic
Deferrals as of the Effective Time at a level to approximate the value of
the cash-based benefits they would replace. Following the Effective Time,
the Director Retirement Plan and the $75,000 life insurance program will
terminate, except for current Qualified Directors who elect not to make
the Conversion Deferral. Directors who are currently retired and receiving
payments under the Director Retirement Plan will not be affected by the
changes described herein and will continue to receive retirement payments.
In addition, the New Director Plan will provide Qualified Directors with the
following:
- Qualified Directors (whether elected as such before or after the Effective
Time) will receive 50 percent of their then current retainer in the form
of credits to their Share Accounts (the "Retainer Deferrals"). As of the
Effective Time, the current Stock-for-Retainer Plan, which is described
more fully under the heading "Director Remuneration" on page 19 of this
Proxy Statement, will be terminated.
- Qualified Directors (whether elected as such before or after the Effective
Time) will have the opportunity to defer receipt of the remainder of their
cash director compensation through credits to an interest bearing account
established under the New Director Plan (the "Cash Account") or to their
Share Accounts (the "Other Compensation Deferrals"). The Company has
previously offered its Qualified Directors the opportunity of deferring
cash director compensation into an interest bearing account, but the New
Director Plan will provide the additional option of deferring into the
Share Account.
The Board believes that by providing for equity-based compensation in lieu of
cash-based retirement and insurance compensation, and by providing an
opportunity for Qualified Directors to defer up to 100 percent of their cash
compensation into the equity-based Share Account, the compensation program for
non-employee directors will be more closely tied to the interests of the
stockholders and will better represent principles of sound Board compensation.
GENERAL
Subject to adjustment, as described in the next sentence, the maximum number of
shares reserved for issuance under the New Director Plan is 125,000 shares of
Common Stock. In the event of any
27
<PAGE>
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 New
Director Plan provides that appropriate adjustment will be made to the Share
Accounts and to the number and kind of securities available for issuance under
the New Director Plan.
ADMINISTRATION
The New Director Plan will be administered by a Board committee designated by
the Board (initially the Governance Committee) which may in turn delegate
certain duties to a named person. Such committee or person is referred to as the
"Administrator."
The Administrator may make, modify and rescind such rules, policies, practices
or procedures (the "Plan Rules") and make such determinations as the
Administrator determines to be necessary or advisable in connection with the
administration of the New Director Plan.
The Company reserves the right at any time to amend or terminate the New
Director Plan. Upon the termination of the New Director Plan, any benefits to
which participants in the New Director Plan (the "Participants") have become
entitled prior to the effective date of the termination will continue to be paid
in accordance with the provisions of the New Director Plan.
DEFERRAL CREDITS
CONVERSION DEFERRALS
Each current Qualified Director is eligible to elect to convert his or her
accrued benefit under the Director Retirement Plan to a balance in his or her
Share Account. The Share Account of a Qualified Director who makes such an
election will be credited with the number of Share Units (each of which
represents the equivalent of one share of Common Stock) determined by dividing
the entire accrued benefit of such Qualified Director under the Director
Retirement Plan based on Board service to the Effective Time (as calculated by
the Company's compensation consulting firm) by the average of the Market Price
for the period from February 7, 1997 through May 8, 1997 and rounding such
amount up to the next highest multiple of 50. Each Qualified Director who elects
to make a Conversion Deferral will no longer be eligible to participate in, or
to receive any benefit pursuant to, the Director Retirement Plan or the
Company-sponsored $75,000 life insurance program for non-employee directors. For
purposes of the New Director Plan, the term "Market Price" will mean the closing
sale price for a share of Common Stock on a specified date as quoted in THE WALL
STREET JOURNAL reports of the New York Stock Exchange--Composite Transactions.
As of March 18, 1997, such closing sale price was $38.00.
PERIODIC DEFERRALS
On a quarterly basis, the Share Account of each Qualified Director who has
elected to make a Conversion Deferral or who first becomes a Qualified Director
at or after the Effective Time will be credited with the number of Share Units
equal to the number that results from (i) dividing $11,500 by the average of the
Market Price for the period from February 7, 1997 through May 8, 1997 (rounded
up to the next highest multiple of 25), and (ii) dividing such amount by four.
The number of Share Units will be prorated if a director serves less than the
full quarter.
RETAINER DEFERRALS
On a quarterly basis, the Share Account of each Qualified Director will be
credited with the number of Share Units determined by dividing an amount equal
to 50 percent of the retainer payable to Qualified Directors for such calendar
quarter (as such retainer may be fixed from time to time by the Board of
Directors) by the Market Price on the date as of which such credit is made. The
number of Share Units will be prorated if a director serves less than the full
quarter.
28
<PAGE>
OTHER COMPENSATION DEFERRALS
Each Qualified Director may elect to defer into either the Cash or Share
Account any of the remaining portion of his or her director cash compensation
relating to his or her services during a calendar year.
EARNINGS CREDITS
A Participant's Cash Account will be credited with interest, calculated on the
basis of the balance in the Participant's Cash Account on the first day of each
month of the immediately preceding calendar quarter, at the Prime Rate of a
reference bank as in effect on the first day of each such month. A Participant's
Share Account will be credited with dividend equivalents, based on the amount of
dividends that would have been payable to the Participant if the number of Share
Units credited to the Participant's Share Account on the record date for such
dividend payment had then been shares of Common Stock.
DISTRIBUTIONS
GENERAL RULES
Distributions of a Participant's Cash and Share Account will be made or
commence following the date on which the Participant ceases to be a member of
the Board. Distributions will be made in the form of a lump sum payment unless
the Participant elects, on a properly completed form and in accordance with Plan
Rules, to receive his or her distribution in the form of annual installment
payments for a period of not more than 10 years. In the event of a Participant's
death, distributions will be made in a lump sum payment whether or not payments
have already commenced in the form of installments. Any distribution from a
Participant's Cash Account will be made in cash only, and any distribution from
a Participant's Share Account will be made in shares of Common Stock only.
SPECIAL RULES
In certain circumstances, special distribution rules will apply, provided
that, prior to the time that a Participant ceases to be a member of the Board,
the special distribution rules regarding unforeseeable emergency distributions
or accelerated distributions will only apply with respect to amounts credited to
a Participant's Share and Cash Accounts pursuant to Retainer Deferrals and Other
Compensation Deferrals. Any distribution from a Participant's Cash Account will
be made in cash only, and any distribution from a Participant's Share Account
will be made in shares of Common Stock.
UNFORESEEABLE EMERGENCY. A distribution will be made to a Participant from
his or her Share and Cash Accounts in the form of a lump sum payment if the
Participant submits a written distribution request to the Administrator and the
Administrator determines that the Participant has experienced an unanticipated
emergency that is caused by an event beyond the Participant's control resulting
in a severe financial hardship that cannot be satisfied through other means.
FORFEITURE PROVISIONS. The Company will not be obligated to pay or provide
to a Participant any future benefits under the New Director Plan which are
attributable to Conversion Deferrals and Periodic Deferrals if the Board
determines that such Participant has engaged in an activity that is competitive
or materially detrimental to the Company's business.
ACCELERATED DISTRIBUTIONS. A Participant may, at any time, elect an
immediate lump sum distribution of his or her Share and Cash Accounts in an
amount equal to 90 percent of the balance of such Accounts as of the date of the
distribution, in which case the remaining balance of such Accounts will be
forfeited.
29
<PAGE>
SOURCE OF PAYMENTS; NATURE OF INTERESTS
The New Director Plan is unfunded for tax purposes. All benefits and costs under
the New Director Plan will be paid from the Company's general assets, and the
rights of Participants to receive benefits will be no greater than that of any
unsecured general creditor of the Company. The Company may also establish a
trust with an independent corporate trustee for the purpose of paying such
benefits. The benefits payable under the New Director Plan may not be sold,
transferred, assigned, pledged, encumbered or subjected to any charge or legal
process.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
A Participant's election to make a Conversion Deferral, Periodic Deferral,
Retainer Deferral or Other Compensation Deferral (collectively, a "Deferral")
pursuant to the New Director Plan will not be a taxable event for federal income
tax purposes. A Participant will generally not recognize taxable income until he
or she receives distributions of cash or shares of Common Stock. A Participant
will generally recognize capital gain or loss upon a subsequent taxable sale or
disposition of any Common Stock received under the New Director Plan. The
capital gain or loss will be long-term capital gain or loss if the Director's
holding period of the stock is longer than one year and will be short-term
capital gain or loss if the stock was held for one year or less.
In general, the Company will be entitled to a compensation expense deduction for
any amounts includable in the taxable income of a Participant as ordinary
income, provided the Company complies with any applicable withholding
requirements.
DEFERRALS UNDER THE NEW DIRECTOR PLAN
As of the date of this Proxy Statement, no Deferrals have been made under the
New Director Plan. If the New Director Plan is approved by the Company's
stockholders, and assuming that each Qualified Director who is a nominee for
re-election is re-elected at the Annual Meeting and that each Qualified Director
elects to make Conversion Deferrals, the amount of the Deferrals (at the current
level of the retainer) for the Qualified Directors as a group for the first
twelve months following the Effective Time is set forth in the table below.
These amounts are expressed both in terms of the dollar amount of such Deferrals
and, as explained in the footnotes to the table, an assumed number of Share
Units that would be credited as a result of such Deferrals.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
1997 NON-EMPLOYEE DIRECTOR DEFERRED COMPENSATION PLAN
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
CONVERSION DEFERRALS PERIODIC DEFERRALS RETAINER DEFERRALS
-----------------------------------------------------------------------------------------------------
DOLLAR VALUE NUMBER OF SHARE DOLLAR VALUE NUMBER OF SHARE DOLLAR VALUE NUMBER OF SHARE
NAME AND POSITION ($) UNITS(1) ($) UNITS(2) ($) UNITS(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Qualified Directors as
a Group (11
individuals) $ 1,159,026 30,750 $ 126,500 3,575 $ 121,000 3,190
</TABLE>
(1) The number of Share Units in this column of the table is the aggregate of
each Qualified Director's Conversion Deferral dollar amount divided by the
Market Price of the Common Stock on March 18, 1997 rounded to the next
highest multiple of 50. The actual number of Share Units will be similarly
calculated but will be based on the average Market Price of the Common Stock
for the period February 7, 1997 through May 8, 1997. The Conversion
Deferrals occur only once and the number of Share Units will be different
for each Qualified Director based upon the Qualified Director's accrued
benefit under the Retirement Plan.
(2) The number of Share Units in this column of the table is the aggregate of
each Qualified Director's Periodic Deferral dollar amount of $11,500 divided
by the Market Price of the Common Stock on March 18, 1997 rounded to the
next highest multiple of 25. The actual number of Share Units will be
similarly calculated but will be based on the average Market Price of the
Common Stock for the
30
<PAGE>
period February 7, 1997 through May 8, 1997. Such number will thereafter be
fixed at that level, one fourth of which will be credited each calendar
quarter. The number of Share Units granted annually pursuant to Periodic
Deferrals will be the same for each Qualified Director.
(3) The number of Share Units in this column of the table is based on the
aggregate of each Qualified Director's Retainer Deferral dollar amount of
$11,000 (which is 50 percent of the current retainer) divided by the Market
Price of the Common Stock on March 18, 1997. The actual number of Share
Units for a full year will be based on 50 percent of the then current
retainer amount (credited pro rata in quarterly installments) divided by the
Market Price of the Common Stock at the end of each calendar quarter. The
number of Share Units granted annually pursuant to Retainer Deferrals will
be the same for each Qualified Director.
BOARD OF DIRECTORS RECOMMENDATION
The Board of Directors recommends that the stockholders vote FOR approval of the
New Director Plan. The affirmative vote of a majority of the total votes cast by
the holders of shares present in person or represented by proxy at the Annual
Meeting and entitled to vote is necessary for approval. In accordance with the
By-Laws of the Company, shares represented by a limited proxy (i.e., a broker
non-vote) or represented by a proxy with instructions to abstain will not be
counted as a vote cast for purposes of calculating votes for or against adoption
of the New Director Plan. Unless a contrary choice is specified, proxies
solicited by the Board of Directors will be voted FOR approval of the New
Director Plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of its Audit Committee, the Board of Directors has
appointed Coopers & Lybrand L.L.P. as independent accountants to audit the
consolidated financial statements of the Company for the year ending December
31, 1997, and to perform other appropriate audit, accounting and consulting
services. Coopers & Lybrand L.L.P. has served as independent accountants for the
Company since 1970. Representatives of Coopers & Lybrand L.L.P. are expected to
be present at the Annual Meeting of Stockholders. They will have an opportunity
to make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
Under the laws of the State of Delaware, stockholder ratification of the
appointment of independent accountants is not required. However, the Company
deems it advisable to submit the appointment of Coopers & Lybrand L.L.P. for
stockholder consideration and ratification.
The Board of Directors recommends a vote FOR the ratification of the appointment
of Coopers & Lybrand L.L.P. as independent accountants for the Company. In
accordance with the By-Laws of the Company, abstentions will not be counted as
votes cast for purposes of calculating votes for or against ratification of the
appointment of Coopers & Lybrand L.L.P. Unless a contrary choice is specified,
proxies solicited by the Board of Directors will be voted FOR ratification of
the appointment. If the appointment is not ratified, the Board of Directors will
reconsider the matter.
OTHER MATTERS
FUTURE STOCKHOLDER PROPOSALS
Any stockholder proposal to be considered by the Company for inclusion in the
Proxy Statement and form of proxy for the Annual Meeting of Stockholders in
respect of the year ending December 31, 1997, scheduled to be held on May 8,
1998, must be received by the Secretary of the Company at the Company's
principal executive offices located at the address found at the top of page 1,
no later than November 29, 1997.
Stockholder proposals not included in a proxy statement for an annual meeting
must comply with advance notice procedures set forth in the By-Laws of the
Company (which procedures include both timing and informational content
requirements) in order to be properly brought before that Annual Meeting of
Stockholders. In addition, notice of proposed stockholder nominations for the
election of
31
<PAGE>
directors at an annual meeting must be given in accordance with similar notice
procedures set forth in the By-Laws of the Company. In general the advance
notice procedures require that written notice of a stockholder proposal or a
director nomination be delivered to the Secretary of the Company not less than
90 days nor more than 135 days prior to the anniversary date of the preceding
Annual Meeting of Stockholders.
If the presiding officer of the Annual Meeting of Stockholders determines that
business, or a nomination, was not brought before the meeting in accordance with
the By-Law provisions such business shall not be transacted or such defective
nomination shall be disregarded. A copy of the By-Law provisions governing these
procedures may be obtained by writing to the Secretary of the Corporation at the
Company's principal executive offices at the address found at the top of page 1.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors and management do
not intend to present, and have no knowledge that other persons will present,
any matters at the meeting in addition to those described herein. Should any
other matters properly come before the meeting which call for a vote of the
stockholders, the persons named in the accompanying proxy will have
discretionary authority to vote all proxies with respect to such matters in
accordance with their best judgment.
By Order of the Board of Directors
KENNETH A. IVERSON,
Vice President and Secretary
March 28, 1997
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<PAGE>
[RECYCLE LOGO] RECYCLED PAPER WITH A MINIMUM
OF 10% POST CONSUMER WASTE.
<PAGE>
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ECOLAB INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 9, 1997
The undersigned hereby appoints Allan L. Schuman and Kenneth A. Iverson,
or either of them, with full power of substitution to each as proxies to
represent the undersigned at the Annual Meeting of Stockholders of Ecolab
Inc., to be held at the McKnight Theatre in The Ordway Music Theatre, 345
Washington Street, St. Paul, Minnesota on Friday, May 9, 1997 at
10:00 a.m. and at any adjournment(s) thereof, and to vote all shares of
stock which the undersigned may be entitled to vote at said meeting as
directed below with respect to the proposals as set forth in the Proxy
Statement, and in their discretion, upon any other matters that may properly
come before the meeting.
Election of Directors:
Nominees: R.S. Block, R.G. Cleary, A.L. Schuman, M.E. Shannon
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE
BOXES, SEE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO
VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE
TABULATOR CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE SIDE
/X/ PLEASE MARK YOUR VOTES AS IN
THIS EXAMPLE.
UNLESS YOU INDICATE OTHERWISE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE BOARD OF DIRECTORS' RECOMMENDATIONS.
- --------------------------------------------------------------------------
DIRECTORS RECOMMEND A VOTE FOR ALL NOMINEES AND FOR PROPOSALS 2, 3, AND 4.
- --------------------------------------------------------------------------
FOR WITHHELD
1. Election of 4 Directors. / / / /
(see reverse)
For all except the following nominee(s):
- ----------------------------------------------------
- --------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of 1997 Stock / / / / / /
Incentive Plan.
- --------------------------------------------------------------------------
FOR AGAINST ABSTAIN
3. Approval of 1997 Non-Employee / / / / / /
Director Deferred Compensation
Plan.
- --------------------------------------------------------------------------
FOR AGAINST ABSTAIN
4. Ratify appointment of / / / / / /
independent accountants.
Please sign name(s) exactly as printed hereon. Joint owners should each
sign. In signing as attorney, administrator, executor, guardian or
trustee, please give full title as such.
- --------------------------------------------------------------------------
SIGNATURE(S) DATE
<PAGE>
ECOLAB INC.
1997 STOCK INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purpose of the Ecolab Inc. 1997 Stock Incentive Plan (the "Plan") is to
advance the interests of Ecolab Inc. (the "Company") and its stockholders by
enabling the Company and its Subsidiaries to attract and retain persons of
ability to perform services for the Company and its Subsidiaries by providing an
incentive to such individuals through equity participation in the Company and by
rewarding such individuals who contribute to the achievement by the Company of
its economic objectives.
2. DEFINITIONS.
The following terms will have the meanings set forth below, unless the
context clearly otherwise requires:
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "BROKER EXERCISE NOTICE" means a written notice pursuant to which a
Participant, upon exercise of an Option, irrevocably instructs a broker or
dealer to sell a sufficient number of shares or loan a sufficient amount of
money to pay all or a portion of the exercise price of the Option and/or any
related withholding tax obligations and remit such sums to the Company and
directs the Company to deliver stock certificates to be issued upon such
exercise directly to such broker or dealer or their nominee.
2.3 "CHANGE IN CONTROL" means an event described in Section 11.1 of the
Plan.
2.4 "CODE" means the Internal Revenue Code of 1986, as amended.
2.5 "COMMITTEE" means the group of individuals administering the Plan, as
provided in Section 3 of the Plan.
2.6 "COMMON STOCK" means the common stock of the Company, par value $1.00
per share, or the number and kind of shares of stock or other securities into
which such Common Stock may be changed in accordance with Section 4.3 of the
Plan.
2.7 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, the
permanent
<PAGE>
and total disability of the Participant within the meaning of Section 22(e)(3)
of the Code.
2.8 "ELIGIBLE RECIPIENTS" means all employees (including, without
limitation, officers and directors who are also employees) of the Company or any
Subsidiary and any non-employee consultants and advisors of the Company or any
Subsidiary.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
2.10 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote) the mean between the
reported high and low sale prices of the Common Stock as quoted in the WALL
STREET JOURNAL reports of the New York Stock Exchange - Composite Transactions.
2.11 "INCENTIVE AWARD" means an Option, Restricted Stock Award or
Performance Stock Award granted to an Eligible Recipient pursuant to the Plan.
2.12 "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that
qualifies as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.13 "NON-STATUTORY STOCK OPTION" means a right to purchase Common Stock
granted to an Eligible Recipient pursuant to Section 6 of the Plan that does not
qualify as an Incentive Stock Option.
2.14 "OPTION" means an Incentive Stock Option or a Non-Statutory Stock
Option.
2.15 "PARTICIPANT" means an Eligible Recipient who receives one or more
Incentive Awards under the Plan.
2.16 "PERFORMANCE STOCK AWARD" means an award of Common Stock granted to
an Eligible Recipient pursuant to Section 8 of the Plan.
2.17 "PREVIOUSLY ACQUIRED SHARES" means shares of Common Stock that are
already owned by the Participant or, with respect to any Incentive Award, that
are to be issued upon the grant, exercise or vesting of such Incentive Award.
2.18 "RESTRICTED STOCK AWARD" means an award of Common Stock granted to an
Eligible Recipient pursuant to Section 7 of the Plan that is subject to the
restrictions on transferability and the risk of forfeiture imposed by the
provisions of such Section 7.
2.19 "RETIREMENT" means termination of employment at an age and length of
service such that the Participant would be eligible to an immediate commencement
of benefit payments under the
2
<PAGE>
Company's defined benefit pension plan available generally to its employees,
whether or not such individual actually elects to commence such payments
(provided that, if the Participant is not covered by the Company's defined
benefit pension plan, attainment of the necessary age and length of service for
immediate benefit commencement shall, for purposes of the Plan, be determined as
to the Participant as if such Participant had been covered by such plan and had
been credited with continuous (vesting) service pursuant to such plan rules (a)
for the period of service such Participant was in the employ of the Company and
any Subsidiary, and (b) with respect to a Participant who was in the employ of a
corporation or other organization whose business was acquired by the Company or
any Subsidiary, if (and only to the extent) specifically provided by the
Committee, for the period of service such Participant was in the employ of such
corporation or other organization prior to such acquisition).
2.20 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.21 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company or any entity in which the Company has a significant
equity interest, as determined by the Committee.
2.22 "TAX DATE" means the date any withholding tax obligation arises under
the Code for a Participant with respect to an Incentive Award.
3. PLAN ADMINISTRATION.
3.1 THE COMMITTEE. The Plan will be administered by the Board or by a
committee of the Board. So long as the Company has a class of its equity
securities registered under Section 12 of the Exchange Act, any committee
administering the Plan will consist solely of two or more members of the Board
who are "non-employee directors" within the meaning of Rule 16b-3 under the
Exchange Act and, if the Board so determines in its sole discretion, who are
"outside directors" within the meaning of Section 162(m) of the Code. Such a
committee, if established, will act by majority approval of the members
(unanimous approval with respect to action by written consent), and a majority
of the members of such a committee will constitute a quorum. As used in the
Plan, "Committee" will refer to the Board or to such a committee, if
established. To the extent consistent with corporate law, the Committee may
delegate to any officers of the Company the duties, power and authority of the
Committee under the Plan pursuant to such conditions or limitations as the
Committee may establish; provided, however, that only the Committee may exercise
such duties, power and authority with respect to Eligible Recipients who are
subject to Section 16 of the Exchange Act. The Committee may exercise its
duties, power and authority under the Plan in its sole and absolute discretion
without the consent of any Participant or other party, unless the Plan
specifically provides otherwise. Each determination, interpretation or other
action made or taken by the Committee pursuant to the provisions of the Plan
will be conclusive and binding for all purposes and on all persons, and no
member of the Committee will be liable for any action or determination made in
good faith with respect to the Plan or any Incentive Award granted under the
Plan.
3
<PAGE>
3.2 AUTHORITY OF THE COMMITTEE.
(a) In accordance with and subject to the provisions of the Plan, the
Committee will have the authority to determine all provisions of Incentive
Awards as the Committee may deem necessary or desirable and as consistent
with the terms of the Plan, including, without limitation, the following:
(i) the Eligible Recipients to be selected as Participants; (ii) the nature
and extent of the Incentive Awards to be made to each Participant
(including the number of shares of Common Stock to be subject to each
Incentive Award, any exercise price, the manner in which Incentive Awards
will vest or become exercisable and whether Incentive Awards will be
granted in tandem with other Incentive Awards) and the form of written
agreement, if any, evidencing such Incentive Award; (iii) the time or times
when Incentive Awards will be granted; (iv) the duration of each Incentive
Award; and (v) the restrictions and other conditions to which the payment
or vesting of Incentive Awards may be subject. In addition, the Committee
will have the authority under the Plan in its sole discretion to pay the
economic value of any Incentive Award in the form of cash, Common Stock or
any combination of both.
(b) The Committee will have the authority under the Plan to amend or
modify the terms of any outstanding Incentive Award in any manner,
including, without limitation, the authority to modify the number of shares
or other terms and conditions of an Incentive Award, extend the term of an
Incentive Award, accelerate the exercisability or vesting or otherwise
terminate any restrictions relating to an Incentive Award, accept the
surrender of any outstanding Incentive Award or, to the extent not
previously exercised or vested, authorize the grant of new Incentive Awards
in substitution for surrendered Incentive Awards; provided, however that
the amended or modified terms are permitted by the Plan as then in effect,
that no amendment or modification of an outstanding Incentive Award (other
than as may be required pursuant to Section 4.3 of the Plan) may decrease
the per share exercise price of an Option below the Fair Market Value of
the Common Stock on the date of grant, and that any Participant adversely
affected by such amended or modified terms has consented to such amendment
or modification. No amendment or modification to an Incentive Award,
however, whether pursuant to this Section 3.2 or any other provisions of
the Plan, will be deemed to be a regrant of such Incentive Award for
purposes of this Plan.
(c) In the event of (i) any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock
split, combination of shares, rights offering, extraordinary dividend or
divestiture (including a spin-off) or any other change in corporate
structure or shares, (ii) any purchase, acquisition, sale or disposition of
a significant amount of assets or a significant business, (iii) any change
in accounting principles or practices, or (iv) any other similar change, in
each case with respect to the Company or any other entity whose performance
is relevant to the grant or vesting of an Incentive Award, the Committee
(or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) may,
without the consent of any affected Participant, amend or modify the
vesting criteria of any outstanding Incentive Award that is based in whole
or in part on the financial performance of the Company (or any Subsidiary
or division or other subunit thereof) or such other entity so as equitably
to reflect such event, with the desired result that the criteria for
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evaluating such financial performance of the Company or such other entity
will be substantially the same (in the sole discretion of the Committee or
the board of directors of the surviving corporation) following such event
as prior to such event; provided, however, that the amended or modified
terms are permitted by the Plan as then in effect.
4. SHARES AVAILABLE FOR ISSUANCE.
4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided
in Section 4.3 of the Plan, the maximum number of shares of Common Stock that
will be available for issuance under the Plan will be 3,000,000 shares of Common
Stock. Notwithstanding any other provisions of the Plan to the contrary, no
Participant in the Plan may be granted any Options or any other Incentive Awards
with a value based solely on an increase in the value of the Common Stock after
the date of grant, relating to more than 800,000 shares of Common Stock in the
aggregate during any 48- month period (subject to adjustment as provided in
Section 4.3 of the Plan). The shares available for issuance under the Plan may,
at the election of the Committee, be either treasury shares or shares authorized
but unissued, and, if treasury shares are used, all references in the Plan to
the issuance of shares will, for corporate law purposes, be deemed to mean the
transfer of shares from treasury.
4.2 ACCOUNTING FOR INCENTIVE AWARDS. Shares of Common Stock that are
issued under the Plan or that are subject to outstanding Incentive Awards will
be applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan. Any shares of Common Stock that are
subject to an Incentive Award that lapses, expires, is forfeited or for any
reason is terminated unexercised or unvested and any shares of Common Stock that
are subject to an Incentive Award that is settled or paid in cash or any form
other than shares of Common Stock will automatically again become available for
issuance under the Plan. Any shares of Common Stock that constitute the
forfeited portion of a Restricted Stock Award, however, will not become
available for further issuance under the Plan.
4.3 ADJUSTMENTS TO SHARES AND INCENTIVE AWARDS. In the event of any
reorganization, merger, consolidation, recapitalization, liquidation,
reclassification, stock dividend, stock split, combination of shares, rights
offering, divestiture or extraordinary dividend (including a spin-off) or any
other change in the corporate structure or shares of the Company, the Committee
(or, if the Company is not the surviving corporation in any such transaction,
the board of directors of the surviving corporation) will make appropriate
adjustment (which determination will be conclusive) as to the number and kind of
securities or other property (including cash) available for issuance or payment
under the Plan and, in order to prevent dilution or enlargement of the rights of
Participants, (a) the number and kind of securities or other property (including
cash) subject to outstanding Incentive Awards, and (b) the exercise price of
outstanding Options.
5. PARTICIPATION.
Participants in the Plan will be those Eligible Recipients who, in the
judgment of the Committee, have contributed, are contributing or are expected to
contribute to the achievement of economic objectives of the Company or its
Subsidiaries. Eligible Recipients may be granted from time to time one or more
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Incentive Awards, singly or in combination or in tandem with other Incentive
Awards, as may be determined by the Committee in its sole discretion. Incentive
Awards will be deemed to be granted as of the date specified in the grant
resolution of the Committee, which date will be the date of any related
agreement with the Participant.
6. OPTIONS.
6.1 GRANT. An Eligible Recipient may be granted one or more Options under
the Plan, and such Options will be subject to such terms and conditions,
consistent with the other provisions of the Plan, as may be determined by the
Committee in its sole discretion. The Committee may designate whether an Option
is to be considered an Incentive Stock Option or a Non-Statutory Stock Option.
To the extent that any Incentive Stock Option granted under the Plan ceases for
any reason to qualify as an "incentive stock option" for purposes of Section 422
of the Code, such Incentive Stock Option will continue to be outstanding for
purposes of the Plan but will thereafter be deemed to be a Non-Statutory Stock
Option.
6.2 EXERCISE PRICE. The per share price to be paid by a Participant upon
exercise of an Option will be determined by the Committee in its discretion at
the time of the Option grant, provided that such price will not be less than
100% of the Fair Market Value of one share of Common Stock on the date of grant.
6.3 EXERCISABILITY AND DURATION. An Option will become exercisable at
such times and in such installments as may be determined by the Committee in its
sole discretion at the time of grant; provided, however, that no Option may be
exercisable prior to six months (other than as provided in Section 9.1 of the
Plan) or after 10 years from its date of grant.
6.4 PAYMENT OF EXERCISE PRICE. The total purchase price of the shares to
be purchased upon exercise of an Option will be paid entirely in cash (including
check, bank draft or money order); provided, however, that the Committee, in its
sole discretion and upon terms and conditions established by the Committee, may
allow such payments to be made, in whole or in part, by tender of a Broker
Exercise Notice, Previously Acquired Shares or by a combination of such methods.
6.5 MANNER OF EXERCISE. An Option may be exercised by a Participant in
whole or in part from time to time, subject to the conditions contained in the
Plan and in the agreement evidencing such Option, by delivery in person, by
facsimile or electronic transmission or through the mail of written notice of
exercise to the Company at its principal executive office in St. Paul, Minnesota
and by paying in full the total exercise price for the shares of Common Stock to
be purchased in accordance with Section 6.4 of the Plan.
7. RESTRICTED STOCK AWARDS.
7.1 GRANT. An Eligible Recipient may be granted one or more Restricted
Stock Awards under the Plan, and such Restricted Stock Awards will be subject to
such terms and conditions, consistent with
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the other provisions of the Plan, as may be determined by the Committee in its
sole discretion. The Committee may impose such restrictions or conditions, not
inconsistent with the provisions of the Plan, to the vesting of such Restricted
Stock Awards as it deems appropriate, including, without limitation, that the
Participant remain in the continuous employ or service of the Company or a
Subsidiary for a certain period or that the Participant or the Company (or any
Subsidiary or division or other subunit thereof) satisfy certain performance
goals or criteria; provided, however, that other than as provided in Section 9.1
of the Plan, no Restricted Stock Award may vest prior to six months from its
date of grant.
7.2 RIGHTS AS A STOCKHOLDER; TRANSFERABILITY. Except as provided in
Sections 7.1, 7.3 and 12.3 of the Plan, a Participant will have all voting,
dividend, liquidation and other rights with respect to shares of Common Stock
issued to the Participant as a Restricted Stock Award under this Section 7 upon
the Participant becoming the holder of record of such shares as if such
Participant were a holder of record of shares of unrestricted Common Stock.
7.3 DIVIDENDS AND DISTRIBUTIONS. Unless the Committee determines
otherwise in its sole discretion (either in the agreement evidencing the
Restricted Stock Award at the time of grant or at any time after the grant of
the Restricted Stock Award), any dividends or distributions (other than regular
quarterly cash dividends) paid with respect to shares of Common Stock subject to
the unvested portion of a Restricted Stock Award will be subject to the same
restrictions as the shares to which such dividends or distributions relate. The
Committee will determine in its sole discretion whether any interest will be
paid on such dividends or distributions. The Committee, in an agreement
evidencing a Restricted Stock Award, may require that, unless the Participant
elects otherwise, regular quarterly cash dividends paid with respect to shares
of Common Stock subject to a portion of the Restricted Stock Award that has not
vested will be reinvested (and in such case Participants hereby consent to such
reinvestment) in shares of Common Stock pursuant and in accordance with the
Company's regular dividend reinvestment plan.
7.4 ENFORCEMENT OF RESTRICTIONS. To enforce the restrictions referred to
in this Section 7, the Committee may place a legend on the stock certificates
referring to such restrictions and may require the Participant, until the
restrictions have lapsed, to keep the stock certificates, together with duly
endorsed stock powers, in the custody of the Company or its transfer agent, or
to maintain evidence of stock ownership, together with duly endorsed stock
powers, in a certificateless book-entry stock account with the Company's
transfer agent.
8. PERFORMANCE STOCK AWARDS.
An Eligible Recipient may be granted one or more Performance Stock Awards
under the Plan, and such Performance Stock Awards will be subject to such terms
and conditions, if any, consistent with the other provisions of the Plan, as may
be determined by the Committee in its sole discretion. The Participant will
have all voting, dividend, liquidation and other rights with respect to the
shares of Common Stock issued to a Participant as a Performance Stock Award
under this Section 8 upon the Participant becoming the holder of record of such
shares; provided, however, that the Committee may impose such restrictions on
the assignment or transfer of a Performance Stock Award as it deems appropriate,
and may enforce such restrictions by any or all of the methods set forth in
Section 7.4 of the
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Plan.
9. EFFECT OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
9.1 TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY. In the event a
Participant's employment with the Company and all Subsidiaries is terminated by
reason of death or Disability:
(a) All outstanding Options then held by the Participant will become
immediately exercisable in full and will remain exercisable for a period of
five years after such termination (but in no event after the expiration
date of any such Option);
(b) All Restricted Stock Awards then held by the Participant will
become fully vested; and
(c) Any assignment or transfer restrictions with respect to
Performance Stock Awards will lapse.
9.2 Termination of Employment Due to Retirement. In the event a
Participant's employment with the Company and all Subsidiaries is terminated by
reason of Retirement:
(a) All outstanding Options then held by the Participant will remain
exercisable in full and will remain exercisable to the extent exercisable
as of such termination for a period of five years after such termination
(but in no event after the expiration date of any such Option);
(b) All Restricted Stock Awards then held by the Participant that
have not vested as of such termination will be terminated and forfeited;
and
(c) Any assignment or transfer restrictions with respect to
Performance Stock Awards that have not lapsed will continue in effect in
accordance with their terms unless otherwise provided in the agreement
evidencing such Performance Stock Awards.
9.3 TERMINATION OF EMPLOYMENT FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT.
(a) In the event a Participant's employment is terminated with the
Company and all Subsidiaries for any reason other than death, Disability or
Retirement, or a Participant is in the employ of a Subsidiary and the
Subsidiary ceases to be a Subsidiary of the Company (unless the Participant
continues in the employ of the Company or another Subsidiary), all rights
of the Participant under the Plan and any agreements evidencing an
Incentive Award will immediately terminate without notice of any kind, and
(i) no Options then held by the Participant will thereafter be exercisable,
(ii) all Restricted Stock Awards then held by the Participant that have not
vested will be terminated and forfeited, and (iii) any assignment or
transfer restrictions with
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respect to Performance Stock Awards that have not lapsed will continue in
effect in accordance with their terms unless otherwise provided in the
agreement evidencing such Performance Stock Awards; provided, however, that
if such termination is due to any reason other than termination by the
Company or any Subsidiary for "cause," all outstanding Options then held by
such Participant will remain exercisable to the extent exercisable as of
such termination for a period of three months after such termination (but
in no event after the expiration date of any such Option).
(b) For purposes of this Section 9, "cause" (as determined by the
Committee) will be as defined in any employment or other agreement or
policy applicable to the Participant or, if no such agreement or policy
exists, will mean (i) dishonesty, fraud, misrepresentation, embezzlement or
deliberate injury or attempted injury, in each case related to the Company
or any Subsidiary, (ii) any unlawful or criminal activity of a serious
nature, (iii) any intentional and deliberate breach of a duty or duties
that, individually or in the aggregate, are material in relation to the
Participant's overall duties, or (iv) any material breach of any
employment, service, confidentiality or noncompete agreement entered into
with the Company or any Subsidiary.
9.4 TERMINATION OF SERVICE AS A NON-EMPLOYEE CONSULTANT OR ADVISOR. In
the event a Participant's service as a non-employee consultant or advisor is
terminated with the Company and all Subsidiaries for any reason, or a
Participant is in the service of a Subsidiary and the Subsidiary ceases to be a
Subsidiary of the Company (unless the Participant continues in the service of
the Company or another Subsidiary), all rights of the Participant under the Plan
and any agreements evidencing an Incentive Award will immediately terminate
without notice of any kind, and (i) no Options then held by the Participant will
thereafter be exercisable, (ii) all Restricted Stock Awards then held by the
Participant that have not vested will be terminated and forfeited, and (iii) any
assignment or transfer restrictions with respect to Performance Stock Awards
that have not lapsed will continue in effect in accordance with their terms
unless otherwise provided in the agreement evidencing such Performance Stock
Awards; provided, however, that if such termination is due to any reason other
than termination by the Company or any Subsidiary for "cause" (as defined in
Section 9.3(b) of the Plan), all outstanding Options then held by such
Participant will remain exercisable to the extent exercisable as of such
termination for a period of three months after such termination (but in no event
after the expiration date of any such Option).
9.5 MODIFICATION OF RIGHTS UPON TERMINATION. Notwithstanding the other
provisions of this Section 9, upon a Participant's termination of employment or
other service with the Company and all Subsidiaries, the Committee may, in its
sole discretion (which may be exercised at any time on or after the date of
grant, including following such termination), cause Options (or any part
thereof) then held by such Participant to become or continue to become
exercisable and/or remain exercisable following such termination of employment
or other service, and Restricted Stock Awards and Performance Stock Awards then
held by such Participant to vest and/or continue to vest or become free of
transfer restrictions, as the case may be, following such termination of
employment or other service, in each case in the manner determined by the
Committee; provided, however, that (a) no Incentive Award will become
exercisable or vest prior to six months from its date of grant (unless such
exercisability or vesting is by reason of death or Disability), and (b) no
Incentive Award may remain exercisable or continue to vest for more than two
years beyond the date such Incentive Award would have terminated if not for the
provisions of this
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Section 9.5 but in no event beyond its expiration date.
9.6 BREACH OF CONFIDENTIALITY OR NONCOMPETE AGREEMENTS. Notwithstanding
anything in the Plan to the contrary, in the event that a Participant materially
breaches the terms of any confidentiality or noncompete agreement entered into
with the Company or any Subsidiary, whether such breach occurs before or after
termination of such Participant's employment or Other Service with the Company
or any Subsidiary, the Committee in its sole discretion may immediately
terminate all rights of the Participant under the Plan and any agreements
evidencing an Incentive Award then held by the Participant without notice of any
kind.
9.7 DETERMINATION OF TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
(a) The change in a Participant's status from that of an employee of
the Company or any Subsidiary to that of a non-employee consultant or
advisor of the Company or any Subsidiary will, for purposes of the Plan, be
deemed to result in a termination of such Participant's employment with the
Company and its Subsidiaries, unless the Committee otherwise determines in
its sole discretion.
(b) The change in a Participant's status from that of a non-employee
consultant or advisor of the Company or any Subsidiary to that of an
employee of the Company or any Subsidiary will not, for purposes of the
Plan, be deemed to result in a termination of such Participant's service as
a non-employee consultant or advisor with the Company and its Subsidiaries,
and such Participant will thereafter be deemed to be an employee of the
Company or its Subsidiaries until such Participant's employment is
terminated, in which event such Participant will be governed by the
provisions of this Plan relating to termination of employment.
(c) Unless the Committee otherwise determines in its sole discretion,
a Participant's employment or other service will, for purposes of the Plan,
be deemed to have terminated on the date recorded on the personnel or other
records of the Company or the Subsidiary for which the Participant provides
employment, as determined by the Committee in its sole discretion based
upon such records.
10. PAYMENT OF WITHHOLDING TAXES.
10.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Participant (or from other amounts that may be due and
owing to the Participant from the Company or a Subsidiary), or make other
arrangements for the collection of, all legally required amounts necessary to
satisfy any and all federal, state and local withholding and employment-related
tax requirements attributable to an Incentive Award, including, without
limitation, the grant, exercise or vesting of, or payment of dividends with
respect to, an Incentive Award or a disqualifying disposition of stock received
upon exercise of an Incentive Stock Option, or (b) require the Participant
promptly to remit the amount of such withholding to the Company before taking
any action, including issuing any shares of Common
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Stock, with respect to an Incentive Award.
10.2 SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require a
Participant to satisfy, in whole or in part, any withholding or
employment-related tax obligation described in Section 10.1 of the Plan by
electing to tender Previously Acquired Shares, a Broker Exercise Notice or a
combination of such methods.
11. CHANGE IN CONTROL.
11.1 CHANGE IN CONTROL. For purposes of this Section 11, a "Change in
Control" of the Company will mean the following:
(a) Any "person" as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, or any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company), is or becomes, including pursuant to a tender or exchange
offer for shares of Common Stock pursuant to which purchases are made, the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 25% or
more of the combined voting power of the Company's then outstanding
securities, other than in a transaction arranged or approved by the Board
prior to its occurrence; provided, however, that if any such person will
become the beneficial owner, directly or indirectly, of securities of the
Company representing 34% or more of the combined voting power of the
Company's then outstanding securities, a Change in Control will be deemed
to occur whether or not any or all of such beneficial ownership is obtained
in a transaction arranged or approved by the Board prior to its occurrence,
and other than in a transaction in which such person will have executed a
written agreement with the Company (and approved by the Board) on or prior
to the date on which such person becomes the beneficial owner of 25% or
more of the combined voting power of the Company's then outstanding
securities, which agreement imposes one or more limitations on the amount
of such person's beneficial ownership of shares of Common Stock, if, and so
long as, such agreement (or any amendment thereto approved by the Board
provided that no such amendment will cure any prior breach of such
agreement or any amendment thereto) continues to be binding on such person
and such person is in compliance (as determined by the Board in its sole
discretion) with the terms of such agreement (including such amendment);
provided, however, that if any such person will become the beneficial
owner, directly or indirectly, of securities of the Company representing
50% or more of the combined voting power of the Company's then outstanding
securities, a Change in Control will be deemed to occur whether or not such
beneficial ownership was held in compliance with such a binding agreement.
(b) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction which would constitute a
Change in Control pursuant to this Section 11.1) whose election by the
Board or
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nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof.
(c) The stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than (i) a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no person acquires a percentage of the combined
voting power of the Company's then outstanding securities which would
constitute a Change in Control pursuant to Section 11.1 above. In case of
any consolidation or merger of another corporation into the Company in
which the Company is the surviving corporation and in which there is a
reclassification or change (including a change to the right to receive cash
or other property) of the shares of Common Stock (other than a change in
par value, or from par value to no par value, or as a result of a
subdivision or combination, but including any change in such shares into
two or more classes or series of shares), Section 4.3 of the Plan will
apply.
(d) The stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
11.2 ACCELERATION OF VESTING. Without limiting the authority of the
Committee under Sections 3.2 and 4.3 of the Plan, if a Change in Control of the
Company occurs, then, if approved by the Committee in its sole discretion either
in an agreement evidencing an Incentive Award at the time of grant or at any
time after the grant of an Incentive Award, (a) all Options that have been
outstanding for at least six months will become immediately exercisable in full
and will remain exercisable in accordance with their terms; (b) all outstanding
Restricted Stock Awards that have been outstanding for at least six months will
become immediately fully vested and non-forfeitable; and (c) any transfer
restrictions with respect to Performance Stock Awards will lapse.
11.3 CASH PAYMENT FOR OPTIONS. If a Change in Control of the Company
occurs, then the Committee, if approved by the Committee in its sole discretion
either in an agreement evidencing an Incentive Award at the time of grant or at
any time after the grant of an Incentive Award, and without the consent of any
Participant affected thereby, may determine that some or all Participants
holding outstanding Options will receive, with respect to some or all of the
shares of Common Stock subject to such Options, as of the effective date of any
such Change in Control of the Company, cash in an amount equal to the excess of
the Fair Market Value of such shares immediately prior to the effective date of
such Change in Control of the Company over the exercise price per share of such
Options.
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11.4 LIMITATION ON CHANGE IN CONTROL PAYMENTS. Notwithstanding anything
in Section 11.2 or 11.3 of the Plan to the contrary, if, with respect to a
Participant, any of the payments to be made in connection with Section 11.2 or
11.3 of the Plan, together with any other payments or benefits which a
Participant has the right to receive from the Company or any corporation which
is a member of an "affiliated group" (as defined in section 1504(a) of the Code
without regard to section 1504(b) of the Code) of which the Company is a member,
constitute an "excess parachute payment" (as defined in section 280G(b) of the
Code), the payments to be made in connection with Section 11.2 or 11.3 of the
Plan shall be reduced to the extent necessary to prevent any portion of such
payments or benefits from becoming subject to the excise tax imposed under
section 4999 of the Code; provided, however, that if a Participant is subject
to a separate agreement with the Company or a Subsidiary that expressly
addresses the potential application of Sections 280G or 4999 of the Code
(including, without limitation, that "payments" under such agreement or
otherwise will be reduced, that such payments will not be reduced or that the
Participant will have the discretion to determine which "payments" will be
reduced), then this Section 11.4 will not apply, and any "payments" to a
Participant pursuant to Section 11.2 or 11.3 of the Plan will be treated as
"payments" arising under such separate agreement.
12. RIGHTS OF ELIGIBLE RECIPIENTS AND PARTICIPANTS; TRANSFERABILITY.
12.1 EMPLOYMENT OR OTHER SERVICE. Nothing in the Plan will interfere with
or limit in any way the right of the Company or any Subsidiary to terminate the
employment or Other Service of any Eligible Recipient or Participant at any
time, nor confer upon any Eligible Recipient or Participant any right to
continue in the employ or Other Service of the Company or any Subsidiary.
12.2 RIGHTS AS A STOCKHOLDER. As a holder of Incentive Awards (other than
Restricted Stock Awards and Performance Stock Awards), a Participant will have
no rights as a stockholder unless and until such Incentive Awards are exercised
for, or paid in the form of, shares of Common Stock and the Participant becomes
the holder of record of such shares. Except as otherwise provided in the Plan,
no adjustment will be made for dividends or distributions with respect to such
Incentive Awards as to which there is a record date preceding the date the
Participant becomes the holder of record of such shares, except as the Committee
may determine in its discretion.
12.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or
the laws of descent and distribution or as otherwise expressly permitted by the
Plan, no right or interest of any Participant in an Incentive Award prior to the
exercise or vesting of such Incentive Award will be assignable or transferable,
or subjected to any lien, during the lifetime of the Participant, either
voluntarily or involuntarily, directly or indirectly, by operation of law or
otherwise. A Participant will, however, be entitled to designate a beneficiary
to receive an Incentive Award upon such Participant's death, and in the event of
a Participant's death, payment of any amounts due under the Plan will be made
to, and exercise of any Options (to the extent permitted pursuant to Section 9
of the Plan) may be made by, the Participant's legal representatives, heirs and
legatees.
12.4 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or create any limitations on
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the power or authority of the Board to adopt such additional or other
compensation arrangements as the Board may deem necessary or desirable.
13. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements entered
into pursuant to the Plan, the Company will not be required to issue any shares
of Common Stock under this Plan, and a Participant may not sell, assign,
transfer or otherwise dispose of shares of Common Stock issued pursuant to
Incentive Awards granted under the Plan, unless (a) there is in effect with
respect to such shares a registration statement under the Securities Act and any
applicable securities laws of a state or foreign jurisdiction or an exemption
from such registration under the Securities Act and applicable state or foreign
securities laws, and (b) there has been obtained any other consent, approval or
permit from any other regulatory body which the Committee, in its sole
discretion, deems necessary or advisable. The Company may condition such
issuance, sale or transfer upon the receipt of any representations or agreements
from the parties involved, and the placement of any legends on certificates
representing shares of Common Stock, as may be deemed necessary or advisable by
the Company in order to comply with such securities law or other restrictions.
14. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Incentive Awards under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without approval of the stockholders of
the Company if stockholder approval of the amendment is then required pursuant
to Section 422 of the Code or the rules of the New York Stock Exchange. No
termination, suspension or amendment of the Plan may adversely affect any
outstanding Incentive Award without the consent of the affected Participant;
provided, however, that this sentence will not impair the right of the Committee
to take whatever action it deems appropriate under Sections 3.2, 4.3 and 11 of
the Plan.
15. EFFECTIVE DATE AND DURATION OF THE PLAN.
The Plan is effective as of May 9, 1997 or such later date as the Plan is
approved by the Company's stockholders. The Plan will terminate at midnight on
June 30, 2003, and may be terminated prior to such time to by Board action, and
no Incentive Award will be granted after such termination. Incentive Awards
outstanding upon termination of the Plan may continue to be exercised, or become
free of restrictions, in accordance with their terms.
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16. MISCELLANEOUS.
16.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota, notwithstanding the conflicts of laws
principles of any jurisdictions.
16.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to
the benefit of the successors and permitted assigns of the Company and the
Participants.
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ECOLAB INC.
1997 NON-EMPLOYEE DIRECTOR DEFERRED
COMPENSATION PLAN
1. DESCRIPTION.
1.1 NAME. The name of the Plan is the "Ecolab Inc. 1997 Non-Employee
Director Deferred Compensation Plan."
1.2 PURPOSES. The purposes of the Plan are (a) to provide Qualified
Directors with the opportunity on a one-time basis to convert their existing
accrued benefits under the Director Retirement Plan to balances under this Plan
through credits to their Share Accounts, (b) to provide Qualified Directors who
convert their accrued benefits under the Director Retirement Plan to balances
under this Plan and individuals who first become Qualified Directors at or after
the Effective Time with ongoing periodic credits to their Share Accounts, (c) to
provide Qualified Directors with 50 percent of their Retainer in the form of
credits to their Share Accounts, and (d) to provide Qualified Directors with the
opportunity to defer receipt of Other Director Compensation through credits to
their Share or Cash Accounts.
1.3 TYPE. The Plan is maintained primarily for the purpose of providing
deferred compensation for Qualified Directors and is intended to be unfunded for
tax purposes. The Plan will be construed and administered in a manner that is
consistent with and gives effect to the foregoing.
1.4 BACKGROUND. The Company previously adopted the Director Retirement
Plan, the Director Retainer Plan and the Prior Deferred Compensation Plans. As
of the Effective Time, Qualified Directors must elect either to convert their
existing accrued benefits under the Director Retirement Plan to balances in
their Share Accounts under this Plan, in which case such electing Qualified
Directors (along with individuals first becoming Qualified Directors at or after
the Effective Time) would become entitled to receive the credits to their Share
Accounts pursuant to Section 3.2(b), or to remain under the Director Retirement
Plan, in which case such non-electing Qualified Directors will not be entitled
to receive such annual credits pursuant to Section 3.2(b). In addition, as of
the Effective Time, the Director Retainer Plan will be terminated, and all
Qualified Directors will thereafter receive 50 percent of their Retainer in the
form of credits to their Share Accounts under this Plan. Finally, as of the
Effective Time, all Qualified Directors will become entitled to defer receipt of
Other Director Compensation through credits to their Share or Cash Accounts
under this Plan. Any amounts previously deferred under the Prior Deferred
Compensation Plans will remain subject solely to the terms of such plans, but
all future deferrals of Other Director Compensation will be made solely under
this Plan.
2. PARTICIPATION.
2.1 ELIGIBILITY.
(a) Each individual who is a Qualified Director both immediately
prior to and immediately following the Effective Time is eligible to elect
to convert his or her then existing accrued benefit under the Director
Retirement Plan to a balance in his or her Share Account pursuant to
Section
<PAGE>
3.2(a).
(b) Each individual (i) who has elected to convert his or her accrued
benefit under the Director Retirement Plan as described in Section 2.1(a)
or (ii) who first becomes a Qualified Director at or after the Effective
Time, and, in the case of both clause (i) and (ii), who is a Qualified
Director at any point during the calendar quarter with respect to which a
credit is made pursuant to Section 3.2(b) is eligible to have such credit
made to his or her Share Account pursuant to Section 3.2(b).
(c) Each individual who is a Qualified Director at any point during
the calendar quarter with respect to which a credit is made pursuant to
Section 3.2(c) is eligible to have such credit made to his or her Share
Account pursuant to Section 3.2(c).
(d) Each individual who is a Qualified Director on the first day of a
calendar year is eligible to make deferral elections pursuant to Section
3.2(d) with respect to such calendar year. An individual who becomes a
Qualified Director after the first day of the calendar year is eligible to
make a deferral election pursuant to Section 3.2(d) with respect to the
remainder of such calendar year. A Participant who receives a
distribution, pursuant to Section 4.1(d)(i) or (iv), is not eligible to
elect additional deferrals pursuant to Section 3.2(d) until the one-year
anniversary of such distribution.
2.2 CEASING TO BE ELIGIBLE. An individual who ceases to be a Qualified
Director is not eligible to make or receive further deferral credits pursuant to
Section 3.2 other than such credits relating to the period prior to such
cessation.
2.3 CONDITION OF PARTICIPATION. Each Qualified Director, as a condition
of participation in the Plan, is bound by all the terms and conditions of the
Plan and the Plan Rules, including but not limited to the reserved right of the
Company to amend or terminate the Plan, and must furnish to the Administrator
such pertinent information, and execute such election forms and other
instruments, as the Administrator or Plan Rules may require by such dates as the
Administrator or Plan Rules may establish.
2.4 TERMINATION OF PARTICIPATION. A Participant will cease to be such as
of the date on which he or she is not then eligible to make deferrals and his or
her entire Account balance has been distributed.
2.5 RIGHTS UNDER DIRECTOR RETIREMENT PLAN. Each Qualified Director who
elects to convert his or her then existing accrued balance under the Director
Retirement Plan to a balance in the Share Account under this Plan pursuant to
Section 3.2(a) will, as of the Effective Time and without further action on the
part of such Qualified Director, no longer be eligible to participate in, or to
receive any benefit pursuant to, the Director Retirement Plan.
3. BENEFITS.
3.1 PARTICIPANT ACCOUNTS. For each Participant, the Administrator will
establish and maintain a Cash Account, a Share Account or both to evidence
amounts credited with respect to the Participant pursuant to Sections 3.2 and
3.3.
3.2 DEFERRAL CREDITS.
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(a) Each individual who is a Qualified Director who satisfies the
requirements of Section 2.1(a) is eligible to elect to convert his or her then
existing accrued benefit under the Director Retirement Plan to a balance in the
Share Account of such Qualified Director under this Plan. To make such
election, a properly completed election form must be received by the
Administrator by April 30, 1997. The Share Account of a Qualified Director who
makes such an election will be credited as of the Effective Time with the number
of full Share Units determined by dividing the amount set forth with respect to
such Qualified Director on Exhibit A, which amount represents the entire accrued
benefit of such Qualified Director under the Director Retirement Plan as of the
Effective Time, by the average of the Market Price for the period from February
7, 1997 through May 8, 1997 and rounding such quotient up to the next highest
multiple of 50.
(b) As of the first day of the calendar quarter that first follows the
Effective Time and on the first day of each calendar quarter thereafter, the
Share Account of each individual who satisfies the requirements of Section
2.1(b) will be credited with the number of full and fractional Share Units
determined by multiplying the number of Quarterly Share Units by a fraction, the
numerator of which is the number of days during such calendar quarter (or the
number of days after May 8, 1997 with respect to the quarter ended June 30,
1997) that the individual served as a Qualified Director and the denominator of
which is the total number of days in such calendar quarter.
(c) As of the first day of the calendar quarter that first follows the
Effective Time and on the first day of each calendar quarter thereafter, the
Share Account of each individual who is a Qualified Director at any time during
the immediately preceding calendar quarter, will be credited with the number of
full and fractional Share Units determined by (i) dividing an amount equal to 50
percent of the Retainer payable by the Company to Qualified Directors for such
calendar quarter by the Market Price on the date as of which such credit is made
and (ii) multiplying such quotient by a fraction, the numerator of which is the
number of days during such calendar quarter (or the number of days after May 8,
1997 with respect to the quarter ended June 30, 1997) that the individual served
as a Qualified Director and the denominator of which is the total number of days
in such calendar quarter.
(d) Elective deferrals of Other Director Compensation will be made in
accordance with the following rules:
(i) Commencing with respect to services to be performed after May 8,
1997, a Qualified Director may elect to defer all or any portion of his or
her Other Director Compensation relating to his or her services as a
Qualified Director during a calendar year. Any portion so elected will
automatically apply to the Participant's Other Director Compensation for
the year as adjusted from time to time.
(ii) An election made pursuant to this Section 3.2(d) will not be
effective unless it is made on a properly completed election form received
by the Administrator by the last day of the calendar year immediately
preceding the calendar year to which the election relates or, in the case
of an individual who becomes a Qualified Director after the first day of
the calendar year, within 30 days after the date such individual becomes a
Qualified Director. Notwithstanding the foregoing, with respect to an
initial deferral election pursuant to Section 3.2(d) that is made in
connection with the adoption of this Plan, such election will be effective
if received by the Administrator by April 30, 1997. Any such election
applies only to Other Director Compensation relating to services performed
after the effective date of the election.
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(iii) In conjunction with each deferral election made pursuant to this
Section 3.2(d), a Qualified Director must elect, in accordance with and
subject to Plan Rules, how the deferral is to be allocated (in increments
of five percent only) among his or her Cash Account and Share Account.
Such an election is irrevocable after the latest date by which the deferral
election to which it relates must be received by the Administrator to be
effective.
(iv) Deferrals of Other Director Compensation pursuant to this Section
3.2(d) will be credited to a Qualified Director's Cash Account or Share
Account, as the case may be, as of the first day of the calendar month
first following the date on which the Other Director Compensation has been
earned and would otherwise be payable but for his or her deferral election.
Such credits to the Qualified Director's Cash Account will be in United
States dollars in an amount equal to the amount of the deferral allocated
to the Cash Account by the Qualified Director. Such credits to a Qualified
Director's Share Account will be the number of full and fractional Share
Units determined by dividing the United States dollar amount of the
deferral allocated by the Qualified Director to the Share Account by the
Market Price on the date as of which the credit is made.
3.3 EARNINGS CREDITS.
(a) CASH ACCOUNT. As of the first day of each calendar quarter, a
Participant's Cash Account will be credited with interest, calculated on the
basis of the balance in the Participant's Cash Account on the first day of each
month of the immediately preceding calendar quarter, at the Prime Rate of Morgan
Guaranty Trust Company of New York in effect on the first day of each such
month.
(b) SHARE ACCOUNT.
(i) As of the first day of the calendar quarter first following the
date on which dividends are paid on Shares, a Participant's Share Account
will be credited with that number of full and fractional Share Units
determined by dividing the dollar amount of the dividends that would have
been payable to the Participant if the number of Share Units credited to
the Participant's Share Account on the record date for such dividend
payment had then been Shares registered in the name of such Participant by
the Market Price on the date as of which the credit is made.
(ii) In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation, rights
offering or any other change in the Company's corporate structure or
Shares, the Administrator will make such adjustment, if any, as the
Administrator may deem appropriate in the number and kind of Share Units
credited to Share Accounts.
(3.4) VESTING. Subject to Section 4.1(d)(iii), each Participant always
has a fully vested nonforfeitable interest in his or her Account.
4. DISTRIBUTION.
4.1 DISTRIBUTION TO PARTICIPANT.
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(a) FORM. Distribution to a Participant will be made in the form of a
lump sum payment unless (i) the Participant elects, on a properly completed
form, to receive his or her distribution in the form of annual installment
payments for a period of not more than 10 years and (ii) other than cessation
resulting from Disability, the date on which he or she ceases to be a member of
the Board follows by more than one year the date on which a properly completed
election form is received by the Administrator. Any election made pursuant to
this Section 4.1(a) may be changed from time to time upon the Administrator's
receipt of a properly completed form, provided that, other than cessation
resulting from Disability, such change will not be valid and will not have any
effect unless it is made on a properly completed form received by the
Administrator more than one year prior to a Participant's cessation of service
as member of the Board. The most recently received election to change has no
effect on any previously received election to change until the most recently
received election becomes effective at which time any previously received
election will automatically be void. (For example, if the Administrator
receives a properly completed election to change on July 1 of year 1 and another
properly completed election to change on September 1 of year 1, the July 1
election will become effective on July 1 of year 2 and will remain in effect
through August 30 of year 2. On September 1 of year 2, the September 1 election
to change will become effective.) Any election made pursuant to this Section
4.1(a) will apply to the entire balance of the Participant's Account
attributable to deferral credits with respect to the period through the date on
which he or she ceases to be a member of the Board. Any distribution from a
Participant's Cash Account will be made in cash only. Subject to Section 4.3,
any distribution from a Participant's Share Account will be made in full Shares
only and cash in lieu of any fractional Share.
(b) TIME. Distribution to a Participant will be made or commence on or as
soon as administratively practicable after the first day of the calendar quarter
that follows the date on which the Participant ceases to be a member of the
Board.
(c) AMOUNT.
(i) CASH ACCOUNT.
(A) LUMP SUM. The amount of a lump sum payment from a
Participant's Cash Account will be equal to the balance of the Account
as of the first day of the calendar month coinciding with or
immediately preceding the date on which the payment is made.
(B) INSTALLMENTS. The amount of an installment payment from a
Participant's Cash Account will be determined by dividing the balance
of the Account as of the first day of the calendar month coinciding
with or immediately preceding the date on which the payment is made by
the total number of remaining payments (including the current
payment).
(ii) SHARE ACCOUNT.
(A) LUMP SUM. A lump sum distribution from a Participant's
Share Account will consist of the number of Shares equal to the number
of full Share Units credited to the Account as of the first day of the
calendar month coinciding with or immediately preceding the date on
which the distribution is made plus cash in lieu of any fractional
Share Units then credited to the Account in an amount based on the
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<PAGE>
Market Price on that date.
(B) INSTALLMENTS. Installment distributions from a
Participant's Share Account, other than the final distribution, will
consist of the number of Shares determined by dividing the number of
full Share Units credited to the Account as of the first day of the
calendar month coinciding with or immediately preceding the date on
which the distribution is made by the total number of remaining
payments (including the current payment) and rounding the quotient to
the next higher full Share. The amount of the final payment will be
determined in accordance with clause (A).
(d) SPECIAL RULES. The provisions of this Section 4.1(d) will apply
notwithstanding Section 4.1(a), (b) or (c) or any election by a Participant to
the contrary; provided, however, that, prior to the time that a Participant
ceases to be a member of the Board, distributions pursuant to Sections 4.1(d)(i)
and (iv) may only be made with respect to amounts credited to a Participant's
Account pursuant to Sections 3.2(c) and (d) and any earnings with respect
thereto credited pursuant to Section 3.3.
(i) WITHDRAWALS DUE TO UNFORESEEABLE EMERGENCY. A distribution will
be made to a Participant from his or her Share or Cash Account if the
Participant submits a written distribution request to the Administrator and
the Administrator determines that the Participant has experienced an
Unforeseeable Emergency. The amount of the distribution may not exceed the
lesser of (a) the amount necessary to satisfy the emergency, as determined
by the Administrator, or (b) the balance of the Participant's Account as of
the date of the distribution determined in accordance with Section 4.1(c).
Payments made on account of an Unforeseeable Emergency will not be made to
the extent that such Unforeseeable Emergency is or may be relieved through
reimbursement or compensation by insurance or otherwise, by liquidation of
the Participant's assets (to the extent that such liquidation would not
itself cause severe financial hardship) or by cessation of deferrals under
Section 3.2(d). Any distribution pursuant to this Section 4.1(d)(i) will
be made in the form of a lump sum payment (in cash from the Cash Account
and in Shares from the Share Account) as soon as administratively
practicable after the Administrator's determination that the Participant
has experienced an Unforeseeable Emergency and will be made first from the
Participant's Cash Account and then from the Participant's Share Account,
with the amount distributed from the Share Account determined based upon
the Market Price as of the first day of the calendar month coinciding with
or immediately preceding the date on which the distribution is made.
(ii) SMALL BENEFITS. If the balance of the Cash Account of a
Participant who has ceased to be a member of the Board is less than $5,000
as of the first day of a calendar month, such balance will be distributed
to the Participant in the form of a lump sum cash payment as soon as
administratively practicable thereafter.
(iii) FORFEITURE PROVISIONS. Other than amounts credited to a
Participant's Account pursuant to Sections 3.2(c) and (d) and any earnings
with respect thereto credited pursuant to Section 3.3, neither the Company
nor the Trust will be obligated to pay or provide to a Participant any
future benefits under this Plan, if the Board determines that such
Participant, without the consent of the Company and whether before or after
such Participant ceases to serve as a director of the Company, has engaged
in an activity that is competitive or
6
<PAGE>
materially detrimental to the Company's business.
(iv) ACCELERATED DISTRIBUTION. A Participant may, at any time, elect
an immediate distribution of his or her Account in an amount equal to 90
percent of the balance of the Account as of the date of the distribution
determined in accordance with Section 4.1(c), in which case the remaining
balance of the Account will be forfeited. The distribution will be made in
the form of a lump sum payment as soon as administratively practicable
after the Administrator's receipt of a written application on a form
furnished by the Administrator. Any distribution from a Participant's Cash
Account will be made in cash only. Any distribution from a Participant's
Share Account will be made in full Shares only and cash in lieu of any
fractional Share.
(c) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from which a
distribution is made will be reduced by the amount of the distribution as of the
date of the distribution.
4.2 DISTRIBUTION TO BENEFICIARY.
(a) FORM. In the event of a Participant's death, the balance of the
Participant's Account will be distributed to the Participant's Beneficiary in a
lump sum payment whether or not payments had commenced to the Participant in the
form of installments prior to his or her death. Any distribution from a
Participant's Cash Account will be made in cash and any distribution from a
Participant's Share Account will be made in full Shares and cash in lieu of any
fractional Share.
(b) TIME. Distribution to a Beneficiary will be made as soon as
administratively practicable after the date on which the Administrator receives
notice of the Participant's death.
(c) AMOUNT. The amount of the payment will be determined in accordance
with Section 4.1(c).
(d) REDUCTION OF ACCOUNT BALANCE. The balance of the Account from which a
distribution is made will be reduced by the amount of the distribution as of the
date of the distribution.
(e) BENEFICIARY DESIGNATION.
(i) Each Participant may designate, on a form furnished by the
Administrator, one or more primary Beneficiaries or alternative
Beneficiaries to receive all or a specified part of his or her Account
after his or her death, and the Participant may change or revoke any such
designation from time to time. No such designation, change or revocation
is effective unless executed by the Participant and received by the
Administrator during the Participant's lifetime.
(ii) If, for all or any portion of his or her Account, a Participant
fails to designate a Beneficiary, revokes a Beneficiary designation without
naming another Beneficiary or designates one or more Beneficiaries, none of
whom survives the Participant or exists at the time in question, such
Account or portion will be paid to the Participant's surviving spouse or,
if the Participant is not survived by a spouse, to the representative of
the Participant's estate.
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(iii) The automatic Beneficiaries specified above and, unless the
designation otherwise specifies, the Beneficiaries designated by the
Participant, become fixed as of the Participant's death so that, if a
Beneficiary survives the Participant but dies before the receipt of the
payment due such Beneficiary, the payment will be made to the
representative of such Beneficiary's estate. Any designation of a
Beneficiary by name that is accompanied by a description of relationship or
only by statement of relationship to the Participant is effective only to
designate the person or persons standing in such relationship to the
Participant at the Participant's death.
4.3 LIMITATIONS ON SHARE DISTRIBUTIONS. Notwithstanding any other
provision of the Plan to the contrary, neither the Company nor the Trustee is
required to issue or distribute any Shares under this Plan, and a distributee
may not sell, assign, transfer or otherwise dispose of Shares issued or
distributed pursuant to the Plan, unless (a) there is in effect with respect to
such Shares a registration statement under the Securities Act of 1933 and any
applicable state securities laws or an exemption from such registration under
the Securities Act of 1933 and applicable state securities laws, and (b) there
has been obtained any other consent, approval or permit from any other
regulatory body which the Company deems necessary or advisable. The Company or
the Trustee may condition such issuance, distribution, sale or transfer upon the
receipt of any representations or agreements from the parties involved, and the
placement of any legends on certificates representing Shares, as may be deemed
necessary or advisable by the Company in order to comply with such securities
laws or other restrictions.
4.4 PAYMENT IN EVENT OF INCAPACITY. If any individual entitled to receive
any payment under the Plan is, in the judgment of the Administrator, physically,
mentally or legally incapable of receiving or acknowledging receipt of the
payment, and no legal representative has been appointed for the individual, the
Administrator may (but is not required to) cause the payment to be made to any
one or more of the following as may be chosen by the Administrator: the
Beneficiary (in the case of the incapacity of a Participant); the institution
maintaining the individual; a custodian for the individual under the Uniform
Transfers to Minors Act of any state; or the individual's spouse, children,
parents, or other relatives by blood or marriage. The Administrator is not
required to see to the proper application of any such payment, and the payment
completely discharges all claims under the Plan against the Company, the Plan
and the Trust to the extent of the payment.
5. SOURCE OF PAYMENTS; NATURE OF INTEREST.
5.1 ESTABLISHMENT OF TRUST. The Company may establish a Trust with an
independent corporate trustee. The Trust must be a grantor trust with respect
to which the Company is treated as grantor for purposes of Code section 677 and
must provide that, upon the insolvency of the Company, Trust assets will be used
to satisfy claims of the Company's general creditors. The Company will pay all
taxes of any and all kinds whatsoever payable in respect of the Trust assets or
any transaction with respect to the Trust assets. The Company may from time to
time transfer to the Trust cash, marketable securities or other property
acceptable to the Trustee in accordance with the terms of the Trust.
5.2 SOURCE OF PAYMENTS.
(a) The Company will pay, from its general assets, the benefits
pursuant to Section 4 attributable to a Participant's Account, and all
costs, charges and expenses relating thereto.
(b) The Trustee will make distributions to Participants and
Beneficiaries from the Trust
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in satisfaction of the Company's obligations under the Plan in accordance
with the terms of the Trust. The Company is responsible for paying any
benefits attributable to a Participant's Account that are not paid by the
Trust.
5.3 STATUS OF PLAN. Nothing contained in the Plan or Trust is to be
construed as providing for assets to be held for the benefit of any Participant
or any other person or persons to whom benefits are to be paid pursuant to the
terms of the Plan, the Participant's or other person's only interest under the
Plan being the right to receive the benefits set forth herein. The Trust is
established only for the convenience of the Company and the Participants, and no
Participant has any interest in the assets of the Trust prior to distribution of
such assets pursuant to the Plan. Until such time as Shares are distributed to
a Participant, Beneficiary of a deceased Participant or other person, he or she
has no rights as a shareholder with respect to any Shares Units credited to a
Share Account pursuant to the Plan. To the extent that the Participant or any
other person acquires a right to receive benefits under the Plan or the Trust,
such right is no greater than the right of any unsecured general creditor of the
Company.
5.4 NON-ASSIGNABILITY OF BENEFITS. The benefits payable under the Plan
and the right to receive future benefits under the Plan may not be anticipated,
alienated, sold, transferred, assigned, pledged, encumbered, or subjected to any
charge or legal process.
6. AMENDMENT AND TERMINATION.
6.1 AMENDMENT.
(a) The Company reserves the right to amend the Plan at any time to
any extent that it may deem advisable. To be effective, an amendment must
be stated in a written instrument approved in advance or ratified by the
Board and executed in the name of the Company by its Chief Executive
Officer or President and attested by the Secretary or an Assistant
Secretary.
(b) An amendment adopted in accordance with Section 6.1(a) is binding
on all interested parties as of the effective date stated in the amendment;
provided, however, that no amendment will have any retroactive effect so as
to deprive any Participant, or the Beneficiary of a deceased Participant,
of any benefit to which he or she is entitled under the terms of the Plan
in effect immediately prior to the effective date of the amendment,
determined as if such Participant had terminated service as a director
immediately prior to the effective date of the amendment.
(c) Without limiting Section 6.1(a), the Company reserves the right
to amend this Plan to change the method of determining the earnings
credited to Participants' Accounts pursuant to Section 3.3 and to apply
such new method not only with respect to the portion of the Accounts
attributable to credits made after the date on which such amendment is
adopted but also with respect to the portion of the Accounts attributable
to credits made prior to the date on which such amendment is adopted and
regardless of whether such new method would result in materially lower
earnings credits than the old method.
(d) The provisions of the Plan in effect at the termination of a
Participant's service as a director will, except as otherwise expressly
provided by a subsequent amendment, continue to apply to such Participant.
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6.2 TERMINATION. The Company reserves the right to terminate the Plan at
any time. The Plan will terminate as of the date specified by the Company in a
written instrument by its authorized officers to the Administrator, adopted in
the manner of an amendment. Upon the termination of the Plan, any benefits to
which Participants have become entitled prior to the effective date of the
termination will continue to be paid in accordance with the provisions of
Section 4.
7. DEFINITIONS, CONSTRUCTION AND INTERPRETATION.
The definitions and rules of construction and interpretation set forth in
this Section 7 apply in construing the Plan unless the context otherwise
indicates.
7.1 ACCOUNT. "Account" means the bookkeeping account or accounts
maintained with respect to a Participant pursuant to Section 3.1.
7.2 ADMINISTRATOR. The "Administrator" of the Plan is the Governance
Committee of the Board or such other committee or person to whom administrative
duties are delegated pursuant to the provisions of Section 8.1, as the context
requires.
7.3 BENEFICIARY. "Beneficiary" with respect to a Participant is the
person designated or otherwise determined under the provisions of Section 4.2(e)
as the distributee of benefits payable after the Participant's death. A person
designated or otherwise determined to be a Beneficiary under the terms of the
Plan has no interest in or right under the Plan until the Participant in
question has died. A Beneficiary will cease to be such on the day on which all
benefits to which he, she or it is entitled under the Plan have been
distributed.
7.4 BOARD. "Board" means the board of directors of the Company.
7.5 CASH ACCOUNT. "Cash Account" means an Account to which amounts are
credited in U.S. dollars.
7.6 CODE. "Code" means the Internal Revenue Code of 1986, as amended.
Any reference to a specific provision of the Code includes a reference to that
provision as it may be amended from time to time and to any successor provision.
7.7 COMPANY. "Company" means Ecolab Inc.
7.8 CROSS REFERENCE. References in the Plan to a particular section refer
to that section within the Plan, references within a section of the Plan to a
particular subsection refer to that subsection within the same section, and
references within a section or subsection to a particular clause refer to that
clause within the same section or subsection, as the case may be.
7.9 DIRECTOR RETAINER PLAN. "Director Retainer Plan" means the Ecolab
Inc. Non-Employee Director Stock-for-Retainer Plan.
7.10 DIRECTOR RETIREMENT PLAN. "Director Retirement Plan" means the Ecolab
Inc. Non-Employee Directors' Retirement Plan, as amended February 24, 1990.
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7.11 DISABILITY. "Disability" means the total disability of a Qualified
Director. Such total disability will be deemed to have occurred if the
Administrator finds on the basis of medical evidence satisfactory to it that the
Qualified Director is prevented from engaging in any suitable gainful employment
or occupation and that such disability will be permanent and continuous during
the remainder of his or her life.
7.12 EFFECTIVE TIME. "Effective Time" means May 9, 1997.
7.13 GOVERNING LAW. All questions pertaining to the construction,
validity, effect and enforcement of the Plan will be determined in accordance
with the internal, substantive laws of the State of Minnesota without regard to
the conflict of laws rules of the State of Minnesota or any other jurisdiction.
7.14 HEADINGS. The headings of sections are included solely for
convenience of reference; if there exists any conflict between such headings and
the text of the Plan, the text will control.
7.15 MARKET PRICE. "Market Price" means the closing sale price for Shares
on a specified date or, if Shares were not then traded, on the most recent prior
date when Shares were traded, all as quoted in The Wall Street Journal reports
of New York Stock Exchange - Composite Transactions.
7.16 NUMBER AND GENDER. Wherever appropriate, the singular may be read as
the plural, the plural may be read as the singular, and one gender may be read
as the other gender.
7.17 OTHER DIRECTOR COMPENSATION. "Other Director Compensation" means all
amounts payable by the Company to a Qualified Director for his or her services
to the Company as a Qualified Director, (a) including, without limitation, fees
specifically paid for attending or chairing regular or special meetings of the
Board and Board committees and the portion of the Retainer that is not deferred
pursuant to Section 3.2(c), but (b) excluding the portion of the Retainer that
is deferred pursuant to Section 3.2(c), expense allowances or reimbursements and
insurance premiums
7.18 PARTICIPANT. "Participant" is a current or former Qualified Director
to whose Account amounts have been credited pursuant to Section 3 and who has
not ceased to be a Participant pursuant to Section 2.4.
7.19 PLAN. "Plan" means the Ecolab Inc. 1997 Non-Employee Director
Deferred Compensation Plan, as from time to time amended or restated.
7.20 PLAN RULES. "Plan Rules" are rules, policies, practices or procedures
adopted by the Administrator pursuant to Section 8.2.
7.21 PRIOR DEFERRED COMPENSATION PLANS. "Prior Deferred Compensation
Plans" means the Ecolab Inc. Deferred Compensation Plan for Non-Employee
Directors - 1986 and the Ecolab Inc. Deferred Compensation Plan for Non-Employee
Directors, as amended.
7.22 QUALIFIED DIRECTOR. "Qualified Director" means an individual who is a
member of the Board and who is not an employee of the Company or any of its
subsidiaries.
7.23 QUARTERLY SHARE UNITS. "Quarterly Share Units" means the number of
Share Units equal to the number that results from (a) dividing $11,500 by the
average of the Market Price for the period from
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February 7, 1997 through May 8, 1997 and rounding the resulting quotient to the
next highest multiple of 25, and (b) dividing the amount that results from such
rounding by four.
7.24 RETAINER. "Retainer" means the amount payable by the Company to a
Qualified Director for holding office as a Qualified Director, exclusive of fees
specifically paid for attending regular or special meetings of the Board and
Board committees, fees for acting as chair of the Board or a Board committee,
expense allowances or reimbursements, insurance premiums, charitable gift
matching contributions and any other payments that are determined by reference
to factors other than holding office as a Qualified Director.
7.25 SECURITIES ACT. "Securities Act" means the Securities Act of 1933, as
amended. Any reference to a specific provision of the Securities Act includes a
reference to that provision as it may be amended from time to time and to any
successor provision.
7.26 SHARE ACCOUNT. "Share Account" means an Account to which amounts are
credited in Share Units.
7.27 SHARE UNITS. "Share Units" means a unit credited to a Participant's
Share Account pursuant to the Plan, each of which represents the equivalent of
one Share.
7.28 SHARES. "Shares" means shares of common stock of the Company, $1.00
par value, or such other class or kind of shares or other securities as may be
applicable pursuant to Section 3.3(b)(ii) or Section 9.6(b).
7.29 TRUST. "Trust" means any trust or trusts established by the Company
pursuant to Section 5.1.
7.30 TRUSTEE. "Trustee" means the independent corporate trustee or
trustees that at the relevant time has or have been appointed to act as Trustee
of the Trust.
7.31 UNFORESEEABLE EMERGENCY. "Unforeseeable Emergency" means an
unanticipated emergency that is caused by an event beyond the Participant's
control resulting in a severe financial hardship that cannot be satisfied
through other means. The existence of an unforeseeable emergency will be
determined by the Administrator.
8. ADMINISTRATION.
8.1 ADMINISTRATOR. The general administration of the Plan and the duty to
carry out its provisions will be vested in the Governance Committee of the Board
or such other Board committee as may be subsequently designated as Administrator
by the Board. Such committee may delegate such duty or any portion thereof to a
named person and may from time to time revoke such authority and delegate it to
another person.
8.2 PLAN RULES AND REGULATIONS. The Administrator has the discretionary
power and authority to make such Plan Rules as the Administrator determines to
be consistent with the terms, and necessary or advisable in connection with the
administration, of the Plan and to modify or rescind any such Plan Rules. In
addition, the Administrator has the discretionary power and authority to limit
application of Plan provisions and Plan Rules as the Administrator determines to
be necessary or advisable to facilitate tax deferral treatment
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for amounts credited with respect to non-U.S. resident Participants.
8.3 ADMINISTRATOR'S DISCRETION. The Administrator has the sole
discretionary power and authority to make all determinations necessary for
administration of the Plan, except those determinations that the Plan requires
others to make, and to construe, interpret, apply and enforce the provisions of
the Plan and Plan Rules whenever necessary to carry out its intent and purpose
and to facilitate its administration, including, without limitation, the
discretionary power and authority to remedy ambiguities, inconsistencies,
omissions and erroneous benefit calculations. In the exercise of its
discretionary power and authority, the Administrator will treat all similarly
situated persons uniformly.
8.4 SPECIALIST'S ASSISTANCE. The Administrator may retain such actuarial,
accounting, legal, clerical and other services as may reasonably be required in
the administration of the Plan, and may pay reasonable compensation for such
services. All costs of administering the Plan will be paid by the Company.
8.5 INDEMNIFICATION. The Company agrees to indemnify and hold harmless,
to the extent permitted by law, each director, officer and employee of the
Company and any subsidiary or affiliate of the Company against any and all
liabilities, losses, costs and expenses (including legal fees) of every kind and
nature that may be imposed on, incurred by, or asserted against such person at
any time by reason of such person's services in connection with the Plan, but
only if such person did not act dishonestly or in bad faith or in willful
violation of the law or regulations under which such liability, loss, cost or
expense arises. The Company has the right, but not the obligation, to select
counsel and control the defense and settlement of any action for which a person
may be entitled to indemnification under this provision.
9. MISCELLANEOUS.
9.1 WITHHOLDING AND OFFSETS. The Company and the Trustee retain the right
to withhold from any compensation, deferral and/or benefit payment pursuant to
the Plan, any and all tax as the Company or Trustee deems necessary, and the
Company and the Trustee may offset against amounts payable to a Participant or
Beneficiary under the Plan any amounts then owing to the Company by such
Participant or Beneficiary. The Company or the Trustee, as the case may be, in
its sole discretion, may permit Participants to elect whether to satisfy their
obligations under this Section 9.1 by having such amounts withheld from any
compensation, deferral and/or benefit payment pursuant to the Plan or by
remitting such amounts to the Company or the Trustee, or by a combination of
such methods.
9.2 OTHER BENEFITS. Neither amounts deferred nor amounts paid pursuant to
the Plan constitute salary or compensation for the purpose of computing benefits
under any other benefit plan, practice, policy or procedure of the Company
unless otherwise expressly provided thereunder.
9.3 NO WARRANTIES REGARDING TAX TREATMENT. The Company makes no
warranties regarding the tax treatment to any person of any deferrals or
payments made pursuant to the Plan, and each Participant will hold the
Administrator and the Company and their officers, directors, employees, agents
and advisors harmless from any liability resulting from any tax position taken
in good faith in connection with the Plan.
9.4 NO RIGHTS TO CONTINUED SERVICE CREATED. Neither the establishment of
or participation in the Plan gives any individual the right to continued service
on the Board or limits the right of the Company or its stockholders to terminate
or modify the terms and conditions of service of such individual on the Board or
otherwise deal with any individual without regard to the effect that such action
might have on him or her
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with respect to the Plan.
9.5 SUCCESSORS. Except as otherwise expressly provided in the Plan, all
obligations of the Company under the Plan are binding on any successor to the
Company whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation or otherwise of all or substantially
all of the business and/or assets of the Company.
9.6 SHARES AVAILABLE FOR ISSUANCE.
(a) MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as
provided in subsection (b) below, the maximum number of Shares that will be
available for issuance under the Plan will be 125,000 Shares. The Shares
available for issuance under the Plan may, at the election of the
Administrator, be either treasury shares or shares authorized but unissued,
and, if treasury shares are used, all references in the Plan to the
distribution or issuance of Shares will, for corporate law purposes, be
deemed to mean the transfer of shares from treasury.
(b) ADJUSTMENT TO SHARES. 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 Company's corporate structure or the Shares, the
Administrator (or, if the Company is not the surviving corporation in any
such transaction, the board of directors of the surviving corporation) will
make appropriate adjustment (which determination will be conclusive) as to
the number and kind of securities or other property (including cash)
available for issuance or distribution under the Plan.
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EXHIBIT A
TO 1997 NON-EMPLOYEE DIRECTOR DEFERRED
COMPENSATION PLAN
DIRECTOR ACCRUED BENEFIT AT 5/9/97
-------- -------------------------
Ruth S. Block $144,219
Russell G. Cleary $193,262
James J. Howard $ 66,253
Reuben F. Richards $173,315
Richard L. Schall $284,950
Philip L. Smith $ 91,337
Albrecht Woeste $ 63,393
Hugo Uyterhoeven $ 72,920
Roland Schulz $ 30,119
Jerry W. Levin $ 31,055
Joel W. Johnson $ 8,203
