<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- --------------
Commission File No. 1-9328
-------
ECOLAB INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0231510
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ecolab Center, 370 Wabasha Street N., St. Paul, Minnesota 55102
- --------------------------------------------------------------------------------
(Address of principal executive offices)(Zip Code)
651-293-2233
------------
(Registrant's telephone number, including area code)
(Not Applicable)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 31, 1998.
129,641,053 shares of common stock, par value $1.00 per share.
- -----------
<PAGE>
PART I - FINANCIAL INFORMATION
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Second Quarter Ended
June 30
(thousands, except per share) 1998 1997
-------- --------
(unaudited)
<S> <C> <C>
Net Sales $468,460 $411,810
Cost of Sales 210,116 183,322
Selling, General
and Administrative Expenses 194,604 175,685
-------- --------
Operating Income 63,740 52,803
Interest Expense, Net 5,400 3,054
-------- --------
Income Before Income Taxes
and Equity in Earnings of
Joint Venture 58,340 49,749
Provision for Income Taxes 24,475 20,397
Equity in Earnings of Henkel-Ecolab
Joint Venture 3,824 3,542
-------- --------
Net Income $ 37,689 $ 32,894
-------- --------
-------- --------
Net Income Per Common Share
Basic $ 0.29 $ 0.25
Diluted $ 0.28 $ 0.25
Dividends Per Common Share $ 0.095 $ 0.08
Weighted Average Common Shares Outstanding
Basic 128,667 129,779
Diluted 133,803 133,963
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
----------------------- -----------
(thousands, except per share) 1998 1997 1997
--------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Net Sales $904,822 $785,570 $1,640,352
Cost of Sales 406,025 349,048 722,084
Selling, General
and Administrative Expenses 381,337 340,289 699,764
--------- -------- -----------
Operating Income 117,460 96,233 218,504
Interest Expense, Net 10,806 6,052 12,637
--------- -------- -----------
Income Before Income Taxes
and Equity in Earnings of
Joint Venture 106,654 90,181 205,867
Provision for Income Taxes 44,764 36,974 85,345
Equity in Earnings of
Henkel-Ecolab Joint Venture 6,387 5,891 13,433
--------- -------- -----------
Net Income $ 68,277 $ 59,098 $ 133,955
--------- -------- -----------
--------- -------- -----------
Net Income Per Common Share
Basic $ 0.53 $ 0.46 $ 1.03
Diluted $ 0.51 $ 0.44 $ 1.00
Dividends Per Common Share $ 0.19 $ 0.16 $ 0.335
Weighted Average Common Shares
Outstanding
Basic 128,813 129,664 129,446
Diluted 133,871 133,762 133,822
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30 June 30 December 31
(thousands) 1998 1997 1997
----------- ---------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 27,242 $ 70,550 $ 61,169
Accounts receivable, net 247,783 217,550 246,041
Inventories 153,275 130,211 154,831
Deferred income taxes 35,175 29,227 34,978
Other current assets 35,794 8,145 12,482
----------- ---------- -----------
Current Assets 499,269 455,683 509,501
Property, Plant and
Equipment, Net 396,458 342,984 395,562
Investment in Henkel-Ecolab
Joint Venture 233,903 248,297 239,879
Other Assets 269,181 161,410 271,357
----------- ---------- -----------
Total Assets $1,398,811 $1,208,374 $1,416,299
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
(Continued)
4
<PAGE>
ECOLAB INC.
CONSOLIDATED BALANCE SHEET (Continued)
<TABLE>
<CAPTION>
(thousands, except per share) June 30 June 30 December 31
1998 1997 1997
---------- ---------- -----------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Short-term debt $ 88,789 $ 29,638 $ 48,884
Accounts payable 116,684 100,623 130,682
Compensation and benefits 66,478 62,322 74,317
Income taxes 8,973 15,036 13,506
Other current liabilities 131,836 115,714 137,075
---------- ---------- -----------
Current Liabilities 412,760 323,333 404,464
Long-Term Debt 240,382 149,196 259,384
Postretirement Health Care
and Pension Benefits 88,856 82,591 76,109
Other Liabilities 89,705 121,290 124,641
Shareholders' Equity (common stock,
par value $1.00 per share;
shares outstanding: June 30,
1998 - 128,650; June 30, 1997
- 129,783; December 31, 1997
- 129,127) 567,108 531,964 551,701
----------- ---------- -----------
Total Liabilities and
Shareholders' Equity $1,398,811 $1,208,374 $1,416,299
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
(thousands) 1998 1997 1997
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 68,277 $ 59,098 $133,955
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation 47,575 42,674 84,415
Amortization 10,965 7,431 16,464
Deferred income taxes (318) (430) (2,074)
Equity in earnings of joint venture (6,387) (5,891) (13,433)
Joint venture royalties and dividends 7,241 15,546 25,367
Other, net 766 628 4,630
Changes in operating assets and
liabilities:
Accounts receivable (3,670) (10,009) (21,231)
Inventories (607) (6,306) (14,395)
Other assets (4,304) (5,645) (10,993)
Accounts payable (14,016) (3,608) 20,876
Other liabilities (4,659) (13,030) 11,517
-------- -------- --------
Cash provided by continuing operations 100,863 80,458 235,098
Cash used for discontinued operations (30,200)
-------- -------- --------
Cash provided by operating activities $ 70,663 $ 80,458 $235,098
-------- -------- --------
</TABLE>
Bracketed amounts indicate a use of cash.
See notes to consolidated financial statements.
(Continued)
6
<PAGE>
ECOLAB INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30 December 31
1997 1998 1997
-------- -------- -----------
(thousands) (unaudited)
<S> <C> <C> <C>
INVESTING ACTIVITIES
Capital expenditures $(68,172) $(54,435) $ (121,667)
Property disposals 1,571 1,197 3,424
Businesses acquired (27,766) (12,974) (157,234)
Sale of investments in securities 5,000
Other, net (139) (235) (1,240)
-------- -------- -----------
Cash used for investing activities (89,506) (66,447) (276,717)
-------- -------- -----------
FINANCING ACTIVITIES
Notes payable 39,543 2,395 9,280
Long-term debt borrowings 16,940 1,000 117,000
Long-term debt repayments (22,540) (470) (15,210)
Reacquired shares (26,281) (14,145) (60,795)
Cash dividends on commmon stock (24,491) (20,727) (41,456)
Other, net 3,323 19,051 26,278
-------- -------- -----------
Cash provided by (used for)
financing activities (13,506) (12,896) 35,097
-------- -------- -----------
Effect of exchange rate
changes on cash (1,578) 160 (1,584)
-------- -------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (33,927) 1,275 (8,106)
Cash and Cash Equivalents,
at beginning of period 61,169 69,275 69,275
-------- -------- -----------
Cash and Cash Equivalents,
at end of period $ 27,242 $ 70,550 $ 61,169
-------- -------- -----------
-------- -------- -----------
</TABLE>
Bracketed amounts indicate a use of cash.
See notes to consolidated financial statements.
7
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited consolidated statements of income for the second quarter and
the six months ended June 30, 1998 and 1997, reflect, in the opinion of
management, all adjustments necessary for a fair statement of the results of
operations for the interim periods. These adjustments consist of normal,
recurring items. The results of operations for any interim period are not
necessarily indicative of results for the full year. The consolidated
balance sheet data as of December 31, 1997 and the related consolidated
statements of income and cash flows data for the year then ended were derived
from audited consolidated financial statements, but do not include all
disclosures required by generally accepted accounting principles. The
unaudited consolidated financial statements should be read in conjunction
with the financial statements and notes thereto incorporated in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
PricewaterhouseCoopers LLP, the Company's independent accountants, have
performed a limited review of the interim financial information included
herein. Their report on such review accompanies this filing.
BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
June 30 June 30 December 31
1998 1997 1997
(thousands) --------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Accounts Receivable, Net
Accounts receivable $ 259,420 $ 227,460 $ 256,919
Allowance for doubtful accounts (11,637) (9,910) (10,878)
--------- --------- -----------
Total $ 247,783 $ 217,550 $ 246,041
--------- --------- -----------
--------- --------- -----------
Inventories
Finished goods $ 62,793 $ 53,782 $ 67,823
Raw materials and parts 93,287 79,794 89,716
Excess of fifo cost over lifo cost (2,805) (3,365) (2,708)
--------- --------- -----------
Total $ 153,275 $ 130,211 $ 154,831
--------- --------- -----------
--------- --------- -----------
Property, Plant and Equipment, Net
Land $ 11,980 $ 8,257 $ 18,184
Buildings and leaseholds 148,478 133,499 145,021
Machinery and equipment 250,662 217,508 232,940
Merchandising equipment 405,995 351,801 379,531
Construction in progress 16,248 9,818 19,862
--------- --------- -----------
833,363 720,883 795,538
Accumulated depreciation
and amortization (436,905) (377,899) (399,976)
--------- --------- -----------
Total $ 396,458 $ 342,984 $ 395,562
--------- --------- -----------
--------- --------- -----------
</TABLE>
8
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BALANCE SHEET INFORMATION (Continued)
<TABLE>
<CAPTION>
June 30 June 30 December 31
1998 1997 1997
(thousands) --------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Other Assets
Intangible assets, net $ 214,864 $ 102,965 $ 217,120
Investments in securities 5,000 5,000
Deferred income taxes 25,237 26,591 23,444
Other 29,080 26,854 25,793
--------- --------- -----------
Total $ 269,181 $ 161,410 $ 271,357
--------- --------- -----------
--------- --------- -----------
Short-Term Debt
Notes payable $ 73,014 $ 14,363 $ 33,440
Long-term debt, current
maturities 15,775 15,275 15,444
--------- --------- -----------
Total $ 88,789 $ 29,638 $ 48,884
--------- --------- -----------
--------- --------- -----------
Shareholders' Equity
Common stock $ 143,210 $ 71,199 $ 142,797
Additional paid-in capital 155,457 193,984 149,137
Retained earnings 538,796 443,016 494,950
Deferred compensation (7,235) (6,027) (9,160)
Cumulative translation (39,691) (14,406) (28,943)
Treasury stock (223,429) (155,802) (197,080)
--------- --------- -----------
Total $ 567,108 $ 531,964 $ 551,701
--------- --------- -----------
--------- --------- -----------
</TABLE>
Interest expense related to all debt was $12,581,000 and $8,500,000 for the
six months ended June 30, 1998 and 1997, respectively, and $18,043,000 for
the year ended December 31, 1997.
Other noncurrent liabilities decreased from $125 million at year-end 1997 to
$90 million at June 30, 1998 principally due to a deposit made to post a bond
with the Internal Revenue Service against outstanding issues related to the
disposal of a discontinued business in 1992.
9
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BUSINESS ACQUISITIONS
GIBSON BUSINESS ACQUISITION
In October 1997, the Company made a public tender offer for all of the
outstanding stock of Gibson Chemical Industries Limited (Gibson) located in
Melbourne, Australia. Gibson is a manufacturer and marketer of cleaning and
sanitizing products, primarily for the Australian and New Zealand
institutional, healthcare and industrial markets. On November 5, 1997, the
Company waived all of the remaining conditions to its tender offer and,
effective November 30, 1997, had acquired substantially all of the
outstanding Gibson shares.
During the first quarter of 1998, the Company completed its plan for
integration of the Gibson businesses, including the determination of which of
the acquired businesses will not be retained, and decisions related to
certain duplicate facilities. The net assets related to these businesses and
facilities which are being held for sale totaled approximately $25 million
and were reclassified to other current assets at March 31, 1998.
The acquisition was accounted for as a purchase. The purchase price of the
shares and the direct costs of the transaction totaled approximately $130
million and were financed through the Company's Multicurrency Credit
Agreement. The excess of the purchase price over the tangible net assets
acquired was approximately $85 million and is being amortized on a
straight-line basis over an average useful life of 25 years. The Company's
international subsidiaries are included in the financial statements on the
basis of their November 30 fiscal year ends and, therefore, Gibson's
operations were included in the Company's consolidated statement of income
beginning in the 1998 reporting period. The assets acquired and the
liabilities assumed in the transaction were included in the Company's
consolidated balance sheet as of the November 30 effective date.
The following unaudited pro forma financial information reflects the combined
results of the Company and the retained Gibson businesses assuming the
acquisition had occurred at the beginning of 1997. Pro forma adjustments
have been included to give effect to amortization of the excess of the
purchase price over the tangible net assets acquired, interest expense on
debt incurred to finance the acquisition and the related income tax effects.
The Company expects that certain efficiencies and synergies will result from
the business combination, however, in accordance with the pro forma
adjustment guidelines, these anticipated cost savings have not been reflected
in the information shown below.
<TABLE>
<CAPTION>
Year Ended
December 31
(thousands, except per share) 1997
-----------
<S> <C>
Net sales $1,741,006
Net income 131,455
Diluted net income per common share $ 0.98
</TABLE>
10
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
BUSINESS ACQUISITIONS (continued)
GIBSON BUSINESS ACQUISITION (continued)
The pro forma results are presented for information purposes only and are not
necessarily indicative of the results of operations which actually would have
resulted had the combination occurred at the beginning of 1997 or of future
results of operations of the consolidated businesses.
OTHER BUSINESS ACQUISITIONS
At the beginning of the first quarter of 1998, the Company acquired a
cleaning and sanitizing business in Japan from Henkel KGaA. Sales of the
acquired business were approximately $10 million in 1997.
In June 1998, the Company acquired certain assets of American Fluid
Technologies (AFT) which is based in Hopkins, Minnesota. AFT provides
cleaning and optimization products and services for membrane systems used to
process water for food, beverage, pharmaceutical and industrial applications.
AFT has become part of the Company's Food & Beverage division. AFT sales
were approximately $3 million in 1997.
Also in June 1998, the Company acquired certain assets of Puremark
International, a Fairfield, New Jersey-based manufacturer of systems which
help purify and condition water used in food service soda fountain
dispensers, ice makers, coffee makers and similar items. The acquired
businesses had sales of approximately $2 million in 1997, and have become
part of the Company's Institutional division.
Subsequent to the end of the second quarter, in July 1998, the Company
completed the purchase of GCS Service, Inc., a Danbury, Connecticut-based
provider of commercial kitchen equipment repair services. GCS Service, Inc.
sales were $48 million in 1997.
These acquisitions have been accounted for as purchases and, accordingly, the
results of operations have been included in the financial statements of the
Company from the dates of acquisition. Net sales and operating income of
these businesses are not significant to the Company's consolidated results of
operations, financial position and cash flows.
11
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." The standard
requires the display and reporting of comprehensive income, which includes
all changes in shareholders' equity with the exception of additional
investments by shareholders or distributions to shareholders. Comprehensive
income for the Company includes net income and foreign currency translation
that is charged or credited to the cumulative translation account within
shareholders' equity. Comprehensive income for the second quarter and six
months ended June 30, 1998 and 1997 and the year ended December 31, 1997, was
as follows:
<TABLE>
<CAPTION>
Second Quarter Six Months Year
Ended Ended Ended
June 30 June 30 December 31
(thousands) 1998 1997 1998 1997 1997
------- ------- -------- -------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net income $37,689 $32,894 $ 68,277 $ 59,098 $133,955
Change in cumulative
translation (2,200) (1,269) (10,748) (21,193) (35,730)
------- ------- -------- -------- -----------
Comprehensive income $35,489 $31,625 $ 57,529 $ 37,905 $ 98,225
------- ------- -------- -------- -----------
------- ------- -------- -------- -----------
</TABLE>
NET INCOME PER COMMON SHARE
The computation of the basic and diluted per share amounts were as follows:
<TABLE>
<CAPTION>
Second Quarter Six Months Year
Ended Ended Ended
(thousands, June 30 June 30 December 31
except per share) 1998 1997 1998 1997 1997
-------- -------- -------- -------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net income $ 37,689 $ 32,894 $ 68,277 $ 59,098 $133,955
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
Weighted average
common shares
outstanding
Basic (actual
shares outstanding) 128,667 129,779 128,813 129,664 129,446
Effect of dilutive
stock options 5,136 4,184 5,058 4,098 4,376
-------- -------- -------- -------- -----------
Diluted 133,803 133,963 133,871 133,762 133,822
-------- -------- -------- -------- -----------
-------- -------- -------- -------- -----------
Net income per
common share
Basic $0.29 $0.25 $0.53 $0.46 $1.03
Diluted $0.28 $0.25 $0.51 $0.44 $1.00
</TABLE>
12
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NET INCOME PER COMMON SHARE (continued)
Stock options for approximately 2.3 million shares were granted in 1998 with
exercise prices substantially greater than the market value of the Company's
common stock. These stock options were not dilutive and therefore were not
included in the computation of diluted net income per common share for the
second quarter and six months ended June 30, 1998. Virtually all stock
options outstanding during the second quarter and six months ended June 30,
1997, and the year ended December 31, 1997, were dilutive and included in the
calculation of the diluted per share amounts.
GEOGRAPHIC SEGMENTS
The Company is the leading global developer and marketer of premium cleaning,
sanitizing and maintenance products and services for the hospitality,
institutional and industrial markets. Customers include hotels and
restaurants; foodservice, healthcare and educational facilities; quickservice
(fast-food) units; commercial laundries; light industry; dairy plants and
farms; and food and beverage processors around the world. International
consists of Canadian, Asia Pacific, Latin American, African and Kay's
international operations. In addition, the Company and Henkel KGaA of
Dusseldorf, Germany, each have a 50% economic interest in the Henkel-Ecolab
joint venture, which operates institutional and industrial cleaning and
sanitizing businesses in Europe. Information concerning the Company's equity
in earnings of the Henkel-Ecolab joint venture is provided in a separate note
to the consolidated financial statements.
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended Year Ended
June 30 June 30 December 31
(thousands) 1998 1997 1998 1997 1997
-------- -------- -------- -------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales
United States $359,254 $319,633 $691,868 $610,336 $1,275,828
International 109,206 92,177 212,954 175,234 364,524
-------- -------- -------- -------- ----------
Total $468,460 $411,810 $904,822 $785,570 $1,640,352
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
Operating Income
United States $ 57,369 $ 47,184 $104,905 $ 85,625 $ 195,630
International 7,850 6,669 14,944 12,539 26,962
Corporate (1,479) (1,050) (2,389) (1,931) (4,088)
-------- -------- -------- -------- ----------
Total $ 63,740 $ 52,803 $117,460 $ 96,233 $ 218,504
-------- -------- -------- -------- ----------
-------- -------- -------- -------- ----------
</TABLE>
13
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
EQUITY IN EARNINGS OF HENKEL-ECOLAB JOINT VENTURE
Certain financial data of the Henkel-Ecolab joint venture and the components
of the Company's equity in earnings of the joint venture for the second
quarter and six months ended June 30, 1998 and 1997 and for the year ended
December 31, 1997 were:
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended Year Ended
June 30 June 30 December 31
(thousands) 1998 1997 1998 1997 1997
-------- -------- -------- -------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Joint venture
Net sales $223,498 $212,768 $423,408 $422,365 $844,689
Gross profit 122,629 119,720 235,050 234,778 470,698
Income before
income taxes 16,208 15,434 28,286 27,407 63,640
Net income $ 9,224 $ 8,924 $ 15,998 $ 15,594 $ 33,701
Ecolab equity in earnings
Ecolab equity in
net income $ 4,612 $ 4,462 $ 7,999 $ 7,797 $ 16,851
Ecolab royalty
income from joint
venture, net of
income taxes 1,112 1,085 2,196 2,220 4,583
Amortization expense
for the excess of
cost over the
underlying net
assets of the joint
venture (1,900) (2,005) (3,808) (4,126) (8,001)
-------- -------- -------- -------- ------------
Equity in earnings of
Henkel-Ecolab
joint venture $ 3,824 $ 3,542 $ 6,387 $ 5,891 $ 13,433
-------- -------- -------- -------- ------------
-------- -------- -------- -------- ------------
</TABLE>
At June 30, 1998, the Company's investment in the Henkel-Ecolab joint venture
included approximately $139 million for the unamortized excess of the
Company's investment over its equity in the joint venture's net assets. This
excess is being amortized on a straight-line basis over estimated economic
useful lives of up to 30 years.
14
<PAGE>
ECOLAB INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
SUBSEQUENT EVENT
As a result of tax losses on the disposition of a business in 1992, the
Company's U.S. federal income tax payments were reduced in 1992 through 1995
by approximately $58 million. However, pending final acceptance of the
Company's treatment of the losses, no income tax benefit has been recognized
for financial reporting purposes. On August 5, 1998 an agreement was reached
with the Internal Revenue Service on the final tax treatment for the losses.
This agreement will result in the recognition of income from discontinued
operations in the Company's financial statements for the period ending
September 30, 1998. Because this one-time gain relates to a previously
discontinued business and a major portion of the tax liability due was funded
by a deposit to post a bond with the Internal Revenue Service during the
second quarter 1998, the settlement is not expected to have a material impact
on the Company's overall results from continuing operations, financial
position or liquidity.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors
Ecolab Inc.
We have reviewed the accompanying consolidated balance sheet of Ecolab
Inc. as of June 30, 1998 and 1997, and the related consolidated statements of
income for the three-month and six-month periods ended June 30, 1998 and
1997, and the consolidated statement of cash flows for the six-month periods
ended June 30, 1998 and 1997. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December 31, 1997,
and the related consolidated statements of income, shareholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated February 23, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying consolidated balance sheet as of December 31, 1997, and
the related consolidated statements of income and cash flows for the year
then ended is fairly presented, in all material respects, in relation to the
consolidated balance sheet and statements of income and cash flows from which
it has been derived.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Saint Paul, Minnesota
July 21, 1998
16
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information that management
believes is useful in understanding the Company's operating results, cash
flows and financial condition. The discussion should be read in conjunction
with the consolidated financial statements and related notes in this Form
10-Q.
The following discussion contains various "Forward-Looking Statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. The
statements, which represent Ecolab's expectations or beliefs concerning
various future events, are based on current expectations that involve a
number of risks and uncertainties that could cause actual results to differ
materially from those of such Forward-Looking Statements. We refer readers
to the Company's statement entitled "Forward-Looking Statements and Risk
Factors" which is contained under Item 1 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1997. Additional risk factors may
be described from time to time in Ecolab's filings with the Securities and
Exchange Commission.
RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED
JUNE 30, 1998
Net sales for the second quarter ended June 30, 1998 were $468 million, an
increase of 14 percent over net sales of $412 million in the second quarter
of last year. For the first six months of 1998, net sales increased 15% to
$905 million from $786 in the first six months of 1997. Business
acquisitions made a significant contribution to the Company's sales growth
and accounted for approximately one-half of the Company's growth in both the
second quarter and six-month periods. Changes in currency translation
decreased the Company's sales growth rates by approximately two percentage
points in each of the reporting periods. The growth in sales also reflected
new products, a larger sales-and-service force, new customers, competitive
gains and a continuation of generally good conditions in the hospitality and
lodging industries, particularly in the United States.
The gross profit margin for the second quarter of 1998 was 55.1 percent of
net sales, compared with the gross profit margin of 55.5 percent of net sales
in the second quarter of last year. For the six-month period, the gross
profit margin was also 55.1 percent of net sales, down from the six month
1997 margin of 55.6 percent. These lower gross profit margins were primarily
due to lower margins in the Asia Pacific region, which were negatively
affected by economic and monetary problems in the area, and to businesses the
Company added to the region
17
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED
JUNE 30, 1998 (continued)
through acquisitions. The lower Asia Pacific margin was partially offset by
modestly higher gross margins in virtually all of the Company's other
operations which included the benefits of higher sales of the higher margin
products of the Company's U.S. core operations and sales volume growth of new
products. The benefits from selling price increases improved modestly over
last year, however, continued to be limited due to market pressures.
Selling, general and administrative expenses represented 41.5 percent of net
sales in the second quarter of 1998, a decrease from selling, general and
administrative expenses of 42.7 percent of net sales in the second quarter of
last year. For the first six months of 1998, selling, general and
administrative expenses were 42.1 percent of net sales, compared with 43.3
percent in the comparable period of last year. Selling, general and
administrative margins were down for both the Company's U.S. and
international operations with significant decreases in the Asia Pacific
region. These decreases reflected benefits of tight cost controls, the
integration of businesses acquired and strong sales growth. These benefits
were partially offset by investments in the sales-and-service force and
additional business investments. The Company expects to continue investing
in its sales-and-service force, including investments in training and
productivity.
For the second quarter of 1998, net income totaled $38 million, an increase
of 15% percent over net income of $33 million in the second quarter of last
year. On a per share basis, diluted net income per common share increased 12
percent to $0.28 from $0.25 in the second quarter of last year. For the
six-month period, net income of $68 million or $0.51 per diluted share was up
16 percent over net income of $59 million or $0.44 per diluted share in the
comparable period of last year. These earnings improvements reflected
double-digit growth in operating income, principally due to the stronger
performances of the Company's U.S. core operations, and a higher equity in
earnings of the Henkel-Ecolab joint venture. Earnings were negatively
affected by increased interest expense and income taxes compared with the
second quarter and six-month period of last year.
Net sales for the Company's United States operations were $359 million for
the second quarter of 1998, an increase of 12 percent over net sales of $320
million in the second quarter of last year. United States sales totaled $692
million for the first six months of 1998, up 13 percent compared with sales
of $610 million in the comparable period of 1997. Sales benefited from
business acquisitions, a continuation of strong growth in the core
Institutional and Food & Beverage operations, sales of new products, and good
business trends in the hospitality and lodging industries. Business
acquisitions
18
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED
JUNE 30, 1998 (continued)
accounted for approximately one-third of the growth in U.S. sales during each
of the reporting periods. Selling price increases continued to be limited
due to tight pricing conditions in several of the markets in which the
Company does business. Sales of the U.S. Institutional Division increased
11% for the second quarter and 13% for the first six months of 1998 with
strong growth in sales of all of its business units, and the benefits of the
December 1997 acquisition of the Grace-Lee Vehicle Wash business which added
approximately 2 percentage points to the Division's sales growth rates. The
Pest Elimination Division reported an improved sales growth rate of 16
percent for the second quarter of 1998 and a 14 percent growth rate for the
first six months of 1998. Pest Elimination sales reflected good new contract
sales, high retention of key customers and increased demand related to last
winter's mild weather. Kay also reported an improved trend in its sales
growth rate with a 10 percent increase in sales for the second quarter and a
9 percent growth rate for the first six months of 1998. Kay's growth
reflected good results in sales to its core quickservice customers, due in
part to new product and service offerings, and good growth in sales of its
grocery/deli business. Sales of the Textile Care Division were down 1
percent for the second quarter and increased 2 percent for the first six
months of 1998. Textile Care continues to experience pressures from plant
consolidations, particularly in laundries serving the healthcare market, and
challenging market conditions. Professional Products sales increased 4
percent for the second quarter and 7 percent for the six-month period with
continued growth in sales of branded products through its mass commercial
distribution line. Water Care sales were up 4 percent for the second quarter
and 3 percent for the six-month period. The Water Care Division continues to
concentrate on the hospitality, cruise ship, food and beverage, and laundry
markets. The Company's Food & Beverage Division reported sales growth of 15
percent for the second quarter and 16 percent for the first half of 1998
reflecting the acquisition of Chemidyne in August of last year. Excluding
Chemidyne, Food & Beverage sales increased 6 percent for the second quarter
and 7 percent for the six-month period with good growth in sales to all of
its markets.
For the second quarter of 1998, operating income of the Company's United
States operations was $57 million, up 22 percent over operating income of $47
million in the second quarter of last year. For the six-month period, U.S.
operating income totaled $105 million, an increase of 23 percent over
operating income of $86 million in the comparable period of 1997. U.S.
operating income benefited from particularly good growth in the core
Institutional and Food and Beverage operations and also in the Pest
Elimination business. U.S. operating income improved to 16.0 percent of net
sales in the second quarter from 14.8 percent of net sales in the second
quarter of 1997.
19
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED
JUNE 30, 1998 (continued)
The U.S. operating income margin also improved for the first six months of
1998, to 15.2 percent of net sales from 14.0 percent in the comparable period
of last year. The improvements in operating income margins reflected strong
sales growth, sales of new products, modest increases in raw material costs,
higher gross margins and the benefits of tight cost controls.
Reported sales of the Company's International Operations were $109 million
for the second quarter of 1998, an increase of 18 percent over sales of $92
million in the comparable period of last year. For the first six months of
1998, International reported a sales increase of 22 percent to $213 million
from $175 million in the first half of 1997. International sales benefited
from business acquisitions, however, were negatively affected by changes in
currency translation, particularly in the Asia Pacific region. Excluding
acquisitions, sales for the second quarter and six-month periods as reported
in U.S. dollars were flat versus the same periods of last year. When
measured in local currencies, total International sales increased
approximately 30 percent for each of the reporting periods, and when
acquisitions are excluded, sales for both the second quarter and first six
months of 1998 increased approximately 10%. The Asia Pacific region reported
U.S. dollar sales growth of 33 percent for the second quarter and 35 percent
for the first six months of 1998. Excluding business acquisitions and when
measured in local currencies, Asia Pacific sales increased 15 percent for the
second quarter of 1998 and 17 percent for the six-month period with good
growth in Japan, Australia and Southeast Asia. Reported sales of Latin
America increased 4 percent for both the second quarter and six-month
periods. When measured in local currencies, Latin America sales increased 10
percent in each period with strong double-digit growth in Mexico, Venezuela
and Central America and modest growth in Brazil. Canada's reported sales
were flat for the second quarter of 1998 and grew 5 percent for the six-month
period. Canada's local currency growth, excluding the March 1997 acquisition
of Savolite, was 4 percent for the second quarter and 6 percent for the first
six months of 1998 and reflected good growth in Institutional and Food &
Beverage sales.
International reported operating income of $8 million for the second quarter
ended June 30, 1998, an increase of 18 percent over second quarter 1997
operating income of $7 million. For the six-month period, International's
reported operating income totaled $15 million and was up 19 percent over
operating income of $13 million in the comparable period of 1997. Excluding
the effects of business acquisitions, International's U.S. dollar operating
income was down 12 percent for the second quarter and down 1 percent for the
first six months of 1998, reflecting lower income in the Asia Pacific region
due
20
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
RESULTS OF OPERATIONS - SECOND QUARTER AND SIX MONTHS ENDED
JUNE 30, 1998 (continued)
to the difficult business and economic conditions in the region. Excluding
business acquisitions and the negative effects of currency translation,
International's operating income grew 8 percent for the second quarter and 24
percent for the six-month period and included significant growth in results
of Latin America. The Company continues to be cautious about near-term
growth in the Asia Pacific region due to the uncertain economic conditions in
the region.
The Company's equity in earnings of the Henkel-Ecolab joint venture increased
8 percent to $3.8 million in the second quarter of 1998 from $3.5 million in
the second quarter of last year. For the first six months of 1998, the
Company's equity in joint venture earnings was $6.4 million, up 8 percent over
$5.9 million of equity in earnings recorded in the comparable period of last
year. Joint venture sales, although not consolidated in the Company's
financial statements, increased 11 percent for the second quarter and 9
percent for the six-month period when measured in Deutsche marks, with good
growth in most markets and within most geographic regions. However, sales to
the professional hygiene market and sales in Germany and the United Kingdom
were weak, due in part to government and private spending cutbacks. When
measured in U.S. dollars, joint venture sales were negatively affected by the
strengthening U.S. dollar and increased only 5 percent for the second quarter
and were flat for the first six months of 1998.
Corporate operating expense was $1 million for the second quarter and $2
million for the first half of 1998 and represented overhead costs directly
related to the joint venture. The major portion of the 41 percent increase
in corporate operating expense for the second quarter was due to the timing
of expenditures.
Net interest expense totaled $5.4 million for the second quarter and $10.8
million for the first half of 1998 and increased nearly 80 percent over net
interest expense in the comparable periods of last year. The increases were
primarily due to debt incurred under the Company's Multicurrency Credit
Agreement for the Gibson acquisition and for an income tax deposit made in
the second quarter of 1998.
For both the second quarter and six-month periods, the provisions for income
taxes reflected estimated effective rates of 42.0 percent in 1998, a slight
increase compared with last year's effective rates of 41.0 percent. The
increases in the effective income tax rates were principally due to the
effects of business acquisitions and higher overall effective rates on
earnings of International operations.
21
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
YEAR 2000 CONVERSION
The Company has completed an assessment of Year 2000 compliance for its North
American operations related to its critical operating and application
systems, particularly customer-oriented systems such as sales and order
processing, billing and collections and associated infrastructure. As a
result, the Company has renovated or is replacing portions of its software
and hardware. The renovation, validation and implementation processes are
approximately 85% complete and the intention is to be completed by the end of
1998 in all material respects. The costs related to Year 2000 to complete
this activity are not material and should not exceed $5 million, in both
capital and expense, of which an estimated $3 million has been incurred to
date. Of this cost, only a small part is related to accelerated replacement
due to Year 2000 concerns.
With regard to operations and application systems in operations outside of
North America, the Company is in various stages of assessment, renovation,
validation or implementation depending on the circumstances. The Company
intends to follow the same process internationally, as it has taken in North
America and intends to complete the process by the end of 1998 in all
material respects.
As a part of its Year 2000 process, the Company intends to demonstrate its
Year 2000 readiness by simulating the Year 2000 in an orchestrated manner for
its key infrastructure components, critical business processes and key
application systems. The Company expects that minor Year 2000 compliance
issues will be identified as an outcome of the Year 2000 simulation test and
intends to address these compliance issues in the first quarter of 1999.
On a worldwide basis, the Company is in the assessment stage relative to
remediating its dispensing and cleaning systems and its manufacturing and
building maintenance operations for date/time sensitivity and intends to
proceed to the renovation, validation and implementation stages with the goal
of completion by the end of 1998. The Company, while still only in the
assessment stage, believes that its requirements relative to Year 2000
remediation for its dispensing and cleaning systems and manufacturing and
building maintenance operations are limited in nature and although a final
cost estimate has not been determined at this time, the Company does not
believe the cost will be material.
The Company has contacted key suppliers and vendors in order to determine the
status of such third parties' Year 2000 remediation plans. This process will
be ongoing into 1999. In the Company's experience, its suppliers and vendors
are still only in the process of Year 2000 renovation. Therefore, the
Company will be better able to fully assess the risk and prepare contingency
plans when third party processes are more complete.
22
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
YEAR 2000 CONVERSION (continued)
The Company recognizes the need for Year 2000 contingency plans in the event
that remediation is not fully successful or that the remediation efforts of
its vendors, suppliers and governmental/regulatory agencies are not timely
completed. The Company intends to address contingency planning during 1999.
The Company intends to complete its Year 2000 remediation efforts primarily
with in-house resources, but has and will continue to use consultants for
specific tasks. The Company believes that costs of Year 2000 remediation
described above can be funded from operations.
The Company recognizes that issues related to Year 2000 constitute a material
known uncertainty. The Company also recognizes the importance of ensuring
its operations will not be adversely affected by Year 2000 issues. It
believes that the processes described above will be effective to manage the
risks associated with the problem. However, there can be no assurance that
the process can be completed on the timetable described above or that the
remediation processes will be fully effective. The failure to identify and
remediate Year 2000 problems or, the failure of key third parties who do
business with the Company or governmental/regulatory agencies to timely
remediate their Year 2000 issues could cause system failures or errors,
business interruptions and in a worst case scenario, the inability to engage
in normal business practices for an unknown length of time. The effect on
the Company's operations, income and financial condition could be materially
adverse.
There are numerous risks and uncertainties associated with management of Year
2000 risks and these are further discussed in the Company's Form 10-K for the
year ended December 31, 1997 under the heading "Forward-Looking Statements
and Risk Factors."
FINANCIAL POSITION AND LIQUIDITY
Total assets were approximately $1.4 billion at June 30, 1998, a slight
decrease from total assets at year-end 1997 and an increase of 16 percent
over total assets of $1.2 billion at June 30, 1997, due in part to business
acquisitions. Other current assets at June 30, 1998, included approximately
$23 million of net assets of the acquired Gibson businesses which the Company
has determined it will not retain. During the first quarter of 1998 the
Company completed its plan for the integration of Gibson and the majority of
these net assets held for sale initially had been included in the Company's
year-end 1997 balance sheet as property, plant and equipment, accounts
receivable and inventories.
Total debt was $329 million at June 30, 1998, up from total debt of $308
million at year-end 1997 and total debt of $179 million at June 30, 1997.
The increases in total debt reflected an income tax deposit made in the
second quarter of 1998 and debt incurred to finance the late-1997 acquisition
of Gibson. The ratio of total debt to capitalization was 37 percent at June 30,
1998, compared with 36 percent at year-end 1997 and 25 percent at June 30, 1997.
23
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
FINANCIAL POSITION AND LIQUIDITY (continued)
Other noncurrent liabilities decreased from $125 million at year-end 1997 to
$90 million at June 30, 1998 principally due to a deposit made to post a bond
with the Internal Revenue Service against outstanding issues related to the
disposal of a discontinued business in 1992. As a result of tax losses on
the disposition of this business, the Company's U.S. federal income tax
payments were reduced in 1992 through 1995 by approximately $58 million.
However, pending final acceptance of the Company's treatment of the losses,
no income tax benefit has been recognized for financial reporting purposes.
On August 5, 1998 an agreement was reached with the Internal Revenue Service
on the final tax treatment for the losses. This agreement will result in the
recognition of income from discontinued operations in the Company's financial
statements for the period ending September 30, 1998. While the computations
necessary to determine the final amount of income are dependent on many
factors, including the outcome from the filing of numerous amended state and
local income tax returns, the Company believes that the final amount of
income from discontinued operations could be in excess of $35 million.
Because this one-time gain relates to a previously discontinued business and
the major portion of the tax liability due has been funded by the
above-mentioned bond posting, the settlement is not expected to have a
material impact on the Company's results from continuing operations,
financial position or liquidity.
Cash provided by continuing operations totaled $101 million for the first six
months of 1998, an increase of 25 percent over cash provided by continuing
operations of $80 million in the first half of last year. The comparison of
cash flow from continuing operations was favorably affected by a cash outflow
in 1997 due to an income tax deposit made against outstanding federal income
tax issues that had been accrued for in other noncurrent liabilities. Total
cash provided by operating activities decreased to $71 million from $80
million in the first six months of last year due to a $30 million income tax
deposit made in the second quarter of 1998 related to discontinued
operations.
During the first six months of 1998, the Company reacquired 454,242 shares of
its common stock under its share repurchase program, which provides shares to
fund employee benefit plans. The Company also acquired 432,358 shares of its
common stock under a separate 12 million share repurchase program announced
in May 1995. At June 30, 1998, there were 3,748,888 shares remaining for
purchase from time to time under that 1995 purchase authorization. The
Company anticipates that it will continue to periodically reacquire shares
under these two programs.
24
<PAGE>
ECOLAB INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, a new standard of accounting and
reporting for derivative instruments and hedging activities. The Company is
required to adopt the new standard in the first quarter of 2000. Although
the Company has not completed a full analysis of all of the requirements of
the new standard, the Company's use of derivative and hedging financial
instruments is limited and therefore the Company does not anticipate the
impact of the new standard to be significant.
25
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 8,
1998. At the meeting, 92.57% of the outstanding shares of the
Company's voting stock were represented in person or by proxy.
The first proposal voted upon was the election of four Class
III Directors for a term ending at the annual meeting in 2001.
The four persons nominated by the Company's Board of Directors
received the following votes and were elected:
<TABLE>
<CAPTION>
Name For Withheld
---------------- ----------- --------
<S> <C> <C>
Joel W. Johnson 118,534,635 720,980
Philip L. Smith 118,521,653 733,962
Hugo Uyterhoeven 118,506,599 749,016
Albrecht Woeste 118,499,056 756,559
</TABLE>
In addition, the terms of office of the following directors
continued after the meeting: Class I Directors for a term ending in
1999 - James J. Howard, Jerry W. Levin, Rueben F. Richards, Richard
L. Schall and Roland Schulz; and Class II Directors for a term
ending in 2000 - Leslie S. Biller, Ruth S. Block, Allan L. Schuman
and Michael E. Shannon.
The second proposal voted upon was the ratification of the
appointment of PricewaterhouseCoopers LLP (on July 1, 1998, Coopers
& Lybrand L.L.P. merged with Price Waterhouse LLP to form
PricewaterhouseCoopers) as the Company's independent accountants for
the year ending December 31, 1998. The appointment was ratified as
follows:
<TABLE>
<CAPTION>
For Against Abstained
----------- ------- ---------
<S> <C> <C>
118,916,863 173,334 165,418
</TABLE>
As to each proposal, there were no broker non-votes.
Item 5(a) RECENT SALES OF UNREGISTERED SECURITIES
On May 11, 1998, the Company issued 18,633 shares of Common Stock to
Grace-Lee Products, Incorporated ("Grace-Lee") in a private
transaction. The transaction represented a purchase price
adjustment for the previously reported acquisition of Grace-Lee's
chemical business in December, 1997. The transaction was exempt
from registration pursuant to Section 4(2) of the Securities Act of
1933.
26
<PAGE>
PART II. OTHER INFORMATION (continued)
Item 5(b) ANNUAL MEETING - DISCRETIONARY VOTING AND ADVANCE NOTICE PROVISIONS
The following information is provided to comply with Rules 14a -
4(c)(i) and 14a - 5(e) of the Securities and Exchange Commission:
Rule 14(a) - 4(c)(i) of the Securities and Exchange Commission
provides that persons named in the proxy which accompanies the
Company's Proxy Statement, may be given discretionary authority to
vote all proxies with respect to any matters not included in the
Proxy Statement which come before the Annual Meeting of the
Stockholders for a vote of the Stockholders unless advance notice of
such matter is provided to the Company in accordance with the
Company's Advance By-Law Notice provisions. The Company anticipates
continuing its policy of granting such discretionary authority to
the persons named in the proxy.
As applied to the Company such discretionary authority will apply
with respect to proxies solicited in connection with the next Annual
Meeting of Stockholders expected to be held on May 14, 1999, unless
notice is received by the Company not later than February 6, 1999.
Notice may be given to the Secretary of the Company, c/o Ecolab
Inc., Ecolab Center, 370 North Wabasha Street, St. Paul, Minnesota
55102.
In addition, the Company's By-Laws contain advance notice provisions
which require that written notice of a stockholder proposal or
stockholder director nomination not included in the Proxy Statement
be delivered to the Secretary not less than 90 and no more than 135
days prior to the anniversary date of the preceding Annual Meeting
of Stockholders. Any Stockholder business, or nomination, which the
presiding officer determines has not been brought before the meeting
in accordance with those By-Law provisions, will not be voted upon
at the meeting. The notice period, in respect of the next Annual
Meeting expected to be held on May 14, 1999 shall be from December
24, 1998 through February 6, 1999 inclusive. A copy of the By-Laws
of the Company may be obtained by contacting the Secretary of the
Company at the above address.
27
<PAGE>
PART II. OTHER INFORMATION (continued)
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits to this
report:
(4) A. Amendment No. 1 dated as of June 23, 1998 to
Multicurrency Credit Agreement dated as of September
29, 1993, as Amended and Restated as of October 17,
1997, and to Local Currency Addendum dated as of
October 17, 1997, with respect to the Multicurrency
Credit Agreement, among Ecolab Inc., the Banks parties
thereto, Citibank, N.A., as Agent for the Banks,
Citibank International Plc, as Euro-Agent for the Banks
and Morgan Guaranty Trust Company of New York as
Co-Agent; and with respect to the Local Currency
Addendum among Ecolab Inc., Ecolab PTY Limited, the
Local Currency Banks parties thereto, Citibank, N.A.,
as Agent and Citisecurities Limited, as Local Currency
Agent.
B. Australian Dollar Local Currency Addendum dated as of
June 23, 1998 among Ecolab Finance PTY Limited, Ecolab
Inc., Citibank, N.A., the Local Currency Agent named
therein and the Local Currency Banks parties thereto.
(10) Non-Statutory Stock Option Agreement between the Company and
Allan L. Schuman with respect to premium-priced option grant
effective February 20, 1998 under the Ecolab Inc. 1997 Stock
Incentive Plan. Similar option grants were made to each of
the named executive officers of the Company covering
varying, but smaller numbers of shares.
(15) Letter regarding unaudited interim financial
information.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 1998. Subsequent to the quarter ended June 30,
1998, the Company filed on July 15, 1998, a Current Report
on Form 8-K announcing completion of its previously
announced acquisition of GCS Service, Inc. of Danbury,
Connecticut.
28
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECOLAB INC.
Date: August 12, 1998 By: /s/Michael E. Shannon
Michael E. Shannon
Chairman of the Board, Chief
Financial and Administrative
Officer (duly authorized
officer and Principal
Financial Officer)
29
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Method of Filing
----------- -------- ----------------
<S> <C> <C>
(4) A. Amendment No. 1 dated as of June 23, 1998 to Filed herewith
Multicurrency Credit Agreement dated as of electronically
September 29, 1993, as Amended and Restated as
of October 17, 1997, and to Local Currency
Addendum dated as of October 17, 1997, with
respect to the Multicurrency Credit Agreement,
among Ecolab Inc., the Banks parties thereto,
Citibank, N.A., as Agent for the Banks,
Citibank International Plc, as Euro-Agent for
the Banks and Morgan Guaranty Trust Company of
New York as Co-Agent; and with respect to the
Local Currency Addendum among Ecolab Inc.,
Ecolab PTY Limited, the Local Currency Banks
party thereto, Citibank, N.A., as Agent and
Citisecurities Limited, as Local Currency
Agent.
(4) B. Australian Dollar Local Currency Addendum Filed herewith
dated as of June 23, 1998 among Ecolab Finance electronically
PTY Limited, Ecolab Inc., Citibank, N.A., the
Local Currency Agent named therein and the
Local Currency Banks party thereto.
(10) Non-Statutory Stock Option Agreement between Filed herewith
the Company and Allan L. Schuman with respect electronically
to premium-priced option grant effective
February 20, 1998 under the Ecolab Inc. 1997
Stock Incentive Plan. Similar option grants
were made to each of the named executive
officers of the Company covering varying, but
smaller number of shares.
(15) Letter regarding unaudited interim financial Filed herewith
information electronically
(27) Financial Data Schedule Filed herewith
electronically
</TABLE>
30
<PAGE>
AMENDMENT NO. 1
Dated as of June 23, 1998
to
U.S. $275,000,000
MULTICURRENCY CREDIT AGREEMENT
Dated as of September 29, 1993
As Amended and Restated as of October 17, 1997
and to LOCAL CURRENCY ADDENDUM
dated as of October 17, 1997
THIS AMENDMENT NO. 1 dated as of June 23, 1998, ("AMENDMENT") is
entered into by and among ECOLAB INC., a Delaware corporation (the
"COMPANY"), the banks (the "BANKS") party to the Credit Agreement described
below, CITIBANK, N.A. ("CITIBANK") as administrative agent (the "AGENT") for
the Banks under the Credit Agreement, CITIBANK INTERNATIONAL PLC, as agent
for the banks in connection with certain of the eurocurrency advances under
the Credit Agreement (the "EURO-AGENT"), and MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as co-agent under the Credit Agreement (the "CO-AGENT"); and with
respect to the Local Currency Addendum referred to below, by and among the
Company, Ecolab PTY Limited (ACN 000 449 990) ("Ecolab PTY"), the Local
Currency Banks party to such Local Currency Addendum (the "LOCAL CURRENCY
BANKS"), the Agent and Citisecurities Limited (ACN 008 489 610), as local
currency agent (the "Local Currency Agent"). Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement referred to below.
PRELIMINARY STATEMENT
A. The Company, the Banks, the Agent, the Euro-Agent and the
Co-Agent are parties to that certain Multicurrency Credit Agreement dated as
of September 29, 1993, as amended and restated as of October 17, 1997 (as so
amended and restated, the "CREDIT AGREEMENT"), pursuant to which the Banks
have agreed to make certain loans and other financial accommodations to the
Company and any Borrowing Subsidiary. The Company, Ecolab PTY, the Agent,
the Local Currency Banks and the Local Currency Agent are parties to a Local
Currency Addendum dated as of October 17, 1997 (the "LOCAL CURRENCY
ADDENDUM") pursuant to which the Local Currency Banks have agreed to make
Local Currency Advances to the Company and Ecolab PTY.
<PAGE>
B. The Company, the Banks, the Agent, the Euro-Agent and the
Co-Agent have agreed to amend the Credit Agreement, and the Company, Ecolab
PTY, the Agent, the Local Currency Banks and the Local Currency Agent have
agreed to amend the Local Currency Addendum, in each case on the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises set forth above,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company, the Banks, the Agent, the
Euro-Agent and the Co-Agent, in the case of the Credit Agreement, and the
Company, Ecolab PTY, the Agent, the Local Currency Banks and the Local
Currency Agent, in the case of the Local Currency Addendum, agree as follows:
SECTION 1. AMENDMENT TO THE CREDIT AGREEMENT. Effective as of the
date first above written and subject to the fulfillment of the conditions
precedent set forth in SECTION 3, the Credit Agreement is hereby amended as
follows:
(a) The definition of "Australian Local Currency Addendum" in SECTION
1.01 is deleted and replaced by the following:
"AUSTRALIAN LOCAL CURRENCY ADDENDUM" or "AUSTRALIAN LOCAL
CURRENCY ADDENDA", means, as applicable, each of or both of (a) the
Local Currency Addendum dated as of October 17, 1997 among Ecolab PTY
Limited, the Company, the Local Currency Banks named therein, the
Agent, and Citisecurities Limited as Local Currency Agent, and (b) the
Local Currency Addendum dated as of June 23, 1998 among Ecolab Finance
PTY Limited, the Company, the Local Currency Banks named therein, the
Agent, and Citisecurities Limited as Local Currency Agent.
(b) SECTION 2.01(b) is amended by striking "the Australian Dollar
Local Currency Addendum" in the first proviso in such Section, and
substituting therefor "either Australian Local Currency Addendum".
(c) SECTION 2.02A(b) is amended by deleting the phrase "Except as
provided herein," at the beginning of the third sentence of such Section,
and substituting therefor "Except as provided herein or therein,".
(d) SECTION 2.04(b) is amended by inserting "17" in the blank
following "October".
(e) SECTION 2.11 is amended by striking "Australian Local Currency
Addendum" in each of the two places where it appears in the penultimate
sentence of such Section, and
-2-
<PAGE>
substituting "Australian Local Currency Addenda" in each such place.
(f) SECTION 3.01 is amended by inserting the parenthetical phrase
"(which day shall be deemed to be June 23, 1998, in the case of Ecolab
Finance PTY Limited)" immediately after the phrase "each dated such day"
appearing in the first sentence of such Section.
SECTION 2. AMENDMENT TO LOCAL CURRENCY ADDENDUM. Effective as of
the date first above written and subject to the fulfillment of the conditions
precedent set forth in SECTION 3, the Local Currency Addendum is amended as
follows:
(a) SECTION 1.01 is amended by adding the following definition:
"ECOLAB FINANCE PTY ADDENDUM" means the Local Currency Addendum
dated as of June 23, 1998 among Ecolab Finance PTY Limited, the
Company, the Agent, the Local Currency Banks named therein, and
Citisecurities Limited, as the Local Currency Agent, as amended from
time to time.
(b) SECTION 4.02 is amended by striking the proviso at the end of
such Section and substituting the following therefor:
"PROVIDED, HOWEVER, that (a) a Local Currency Bank may not assign
any obligations, Commitments or rights hereunder to any Person that is
not (or does not simultaneously become) (i) a Bank under the Credit
Agreement and (ii) a Local Currency Bank under the Ecolab Finance PTY
Addendum, and (b) such assignment shall be entered into simultaneously
with an assignment by such Local Currency Bank to such assignee of the
same percentage of its obligations, Commitments and rights under the
Ecolab Finance PTY Addendum as is being assigned under this Addendum.
(c) The table of Local Currency Commitments on SCHEDULE I is deleted
and the following is substituted therefor:
<TABLE>
<CAPTION>
Local Currency Bank Name Local Currency Commitment
------------------------ -------------------------
<S> <C>
Citibank, N.A. US $ 53,000,000*
Morgan Guaranty Trust Company
of New York US $ 47,000,000*
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Local Currency Bank Name Local Currency Commitment
------------------------ -------------------------
<S> <C>
The First National Bank of
Chicago US $ 43,000,000*
Credit Suisse First Boston US $ 33,000,000*
Local Currency Facility
Aggregate Commitment US $176,000,000**
</TABLE>
* Less, in each case, the Local Currency Advances outstanding from
such Local Currency Bank Under the Ecolab Finance PTY Addendum.
** Less the aggregate Local Currency Advances outstanding under the
Ecolab Finance PTY Addendum.
SECTION 3. CONDITIONS PRECEDENT. This Amendment shall become
effective and shall be deemed effective as of the date first above written
upon the satisfaction of the following conditions precedent:
(a) no event has occurred and is continuing which constitutes a
Default or an Event of Default;
(b) receipt by the Agent of twelve (12) copies of this Amendment duly
executed by each of the Company, the Banks, the Agent, the Euro-Agent and
the Co-Agent;
(c) the Local Currency Addendum among Ecolab Finance PTY Limited, the
Company, the Agent, the Local Currency Banks and the Local Currency Agent
shall have been duly executed by all parties thereto and a fully executed
copy received by the Agent;
(d) Ecolab Finance PTY Limited, the Company and the Agent shall have
executed an Election to Participate and a fully executed copy thereof shall
have been received by the Agent; and Ecolab Finance PTY Limited or the
Company shall have delivered, or caused to be delivered, the items
specified in SECTIONS 3.01 (c)(II), (c)(III), (d) and (f) with respect to
Ecolab Finance PTY Limited's Election to Participate; and
(e) Ecolab Finance PTY Limited shall have executed and delivered the
A Notes to be executed and delivered by it.
-4-
<PAGE>
SECTION 4. REPRESENTATION AND WARRANTY OF THE COMPANY. In order to
induce the Banks and the Local Currency Banks to execute and deliver this
Amendment, (a) the Company hereby represents to the Banks and the Local
Currency Banks that as of the date hereof, the representations and warranties
set forth in subsections (a), (b), (c) and (d) of SECTION 4.01 of the Credit
Agreement are true and correct and the Company is in full compliance with all
of the terms and conditions of the Credit Agreement; and (b) Ecolab PTY
hereby represents to the Local Currency Banks that as of the date hereof, the
representations and warranties set forth in ARTICLE III of the Local Currency
addendum are true and correct and Ecolab PTY is in full compliance with all
of the terms and conditions of the Local Currency Addendum.
SECTION 5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT. Upon
the effectiveness of this Amendment, each reference in the Credit Agreement
or the Local Currency Addendum to "this Agreement", "this Addendum",
"hereunder", "hereof", "herein", or words of like import shall mean and be a
reference to the Credit Agreement or the Local Currency Addendum, as
applicable, as modified hereby, and each reference to the Credit Agreement or
the Local Currency Addendum in any other document, instrument or agreement
shall mean and be a reference to the Credit Agreement or the Local Currency
Addendum, as applicable, as modified hereby.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE OTHER REMAINING TERMS OF THE CREDIT
AGREEMENT AND THE LOCAL CURRENCY ADDENDUM AND THE LAWS OF THE STATE OF NEW
YORK.
SECTION 7. PARAGRAPH HEADINGS. The paragraph headings contained
in this Amendment are and shall be without substance, meaning or content of
any kind whatsoever and are not a part of the agreement among the parties
hereto.
SECTION 8. COUNTERPARTS. This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
[This space intentionally left blank]
-5-
<PAGE>
IN WITNESS WHEREOF, this Amendment has been duly executed as of the
day and year first above written.
ECOLAB INC.
By: /s/Daniel J. Schmechel
------------------------------------
Name: Daniel J. Schmechel
Title: Assistant Treasurer
Signed, sealed and delivered by Daniel J.
Schmechel as attorney for Ecolab PTY Limited (ACN
000 449 990) under power of attorney dated
September 26, 1997 in the presence of
/s/Kenneth A. Iverson
---------------------------------------
(Witness)
Kenneth A. Iverson
---------------------------------------
(Name)
1565 Red Cedar Rd. Eagan, MN
---------------------------------------
(Address)
Attorney
---------------------------------------
(Occupation)
/s/ Daniel J. Schmechel
---------------------------------------
By executing this deed the attorney states that
the attorney has received no notice of revocation
of the power of attorney
-6-
<PAGE>
CITIBANK, N.A.
By: /s/ Laura A. Siracuse
Name: Laura A. Siracuse
Title: Attorney-In-Fact
-7-
<PAGE>
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By: /s/ Robert Bottamedi
Name: Robert Bottamedi
Title: Vice President
-8-
<PAGE>
COMMERZBANK AKTIENGESELLSCHAFT, CHICAGO BRANCH
By: /s/ J. Timothy Shortly
Name: J. Timothy Shortly
Title: Senior Vice President
By: /s/ Mark Monson
Name: Mark Monson
Title: Vice President
-9-
<PAGE>
CREDIT SUISSE FIRST BOSTON
By: /s/ Joel Glodowski
Name: Joel Glodowski
Title: Managing Director
By: /s/ David W. Kratovil
Name: David W. Kratovil
Title: Director
-10-
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ J. Garland Smith
Name: J. Garland Smith
Title: Managing Director
NATIONSBANK, N.A.
By: /s/ Valerie C. Mills
Name: Valerie C. Mills
Title: Senior Vice President
WACHOVIA BANK, N.A.
By: /s/ Frances W. Josephic
Name: Frances W. Josephic
Title: Vice President
-11-
<PAGE>
ECOLAB FINANCE PTY LIMITED (ACN 082 979 655)
LOCAL CURRENCY ADDENDUM
AUSTRALIAN DOLLAR ADDENDUM dated as of June 23, 1998, to the Credit
Agreement (as defined below).
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINED TERMS. As used in this Addendum, the
following terms shall have the meanings specified below:
"AUSTRALIAN DOLLARS" means the lawful currency of Australia.
"BORROWING SUBSIDIARY" means Ecolab Finance PTY Limited (ACN 082
979 655), a company incorporated in New South Wales.
"BBSY BID RATE" means, with respect to any Local Currency Advance
for the relevant Interest Period, the average rate (rounded upwards to two
decimal places) determined by the Local Currency Agent to be the Bid Rate for
bills of exchange quoted on the Reuters page "BBSY" headed Bank Bid Swap
Reference Rate, or another page that replaces the "BBSY" page on that system
to display average bid rates for bank accepted bills of exchange, and set at
approximately 10:00 a.m. (Sydney time) on the first day of such Interest
Period, and which bills of exchange have a tenor approximately equal to such
Interest Period; PROVIDED, HOWEVER, if in respect of any Interest Period the
BBSY Bid Rate cannot be determined in accordance with the foregoing
procedures, or there is a manifest error in the calculations of that rate or
that rate is not displayed by 10:30 a.m. (Sydney time) on the first day of
the relevant Interest Period, then the "BBSY Bid Rate" for that day or
Interest Period shall be the rate determined by the Local Currency Agent, in
good faith to be the appropriate rate, having regard, to the rates otherwise
bid for bills of exchange of that tenor at or around that time.
"BBSY ADVANCE" means a Local Currency Advance which bears interest
with reference to the BBSY Bid Rate.
"CREDIT AGREEMENT" means the Credit Agreement dated as of September
29, 1993, as amended and restated as of October 17, 1997, among Ecolab Inc.,
the Borrowing Subsidiaries from time to time party thereto, the financial
institutions from time to time party thereto as Banks, Citibank, N.A., as
Administrative Agent, Citibank International PLC, as Euro-Agent and Morgan
Guaranty Trust Company
<PAGE>
of New York, as Co-Agent, and as the same may be amended, waived, modified or
restated from time to time.
"ECOLAB PTY ADDENDUM" means the Local Currency Addendum dated as of
October 17, 1997 among Ecolab PTY Limited, the Company, the Agent, the Local
Currency Banks named therein, and Citisecurities Limited as the Local
Currency Agent, as amended from time to time.
"ELIGIBLE LOCAL CURRENCY BANK" means any Local Currency Bank
meeting the eligibility criteria set forth in SCHEDULE III.
"LOCAL CURRENCY ADVANCE" means any Advance, denominated in
Australian Dollars (or "A"), made to the Borrowing Subsidiary or the Company
pursuant to SECTIONS 2.02A and 2.02B of the Credit Agreement and this
Addendum. A Local Currency Advance shall bear interest at the rate specified
in SCHEDULE II.
"LOCAL CURRENCY BANK" means each Bank listed on the signature pages
of this Addendum, or which becomes a party hereto pursuant to an Assignment
and Acceptance.
"MONEY MARKET RATE" means, with respect to any Local Currency
Advance for the relevant Interest Period, the average of the rate (rounded
upwards to two decimal places) quoted by each Local Currency Bank to the
Local Currency Agent as its one day (overnight) or 7 day (as applicable)
money market rate for such Interest Period.
"MONEY MARKET RATE ADVANCE" means a Local Currency Advance which
bears interest with reference to the Money Market Rate.
SECTION 1.02. TERMS GENERALLY. Unless otherwise defined herein,
terms defined in the Credit Agreement shall have the same meanings in this
Addendum. Wherever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". All references herein to Sections and Schedules shall
be deemed references to Sections of and Schedules to this Addendum unless the
context shall otherwise require.
ARTICLE II
THE CREDITS
SECTION 2.01. LOCAL CURRENCY ADVANCES. (a) This Addendum (as the
same may be amended, waived, modified or restated from time to time) is a
"Local Currency Addendum" as defined in the Credit Agreement and is, together
with the borrowings made hereunder, subject in all respects to the terms and
provisions of
2
<PAGE>
the Credit Agreement except to the extent that the terms and provisions of
the Credit Agreement are modified by or are inconsistent with this Addendum,
in which case this Addendum shall control. The Local Currency Banks party to
this Addendum are set forth on SCHEDULE I.
(b) Any modifications to the interest payment dates, Interest
Periods, interest rates and any other special provisions applicable to Local
Currency Advances under this Addendum are set forth on SCHEDULE II. If
SCHEDULE II states "None" with respect to any item listed thereon, then the
corresponding provisions of the Credit Agreement, without modification, shall
govern this Addendum and the Local Currency Advances made pursuant to this
Addendum.
(c) Any special borrowing procedures or funding arrangements for
Local Currency Advances under this Addendum, any provisions for the issuance
of promissory notes to evidence the Local Currency Advances made hereunder
and any additional information requirements applicable to Local Currency
Advances under this Addendum are set forth on SCHEDULE III. If no such
special procedures, funding arrangements, provisions or additional
requirements are set forth on SCHEDULE III, then the corresponding
procedures, funding arrangements, provisions and information requirements set
forth in the Credit Agreement shall govern this Addendum.
SECTION 2.02. MAXIMUM BORROWING AMOUNTS. (a) The Local Currency
Commitment for each Local Currency Bank party to this Addendum is set forth
on SCHEDULE I. The Local Currency Facility Aggregate Commitment is set forth
on SCHEDULE I.
(b) Upon at least ten (10) Business Days prior irrevocable
written notice to the Agent, the Company may from time to time permanently
reduce the Local Currency Commitments under this Addendum in whole, or in
part ratably among the Local Currency Banks, in an aggregate minimum amount
of the Australian Dollar equivalent of $1,000,000, and integral multiples of
the Australian Dollar equivalent of $1,000,000 in excess thereof; PROVIDED,
HOWEVER, that the amount of the Local Currency Commitments may not be reduced
below the aggregate principal amount of the outstanding Local Currency
Advances with respect thereto. Any reduction in the Local Currency
Commitments shall be an automatic reduction of the Local Currency Facility
Aggregate Commitment. Any such reduction shall be allocated pro rata among
all the Local Currency Banks party to this Addendum by reference to their
Local Currency Commitments.
3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower party hereto makes and confirms each representation
and warranty applicable to each Borrower or any of its Subsidiaries contained
in ARTICLE IV of the Credit Agreement. Each Borrower party hereto represents
and warrants to each of the Local Currency Banks party to this Addendum that
no Default or Events of Default has occurred and is continuing, and no
Default or Events of Default shall arise as a result of the making of Local
Currency Advances hereunder or any other transaction contemplated hereby.
Each Borrower represents and warrants that it is not entering into this
Addendum in the capacity as trustee of any trust or settlement.
ARTICLE IV
MISCELLANEOUS PROVISIONS
SECTION 4.01. AMENDMENT; TERMINATION. (a) This Addendum
(including the Schedules hereto) may not be amended without the prior written
consent of the Majority Local Currency Banks hereunder, but subject to the
provisions of SECTION 9.01 of the Credit Agreement; PROVIDED, HOWEVER, that
this SECTION 4.01(a) shall not restrict assignments and participations
pursuant to SECTION 4.02.
(b) This Addendum may not be terminated without the prior written
consent of each Local Currency Bank party hereto, the Company and each
Borrower party hereto unless there are no Local Currency Advances outstanding
hereunder, in which case no such consent of any Local Currency Bank shall be
required; PROVIDED, HOWEVER, that this Addendum shall terminate on the date
that the Credit Agreement terminates in accordance with its terms.
SECTION 4.02. ASSIGNMENTS. SECTION 9.08 of the Credit Agreement
shall apply to assignments by Local Currency Banks of obligations,
Commitments and Advances hereunder; PROVIDED, HOWEVER, that (a) a Local
Currency Bank may not assign any obligations, Commitments or rights hereunder
to any Person that is not (or does not simultaneously become) (i) a Bank
under the Credit Agreement and (ii) a Local Currency Bank under the Ecolab
PTY Addendum, and (b) such assignment shall be entered into simultaneously
with an assignment by such Local Currency Bank to such assignee of the same
percentage of its obligations, Commitments and rights under the Ecolab PTY
Addendum as is being assigned hereunder.
SECTION 4.03. NOTICES. Notices and other communications provided
for herein shall be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail or sent by telecopy,
as follows:
4
<PAGE>
(a) if to the Borrowing Subsidiary under this Addendum, at 6 Hudson
Avenue, Castle Hill, New South Wales 2154, Attention: Finance Director
(Telecopy No. 612-9899-3105) with a copy to the Company at its address and
telecopy number referenced in SECTION 9.02 of the Credit Agreement;
(b) if to the Company, at its address and telecopy number referenced
in SECTION 9.02 of the Credit Agreement;
(c) if to the Local Currency Agent, at Citisecurities Limited (ACN 008
489 610), Level 10, Citibank Centre, 1 Margaret Street, Sydney, New South
Wales 2000, Attention: Manager, Agency Division, (Telecopy No.:
612-9262-2520) with a copy to the Agent at its address and telecopy number
referenced in SECTION 9.02 of the Credit Agreement; and
(d) if to a Local Currency Bank, at its address (and telecopy number)
set forth in SCHEDULE I or in the Assignment and Acceptance pursuant to
which such Local Currency Bank became a party hereto.
All notices and other communications given to any party hereto in accordance
with the provisions of this Agreement shall be deemed to have been given on
the date of receipt if delivered by hand or overnight courier service or sent
by telecopy to such party as provided in this Section or in accordance with
the latest unrevoked direction from such party given in accordance with this
Section.
SECTION 4.04. RATIFICATION OF GUARANTY. By its execution of this
Addendum, the Company ratifies and confirms its guaranty contained in ARTICLE
VIII of the Credit Agreement with respect to the Local Currency Advances made
pursuant to this Addendum which Guaranty remains in full force and effect
SECTION 4.05. SHARING OF PAYMENTS, ETC. If any Local Currency
Bank shall obtain any payment (whether voluntary, involuntary, through the
exercise of any right of set-off, or otherwise) on account of the Local
Currency Advances made by it (other than pursuant to SECTION 2.08, 2.12 or
2.17 of the Credit Agreement) in excess of its ratable share of payments on
account of the Local Currency Advances obtained by all the Local Currency
Banks, such Local Currency Bank shall forthwith purchase from the other Local
Currency Banks such participations in the Local Currency Advances made by
them as shall be necessary to cause such purchasing Local Currency Bank to
share the excess payment ratably with each of them, PROVIDED, HOWEVER, that
if all or any portion of such excess payment is thereafter recovered from
such purchasing Local Currency Bank, such purchase from each Local Currency
Bank shall be rescinded and such Local Currency Bank shall repay to the
purchasing Local Currency Bank the purchase price to the extent of such
recovery together with an amount equal to such Local Currency
5
<PAGE>
Bank's ratable share (according to the proportion of (i) the amount of such
Local Currency Bank's required repayment to (ii) the total amount so
recovered from the purchasing Local Currency Bank) of any interest or other
amount paid or payable by the purchasing Local Currency Bank in respect of
the total amount so recovered. Each Borrower agrees that any Local Currency
Bank so purchasing a participation from another Local Currency Bank pursuant
to this SECTION 4.05 may, to the fullest extent permitted by law, exercise
all its rights of payment (including the right of set-off) with respect to
such participation as fully as if such Local Currency Bank were the direct
creditor of such Borrower in the amount of such participation.
SECTION 4.06. APPLICABLE LAW. THIS ADDENDUM SHALL BE GOVERNED BY
AND INTERPRETED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK.
SECTION 4.07. ELIGIBLE LOCAL CURRENCY BANKS. Each Local Currency
Bank confirms that on the date of this Addendum it is an Eligible Local
Currency Bank, and agrees that it will promptly notify the Local Currency
Agent, the Agent and the Company if at any time in the future it determines
that it has ceased to be an Eligible Local Currency Bank.
SECTION 4.08 EXECUTION IN COUNTERPARTS. This Addendum may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
ARTICLE V
THE LOCAL CURRENCY AGENT
SECTION 5.01 APPOINTMENT; NATURE OF RELATIONSHIP. Citisecurities
Limited (ACN 008 489 610) is appointed by the Local Currency Banks as the
Local Currency Agent hereunder, and each of the Local Currency Banks
irrevocably authorizes the Local Currency Agent to act as the contractual
representative of such Local Currency Bank with the rights and duties
expressly set forth herein and in the Credit Agreement applicable to the
Local Currency Agent. The Local Currency Agent agrees to act as such
contractual representative upon the express conditions contained in this
ARTICLE V. Notwithstanding the use of the defined term "Local Currency
Agent," it is expressly understood and agreed that the Local Currency Agent
shall not have any fiduciary responsibilities to any Local Currency Bank or
other Bank by reason of this Addendum and that the Local Currency Agent is
merely acting as the representative of the Local Currency Banks with only
those duties as are expressly set forth in this Addendum and the Credit
Agreement. In its capacity as the Local Currency Banks'
6
<PAGE>
contractual representative, the Local Currency Agent (i) does not assume any
fiduciary duties to any of the Banks, (ii) is a "representative" of the Local
Currency Banks within the meaning of Section 9-105 of the Uniform Commercial
Code and (iii) is acting as an independent contractor, the rights and duties
of which are limited to those expressly set forth in this Addendum and the
Credit Agreement. Each of the Banks agrees to assert no claim against the
Local Currency Agent on any agency theory or any other theory of liability
for breach of fiduciary duty, all of which claims each Bank waives.
SECTION 5.02 POWERS. The Local Currency Agent shall have and may
exercise such powers under this Addendum and the Credit Agreement as are
specifically delegated to the Local Currency Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Local Currency Agent shall have no implied duties or fiduciary duties to the
Banks, or any obligation to the Banks to take any action hereunder or under
the Credit Agreement except any action specifically provided by this Addendum
or the Credit Agreement required to be taken by the Local Currency Agent.
SECTION 5.03 GENERAL IMMUNITY. Neither the Local Currency Agent nor
any of its respective directors, officers, agents or employees shall be
liable to any of the Borrowers or any Bank for any action taken or omitted to
be taken by it or them hereunder or under the Credit Agreement or in
connection herewith or therewith except to the extent such action or inaction
is found in a final non-appealable judgment by a court of competent
jurisdiction to have arisen solely from the gross negligence or willful
misconduct of such Person.
SECTION 5.04 NO RESPONSIBILITY FOR ADVANCES, CREDITWORTHINESS,
COLLATERAL, RECITALS, ETC. Neither the Local Currency Agent nor any of its
respective directors, officers, agents or employees shall be responsible for
or have any duty to ascertain, inquire into, or verify (i) any statement,
warranty or representation made in connection with this Addendum or any
borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of any obligor under this Addendum; (iii) the
satisfaction of any condition specified in ARTICLE IV to the Credit
Agreement; (iv) the existence or possible existence of any Default or Event
of Default or (v) the validity, effectiveness or genuineness of the Credit
Agreement, this Addendum, or any other instrument or writing furnished in
connection therewith. The Local Currency Agent shall not be responsible to
any Bank for any recitals, statements, representations or warranties herein
or in the Credit Agreement, for the perfection or priority of any of the
Liens on any of the Collateral, or for the execution, effectiveness,
genuineness, validity, legality, enforceability, collectibility, or
sufficiency of this Addendum or the transactions
7
<PAGE>
contemplated hereby or thereby, or for the financial condition of the Company
or any of its Subsidiaries.
SECTION 5.05 ACTION ON INSTRUCTIONS OF LOCAL CURRENCY LENDERS. The
Local Currency Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder and under the Credit Agreement in
accordance with written instructions signed by Local Currency Banks with not
less than 51% of the Local Currency Commitments (except with respect to
actions that require the consent of all of the Banks as provided in SECTION
9.01 of the Credit Agreement), and such instructions and any action taken or
failure to act pursuant thereto shall be binding on all of the Banks. The
Local Currency Agent shall be fully justified in failing or refusing to take
any action hereunder and under the Credit Agreement unless it shall first be
indemnified to its satisfaction by the Banks pro rata against any and all
liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
SECTION 5.06 EMPLOYMENT OF AGENTS AND COUNSEL. The Local Currency
Agent may execute any of its duties hereunder and under the Credit Agreement
by or through employees, agents, and attorneys-in-fact, and shall not be
answerable to the Banks, except as to money or securities received by it or
its authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Local Currency
Agent shall be entitled to advice of counsel concerning the contractual
arrangement among the Local Currency Agent and the Banks, as the case may be,
and all matters pertaining to its duties hereunder and under the Credit
Agreement.
SECTION 5.07 RELIANCE ON DOCUMENTS; COUNSEL. The Local Currency Agent
shall be entitled to rely upon any Note, notice, consent, certificate,
affidavit, letter, telegram, statement, paper or document believed by it to
be genuine and correct and to have been signed or sent by the proper person
or persons, and, in respect to legal matters, upon the opinion of counsel
selected by the Local Currency Agent, which counsel may be employees of the
Local Currency Agent.
SECTION 5.08 THE LOCAL CURRENCY AGENT'S REIMBURSEMENT AND
INDEMNIFICATION. The Local Currency Banks agree to reimburse and indemnify
the Local Currency Agent ratably in proportion to their respective Local
Currency Commitments (i) for any amounts not reimbursed by the Borrowers for
which the Local Currency Agent is entitled to reimbursement or
indemnification by the Borrowers hereunder or under the Credit Agreement,
(ii) for any other expenses incurred by the Local Currency Agent on behalf of
the Local Currency Banks, in connection with the preparation, execution,
delivery, administration and enforcement of the Addendum including as a
result of a dispute among the Local Currency Banks
8
<PAGE>
or between any Local Currency Bank and the Agent or the Local Currency Agent,
and (iii) for any liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind and
nature whatsoever which may be imposed on, incurred by or asserted against
the Local Currency Agent in any way relating to or arising out of the
Addendum, the Credit Agreement or any other document delivered in connection
therewith or the transactions contemplated hereby or thereby, or the
enforcement of any of the terms thereof or of any such other documents,
including as a result of a dispute among the Banks or between any Bank and
the Agent or the Local Currency Agent, provided that no Bank shall be liable
for any of the foregoing to the extent any of the foregoing is found in a
final non-appealable judgment by a court of competent jurisdiction to have
arisen solely from the gross negligence or willful misconduct of the Local
Currency Agent.
SECTION 5.09 RIGHTS AS A BANK. With respect to its Commitment, Local
Currency Commitment, Advances made by it, and any Notes issued to it in its
individual capacity, the Local Currency Agent shall have the same rights and
powers hereunder and under the Credit Agreement as any Bank and may exercise
the same as through it were not the Local Currency Agent, and the term "Bank"
or "Banks" or "Local Currency Bank" or "Local Currency Banks", as applicable,
shall, unless the context otherwise indicates, include the Local Currency
Agent in its individual capacity. The Local Currency Agent may accept
deposits from, lend money to, and generally engage in any kind of trust,
debt, equity or other transaction, in addition to those contemplated by this
Addendum or the Credit Agreement, with the Company or any of its Subsidiaries
in which such Person is not prohibited hereby from engaging with any other
Person.
SECTION 5.10 BANK CREDIT DECISION. Each Local Currency Bank
acknowledges that it has, independently and without reliance upon the Local
Currency Agent or any other Local Currency Bank and based on the financial
statements prepared by the Company and the Borrowers and such other documents
and information as it has deemed appropriate, made its own credit analysis
and decision to enter into this Addendum and the Credit Agreement. Each
Local Currency Bank also acknowledges that it will, independently and without
reliance upon the Local Currency Agent or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this
Addendum and the Credit Agreement.
SECTION 5.11 SUCCESSOR LOCAL CURRENCY AGENT. The Local Currency Agent
may resign at any time by giving written notice thereof to the Agent, the
Local Currency Banks and the Company. Upon any such resignation, the
Majority Local Currency Banks, with the consent of the Agent, shall have the
right to appoint, on
9
<PAGE>
behalf of the Borrowers and the Banks, a successor Local Currency Agent. If
no successor Local Currency Agent shall have been so appointed by the
Majority Local Currency Banks and shall have accepted such appointment within
thirty days after the retiring Local Currency Agent's giving notice of
resignation, then the retiring Local Currency Agent may appoint, on behalf of
the Borrowers and the Banks, a successor Local Currency Agent.
Notwithstanding anything herein to the contrary, so long as no Default or
Event of Default has occurred and is continuing, each such successor Local
Currency Agent shall be subject to approval by the Company, which approval
shall not be unreasonably withheld. Such successor Local Currency Agent shall
be a commercial bank having capital and retained earnings of at least
$250,000,000. Upon the acceptance of any appointment as the Local Currency
Agent hereunder by a successor Local Currency Agent, such successor Local
Currency Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Local Currency Agent,
and the retiring Local Currency Agent shall be discharged from its duties and
obligations hereunder and under the Credit Agreement. After any retiring
Local Currency Agent's resignation hereunder as Local Currency Agent, the
provisions of this ARTICLE V shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Local Currency Agent hereunder and under the Credit Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Addendum to
be duly executed as a deed by their duly authorized officers, all as of the
date and year first above written.
Executed as a deed.
ECOLAB INC.
By: /s/ Daniel J. Schmechel
-----------------------------------
Name: Daniel J. Schmechel
Title: Assistant Treasurer
SIGNED, SEALED AND DELIVERED BY Daniel J.
Schmechel as attorney for Ecolab Finance PTY
Limited (ACN 082 979 655) under power of attorney
dated June 19, 1998 in the presence of
/s/ Kenneth A. Iverson
--------------------------------------
Witness
Kenneth A. Iverson
--------------------------------------
Name
1565 Red Cedar Rd., Eagan, MN 55121
--------------------------------------
Address
Attorney
--------------------------------------
Occupation
/s/ Daniel J. Schmechel
--------------------------------------
By executing this deed the attorney states that
the attorney has received no notice of revocation
of the power of attorney
S-1
<PAGE>
CITIBANK, N.A., as the Agent
By: /s/ Laura S. Siracuse
Name: Laura S. Siracuse
Title: Attorney-In-Fact
S-2
<PAGE>
CITISECURITIES LIMITED (ACN 008 489
610), as the Local Currency Agent
By: /s/ Celle Raguine By: /s/ Shane Taylor
Name: Celle Raguine Name: Shane Taylor
Title: Assistant Vice President Title: Vice President
S-3
<PAGE>
CITIBANK, N.A.
By: /s/ Laura A. Siracuse
Name: Laura A. Siracuse
Title: Attorney-In-Fact
S-4
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ Robert Bottamedi
Name: Robert Bottamedi
Title: Vice President
S-5
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ J. Garland Smith
Name: J. Garland Smith
Title: Managing Director
S-6
<PAGE>
CREDIT SUISSE FIRST BOSTON
By: /s/ Joel Glodowski
Name: Joel Glodowski
Title: Managing Director
By: /s/ David W. Kratovil
Name: David W. Kratovil
Title: Director
S-7
<PAGE>
SCHEDULE I
to Local Currency Addendum
Local Currency Banks
Local Currency Commitments
Local Currency Facility Aggregate Commitment
Applicable Lending Office
<TABLE>
<CAPTION>
Local Currency
Local Currency Bank Name Commitment
------------------------ ------------------
<S> <C>
Citibank, N.A. US $ 53,000,000*
Morgan Guaranty Trust Company
of New York US $ 47,000,000*
The First National Bank of
Chicago US $ 43,000,000*
Credit Suisse First Boston US $ 33,000,000*
Local Currency Facility
Aggregate Commitment US $176,000,000**
</TABLE>
* Less, in each case, the Local Currency Advances outstanding from such
Local Currency Bank under the Ecolab PTY Addendum.
** Less the aggregate Local Currency Advances outstanding under the Ecolab
PTY Addendum.
<TABLE>
<CAPTION>
Applicable Local
Currency Lending
Local Currency Bank Name Office
- ------------------------ ----------------
<S> <C>
Citibank, N.A. Level 10, Citibank Centre
(ARBN 072 814 058) 1 Margaret Street
Sydney, New South Wales
Attention: Vice President,
Corporate Finance
Telecopy No.: 612-9262-2520
Morgan Guaranty Trust 1 O'Connell Street
Company of New York Sydney, New South Wales
Attention: Grant Bolam
Telecopy No.: 612-9551-6359
The First National Bank Level 32, 60 Margaret Street
of Chicago Sydney 2001
Attention: William Giffen
Telecopy No.: 612-9223-1823
<PAGE>
Credit Suisse First Boston 101 Collins Street, Level 27
Melbourne, Victoria 3000
Attention: Malcolm White,
Head of Credit
Administration
Telecopy No.: 613-965-33-444
</TABLE>
S-2
<PAGE>
SCHEDULE II
to Local Currency Addendum
MODIFICATIONS
1. BUSINESS DAY DEFINITION:
"BUSINESS DAY" shall mean a day (other than a Saturday or Sunday) on
which banks are open for business in New York and Sydney. (See definition
of "Business Day" and Section 1.01 of Credit Agreement)
2. INTEREST PAYMENT DATES: Interest shall be paid on the last day of each
Interest Period for Local Currency Advances. (See Section 2.07(d) of
Credit Agreement).
3. INTEREST PERIODS: Each Interest Period for a BBSY Advance shall be a period
of 30, 60, 90, 120, 150 or 180 days as selected by the Company, and each
Interest Period for a Money Market Rate Advance shall be a period of 1 or 7
days as selected by the Company. (See definition of "Interest Period",
Section 1.01 and Section 2.07(d) of Credit Agreement).
4. INTEREST RATES:
(a) FIXED RATE LOCAL CURRENCY ADVANCES DENOMINATED IN AUSTRALIAN
DOLLARS: Each Local Currency Advance denominated in Australian Dollars
and for which an Interest Period has been selected in accordance with the
terms of Article II of the Credit Agreement and this Addendum shall bear
interest from and including the first day of the Interest Period applicable
thereto to (but not including) the last day of such Interest Period at a
rate per annum equal to the sum of (i) in the case of a BBSY Advance, (A)
the BBSY Bid Rate for such Local Currency Advance for such Interest Period
PLUS (B) the Applicable Margin as in effect from time to time during such
Interest Period; and (ii) in the case of a Money Market Rate Advance, (A)
the Money Market Rate for such Local Currency Advance for such Interest
Period plus (B) the Applicable Margin as in effect from time to time during
such period; PROVIDED, HOWEVER, that any amount of principal which is not
paid when due (whether at stated maturity, by acceleration or otherwise)
shall bear interest, from the date on which such amount is due until such
amount is paid in full, payable on demand, at all times equal to 2% per
annum above the sum of the BBSY Bid Rate with a 30 day Interest Period (or
such other period as the Local Currency Agent may select) PLUS the
Applicable Margin. Computations of interest
S-1
<PAGE>
shall be made on the basis of a year of 365 or 366 days as the case may be,
for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable.
(See Section 2.07(d) of Credit Agreement).
(b) FLOATING RATE LOCAL CURRENCY ADVANCES DENOMINATED IN AUSTRALIAN
DOLLARS: There is no separate Floating Rate Advance interest rate option
under this Addendum. Whenever under the Credit Agreement an Advance
hereunder is required to be a Floating Rate Advance, and in each case in
which no Interest Period has been selected in accordance with the terms of
Article II of the Credit Agreement and this Addendum, the applicable Local
Currency Advance shall bear interest as provided in paragraph (a)(i) of
this Section 4 and have an Interest Period of 30 days (or if an Event of
Default is outstanding or a Floating Rate Advance is required by SECTION
2.13, such other number of days as specified by the Local Currency Agent).
For purposes of SECTION 2.10 of the Credit Agreement, a Local Currency
Advance bearing interest under this Section 4(b) shall be eligible for
Conversion into a Fixed Rate Local Currency Advance and shall for this
purpose be a "Type" of Local Currency Advance. In addition, for purposes
of SECTION 9.04(b) of the Credit Agreement, a Local Currency Advance
bearing interest under this Section 4(b) shall be treated as a Fixed Rate
Advance.
5. APPLICABLE MARGIN.
"APPLICABLE MARGIN" for each Floating Rate and Fixed Rate Local Currency
Advance made pursuant to this Addendum, shall be determined, in a manner
consistent with the textual provisions of SECTION 2.07(c) of the Credit
Agreement, by reference to the following:
<TABLE>
<CAPTION>
Applicable Margin
Credit Rating (Rate per annum)
------------- -----------------
<S> <C>
A or better (S&P) OR
A2 or better (Moody's) 0.21%
Below A (S&P) and A2
(Moody's) but
A- (S&P) OR A3 (Moody's) 0.22%
Below A- (S&P) and A3 (Moody's)
but
BBB+ (S&P) OR Baa1 (Moody's) 0.265%
Below BBB+ (S&P) and Baa1 (Moody's)
but
S-2
<PAGE>
BBB (S&P) OR Baa2 (Moody's) 0.32%
Below BBB (S&P) and Baa2 (Moody's)
but
BBB- (S&P) AND Baa3 (Moody's) 0.405%
Below BBB- (S&P) OR Baa3 (Moody's) 0.555%
</TABLE>
If, on the first day of the Interest Period for any Local Currency Advance,
the Company shall not have Credit Ratings from both S&P and Moody's, the
Credit Ratings of the Company for purposes of this Addendum shall be deemed
to be below BBB- (S&P) and below Baa3 (Moody's) during such period. In
addition, and notwithstanding the foregoing chart, if the Credit Rating of
the Company from S&P is more than one level higher or lower than the
equivalent Credit Rating from Moody's at such time, then the Applicable
Fixed Rate Margin shall be determined as if the applicable Credit Rating of
the Company from each of S&P and Moody's were one level higher than the
lower of the two Credit Ratings. (See Section 2.07(d) of Credit
Agreement).
6. MODIFICATIONS TO INTEREST PERIOD SELECTION/CONVERSION CONTAINED IN SECTION
2.10:
Notice of Conversion/continuation shall be given by the Borrowing
Subsidiary as follows:
Not later than 10:00 a.m (Sydney time) two (2) Business Days prior to the
proposed commencement of the Interest Period pursuant to a continuation or
Conversion. (See Section 2.10 of Credit Agreement).
7. OTHER:
The provisions of SECTIONS 2.09(c) and (d) shall not apply to Local
Currency Advances under this Local Currency Addendum.
Termination Date for Addendum: The "Termination Date" under the Credit
Agreement.
Prepayment Notices: The Borrowing Subsidiary or the Company, as
applicable, shall be permitted to prepay a Local Currency Advance on the
last day of its then current Interest Period, and subject to the provisions
of Section 9.04(b), on any other Business Day, provided, in the case of any
prepayment of a BBSY Advance, notice thereof is given to the Local Currency
Agent not later than 10:00 a.m. (Sydney time) at least five (5) Business
Days prior to the date of such prepayment. (See Section 2.11 of Credit
Agreement).
S-3
<PAGE>
SCHEDULE III
to Local Currency Addendum
OTHER PROVISIONS
1. BORROWING PROCEDURES:
(a) Notice of Borrowing shall be given by the Borrowing Subsidiary or the
Company, as applicable, to the Local Currency Agent as follows:
Not later than 10:00 a.m (Sydney time) two (2) Business Days prior to
the date of the proposed Borrowing. A Notice of Borrowing may also be
given before 8:00 a.m. (Sydney time) with respect to BBSY Advances, or
10:30 a.m. (Sydney time) with respect to Money Market Rate Advances on
the date of a proposed Borrowing; PROVIDED that any such Notice of
Borrowing shall have on its heading: "URGENT-SAME DAY VALUE DRAWDOWN",
and shall be faxed, in addition to the Local Currency Agent, to
Citibank, N.A. (Sydney branch), Operations Division, fax no.
612-9239-9193, Attention: Trevor Dutton; and PROVIDED FURTHER, that,
as a matter of precatory intent, and not as a condition to its use,
the Borrowing Subsidiary and Company shall endeavor to minimize the
use of this same day option. (See Section 2.02B(a) of Credit
Agreement).
(b) Each Notice of Borrowing shall be addressed to the Local Currency
Agent at its address set forth in SECTION 4.03 and shall specify the bank
account to which the Local Currency Advances are to be made. Each Notice
of Borrowing requesting a Borrowing on the date of such Notice shall also
be addressed to each Local Currency Bank at its address set forth in
SCHEDULE I and shall specify each Local Currency Bank's pro rata share of
the proposed Borrowing.
2. FUNDING ARRANGEMENTS:
Minimum amounts of Borrowings and increments for Local Currency Advances,
repayments and prepayments: $2,000,000 with increments of $1,000,000 (See
Section 2.01(b) of Credit Agreement).
3. PROMISSORY NOTES: [None required]
4. FUNDING:
S-1
<PAGE>
Cleared funds to be made available by Local Currency Bank to Local Currency
Agent by 12:00 (noon) on the date of each Local Currency Borrowing. (See
Section 2.02B(b) of Credit Agreement).
5. ELIGIBILITY CRITERIA FOR LOCAL CURRENCY BANKS:
To be an Eligible Local Currency Bank, a Local Currency Bank must:
(i) be either (A) a resident of Australia or (B) a non-resident carrying
on business in Australia through a permanent establishment in Australia, in
either case, that will make Local Currency Advances from its Australian
office or branch; and
(ii) be obligated to include interest received on any Local Currency
Advance in its assessable income by reason of carrying on business in
Australia through a permanent establishment in Australia for purposes of the
Income Tax Assessment Act 1936 (Cth) or any other legislation introduced in
conjunction with the taxation laws improvement program in Australia.
6. BILL RELIQUIFICATION OPTION.
(a) Each of the Company and the Borrowing Subsidiary agrees that Local
Currency Bank may draw Bills on its behalf in the manner required by the
Local Currency Bank. The face value of those Bills, when added to the
aggregate face value of all other Bills drawn under this clause in respect
of that Local Currency Bank and which are outstanding, shall not exceed the
amount of the Local Currency Bank's outstanding BBSY Advances in favor of
the Company or the Borrowing Subsidiary, as applicable. A Bill's maturity
date must not exceed the end of the Interest Period for the Local Currency
Advance in respect of which such Bill was drawn. In calculating the
aggregate face value of Bills which a Local Currency Bank is entitled to
have drawn under this clause, the aggregate face value of Bills drawn by a
Borrower under this clause in respect of any other Local Currency Bank is
to be disregarded.
(b) Each of the Company and the Borrowing Subsidiary appoints each
Authorised Officer of the Local Currency Bank as its attorney to draw Bills
in its name or on its behalf under paragraph (a) and agrees to ratify all
action properly taken by each Authorised Officer of the Local Currency Bank
as its attorney under this paragraph.
(c) The authority to permit Bills to be drawn under paragraph (a) and the
appointment under paragraph (b) will cease and be revoked without necessity
for notice on payment by the Company and the Borrowing Subsidiary of all
amounts owing to the Local Currency Bank under the Local Currency Addendum
and cancellation
S-2
<PAGE>
and termination of this Local Currency Addendum. Nothing in paragraphs (a)
or (b) requires the Company or the Borrowing Subsidiary or authorises the
Local Currency Bank or its attorney to draw a Bill which matures after the
Termination Date under the Local Currency Addendum.
(d) Each Local Currency Bank must pay any stamp duty costs or bank fees in
relation to or in respect to any Bills drawn by it on behalf of the Company
or the Borrowing Subsidiary and any dealing with such Bills.
(e) (i) Each Local Currency Bank indemnifies the Borrowing Subsidiary and
Company against any claim, action, damage, loss, liability, costs,
charge, expense, outgoing or payment which the Borrowing Subsidiary or
Company suffers, incurs or is liable for in respect of:
(A) the Company, Borrowing Subsidiary or Local Currency Bank as
authorised under section 6(b) drawing or endorsing a Bill at the
request of such Local Currency Bank; or
(B) the Company or Borrowing Subsidiary being a party to a Bill
at the request of such Local Currency Bank.
(ii) The indemnity of each Local Currency Bank contained in section
6(e)(i):
(A) is a continuing obligation of such Local Currency Bank;
(B) is an additional, separate and independent obligation of
such Local Currency Bank; and
(C) survives the termination of the Addendum and the payment of
any Bill drawn at the request of such Local Currency Bank.
(f) If the Borrowing Subsidiary or Company discharges by payment any Bill,
then (but without prejudice to any other right of the Borrowing Subsidiary
or Company), on the date of payment, the amount of that payment is regarded
as applied against any Local Currency Advance under the Addendum in respect
of which the Bill was drawn, and the obligation of the Borrowing Subsidiary
or Company is accordingly reduced. This section 6(f) applies
notwithstanding any contrary provision in the Credit Agreement.
(g) Each Local Currency Bank that utilises this section 6 represents and
warrants that the holder of any Bill drawn by it on behalf of the Company
or the Borrowing Subsidiary will have
S-3
<PAGE>
no rights under the Credit Agreement or under the Local Currency Addendum.
(h) For the purposes of this section 6 of Schedule II:
(i) Bill has the same meaning as in the BILL OF EXCHANGE ACT, 1909
(Cwth) and a reference to the drawing, acceptance or endorsement of,
or other dealing with, a Bill is to be interpreted in accordance with
that Act;
(ii) Authorised Officer means in the case of a Local Currency Bank, a
director, secretary or an officer whose title contains the word vice
president, or a person performing the functions of any of them; and
(iii) Company means Ecolab Inc., but only to the extent that it is a
Borrower under this Local Currency Addendum.
S-4
<PAGE>
NON-STATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of this 20th day of
February, 1998 (the "Date of Grant"), by and between Ecolab Inc. (the
"Company") and ALLAN L. SCHUMAN (the "Optionee").
A. The Company has adopted the Ecolab Inc. 1997 Stock Incentive Plan
(the "Plan") authorizing the Board of Directors of the Company, or a
committee as provided for in the Plan (the Board or such a committee to be
referred to as the "Committee"), to grant non-statutory stock options to
employees of the Company and its Subsidiaries (as defined in the Plan).
B. The Company desires to give the Optionee an inducement to acquire a
proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of common stock of the Company pursuant to the Plan.
Accordingly, the parties agree as follows:
ARTICLE 1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right, privilege, and
option (the "Option") to purchase SEVEN HUNDRED FIFTEEN THOUSAND (715,000)
shares (the "Option Shares") of the Company's common stock, $1.00 par value
(the "Common Stock"), according to the terms and subject to the conditions
hereinafter set forth and as set forth in the Plan. The Option is not
intended to be an "incentive stock option," as that term is used in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE 2. OPTION EXERCISE PRICE.
The per share price to be paid by Optionee in the event of an exercise
of the Option will be $49.00.
ARTICLE 3. DURATION OF OPTION AND TIME OF EXERCISE.
3.1 INITIAL PERIOD OF EXERCISABILITY. The Option will be exercisable
as to 100% of the Option Shares beginning on the third anniversary of the
Date of Grant. This Option will remain exercisable as to all unexercised
Option Shares until 5:00 p.m. (St. Paul, Minnesota time) on the date that is
five years and three months following the Date of Grant ("Time of
Termination").
<PAGE>
3.2 TERMINATION OF EMPLOYMENT OR OTHER SERVICE.
(a) In the event that the Optionee's employment or other service with
the Company and all Subsidiaries is terminated by reason of the Optionee's
death or Disability (as defined in the Plan), this Option will become
immediately exercisable in full and will remain exercisable for a period of
five years after such termination (but in no event will this Option be
exercisable after the Time of Termination).
(b) In the event that the Optionee's employment or other service with
the Company and all Subsidiaries is terminated by reason of the Optionee's
Retirement (as defined in the Plan), this Option will remain exercisable to
the extent exercisable as of such termination for a period of five years
after such termination (but in no event will this Option be exercisable after
the Time of Termination).
(c) In the event the Optionee's employment or other service with the
Company and all Subsidiaries is terminated for any reason other than death,
Disability or Retirement, all rights of the Optionee under the Plan and this
Agreement will immediately terminate without notice of any kind, and this
Option will no longer be exercisable; provided, however that if such
termination is due to any reason other than termination by the Company or any
Subsidiary for "cause" (as defined in the Plan), this Option will remain
exercisable to the extent exercisable as of such termination for a period of
three months after such termination (but in no event will this Option be
exercisable after the Time of Termination).
(d) A change in the Optionee's status from that of an employee of the
Company or any Subsidiary to that of a non-employee consultant or advisor of
the Company or any Subsidiary will, for purposes of the Plan, be deemed to
result in a termination of the Optionee's employment with the Company and its
Subsidiaries, unless the Committee otherwise determines in its sole
discretion.
3.3 CHANGE IN CONTROL. If any events constituting a Change in Control
(as defined in the Plan) of the Company will occur, then this Option, if it
has been outstanding for at least six months from the Date of Grant, will
become immediately exercisable in full and will remain exercisable in
accordance with the terms of this Agreement.
3.4 BREACH OF CONFIDENTIALITY OR NONCOMPETE AGREEMENTS.
Notwithstanding anything in this Agreement to the contrary, in the event that
the Optionee 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 the Optionee's employment
with the Company or any Subsidiary, the Committee in its sole discretion may
immediately terminate all rights of the Optionee under the Plan and this
Agreement without notice of any kind.
ARTICLE 4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in whole or
in part from time to time, subject to the conditions contained in the Plan
and in this Agreement, by delivery,
2
<PAGE>
in person, by facsimile or electronic transmission or through the mail, to
the Company at its principal executive office in St. Paul, Minnesota
(Attention: Vice President-Human Resources), of a written notice of
exercise. Such notice will be in a form satisfactory to the Committee, will
identify the Option, will specify the number of Option Shares with respect to
which the Option is being exercised, and will be signed by the person or
persons so exercising the Option. Such notice will be accompanied by payment
in full of the total purchase price of the Option Shares purchased. In the
event that the Option is being exercised, as provided by the Plan and Section
3.2 above, by any person or persons other than the Optionee, the notice will
be accompanied by appropriate proof of right of such person or persons to
exercise the Option. As soon as practicable after the effective exercise of
the Option, the Optionee will be recorded on the stock transfer books of the
Company as the owner of the Option Shares purchased, and the Company will
deliver to the Optionee one or more duly issued stock certificates evidencing
such ownership. In the event that the Option is being exercised, as provided
by resolutions of the Committee and Section 4.2 below, by tender of a Broker
Exercise Notice, the Company will deliver such stock certificates directly to
the Optionee's broker or dealer or their nominee.
4.2 PAYMENT. At the time of exercise of this Option, the Optionee will
pay the total purchase price of the Option Shares to be purchased solely in
cash (including a check, bank draft or money order, payable to the order of
the Company); provided, however, that the Committee, in its sole discretion,
may allow such payment to be made, in whole or in part, by tender of a Broker
Exercise Notice, Previously Acquired Shares or by a combination of such
methods. For purposes of this Agreement, the terms "Broker Exercise Notice"
and "Previously Acquired Shares" will have the meanings set forth in the
Plan. In the event the Optionee is permitted to pay the total purchase price
of this Option in whole or in part with Previously Acquired Shares, the value
of such shares will be equal to their Fair Market Value on the date of
exercise of this Option.
ARTICLE 5. NONTRANSFERABILITY.
Neither this Option nor the Option Shares acquired upon exercise may be
transferred by the Optionee, either voluntarily or involuntarily, or
subjected to any lien, directly or indirectly, by operation of law or
otherwise, except as provided in the Plan. Any attempt to transfer or
encumber this Option or the Option Shares other than in accordance with this
Agreement and the Plan will be null and void and will void this Option.
ARTICLE 6. LIMITATION OF LIABILITY.
Nothing in this Agreement will be construed to (a) limit in any way the
right of the Company to terminate the employment or service of the Optionee
at any time, or (b) be evidence of any agreement or understanding, express or
implied, that the Company will retain the Optionee in any particular
position, at any particular rate of compensation or for any particular period
of time.
3
<PAGE>
ARTICLE 7. WITHHOLDING TAXES.
7.1 GENERAL RULES. The Company is entitled to (a) withhold and deduct
from future wages of the Optionee (or from other amounts which may be due and
owing to the Optionee from the Company), or make other arrangements for the
collection of, all legally required amounts necessary to satisfy any federal,
state or local withholding and employment-related tax requirements
attributable to the grant or exercise of this Option or otherwise incurred
with respect to this Option, or (b) require the Optionee promptly to remit
the amount of such withholding to the Company before acting on the Optionee's
notice of exercise of this Option. In the event that the Company is unable
to withhold such amounts, for whatever reason, the Optionee hereby agrees to
pay to the Company an amount equal to the amount the Company would otherwise
be required to withhold under federal, state or local law.
7.2 SPECIAL RULES. The Committee may, in its sole discretion and upon
terms and conditions established by the Committee, permit or require the
Optionee to satisfy, in whole or in part, any withholding or tax obligation
as described in Section 7.1 above by electing to tender Previously Acquired
Shares or a Broker Exercise Notice, or by a combination of such methods.
ARTICLE 8. ADJUSTMENTS.
In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off), or any other change in the corporate structure or
shares of the Company, the Committee (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation), in order to prevent dilution or enlargement of the rights of
the Optionee, will make appropriate adjustment (which determination will be
conclusive) as to the number, kind and exercise price of securities subject
to this Option.
ARTICLE 9. SUBJECT TO PLAN.
The Option and the Option Shares granted and issued pursuant to this
Agreement have been granted and issued under, and are subject to the terms
of, the Plan. The terms of the Plan are incorporated by reference in this
Agreement in their entirety, and the Optionee, by execution of this
Agreement, acknowledges having received a copy of the Plan. The provisions
of this Agreement will be interpreted as to be consistent with the Plan, and
any ambiguities in this Agreement will be interpreted by reference to the
Plan. In the event that any provision of this Agreement is inconsistent with
the terms of the Plan, the terms of the Plan will prevail.
ARTICLE 10. MISCELLANEOUS.
10.1 BINDING EFFECT. This Agreement will be binding upon the heirs,
executors, administrators and successors of the parties to this Agreement.
4
<PAGE>
10.2 GOVERNING LAW. This Agreement and all rights and obligations under
this Agreement will be construed in accordance with the Plan and governed by
the laws of the State of Minnesota without regard to conflicts of laws
provisions. Any legal proceedings related to this Agreement will be brought
in an appropriate Minnesota court, and the parties to this Agreement consent
to the exclusive jurisdiction of the court for this purpose.
10.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the entire
agreement and understanding of the parties to this Agreement with respect to
the grant and exercise of this Option and the administration of the Plan and
supersede all prior agreements, arrangements, plans and understandings
relating to the grant and exercise of this Option and the administration of
the Plan.
10.4 AMENDMENT AND WAIVER. Other than as provided in the Plan, this
Agreement may be amended, waived, modified or canceled only by a written
instrument executed by the parties hereto or, in the case of a waiver, by the
party waiving compliance.
The parties to this Agreement have executed this Agreement effective the
day and year first above written.
ECOLAB INC.
By: /s/ Diana Doshon Lewis
Its Vice President, Human Resources
-----------------------------------
[By execution of this OPTIONEE
Agreement, the Optionee
acknowledges having
received a copy of /s/ Allan L. Schuman
the Plan.] --------------------------------------
(Signature)
Allan L. Schuman
9349 Olympia Dr.
Eden Prairie, MN 55347
SSN: ###-##-####
5
<PAGE>
Exhibit (15)
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 10549
RE: Ecolab Inc. Registration Statements on Form S-8
(Registration Nos. 2-60010; 2-74944; 33-1664;
33-41828; 2-90702; 33-18202; 33-55986; 33-56101
33-26241; 33-34000; 33-56151; 333-18627; 33-39228
33-56125; 33-60266; 33-65364; 33-59431; 333-18617;
333-21167; 333-35519; 333-40239 and 333-50969) and
Ecolab Inc. Registration Statements on Form S-3
(Registration Nos. 333-14771 and 333-45295)
We are aware that our report dated July 21, 1998, on our reviews of interim
financial information of Ecolab Inc. for the periods ended June 30, 1998 and
1997, and included in the Company's quarterly report on Form 10-Q for the
quarter ended June 30, 1998, is incorporated by reference in these
registration statements. Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the registration
statements prepared or certified by us within the meaning of Sections 7 and
11 of that Act.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Saint Paul, Minnesota
August 12, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE RELATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE SIX MONTH PERIOD THEN ENDED
AND IS QUALIFIED BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 27,242
<SECURITIES> 0
<RECEIVABLES> 259,420
<ALLOWANCES> 11,637
<INVENTORY> 153,275
<CURRENT-ASSETS> 499,269
<PP&E> 833,363
<DEPRECIATION> 436,905
<TOTAL-ASSETS> 1,398,811
<CURRENT-LIABILITIES> 412,760
<BONDS> 240,382
0
0
<COMMON> 143,210
<OTHER-SE> 423,898
<TOTAL-LIABILITY-AND-EQUITY> 1,398,811
<SALES> 904,822
<TOTAL-REVENUES> 904,822
<CGS> 406,025
<TOTAL-COSTS> 406,025
<OTHER-EXPENSES> 381,337
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 12,581
<INCOME-PRETAX> 106,654
<INCOME-TAX> 44,764
<INCOME-CONTINUING> 68,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,277
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.51
<FN>
<F1>The Amount Of "Loss Provision" Is Not Significant And Has Been Included In
"Other Expenses".
</FN>
</TABLE>
