1999 ECOLAB INC.
MANAGEMENT PERFORMANCE INCENTIVE PLAN
1. PURPOSE OF PLAN.
The purpose of the 1999 Ecolab Inc. Management Performance Incentive
Plan (the "Plan") is to advance the interests of Ecolab Inc. (the "Company") and
its stockholders by enabling the Company and its Subsidiaries to attract and
retain key executives of outstanding ability, by focusing such key executives on
pre-established, objective performance goals and by providing such key
executives with opportunities to earn financial rewards based on the achievement
of such performance goals. The Plan is intended to constitute a qualified
performance-based compensation plan under Section 162(m)(4)(C) of the Internal
Revenue Code of 1986, as amended (the "Code") and shall be administered and
interpreted so as to ensure such compliance.
2. DEFINITIONS.
For the purposes of the Plan, the following terms will have the
meanings set forth below, unless the context clearly otherwise requires:
2.1 "AWARD" means a right granted to a Participant pursuant to
Section 5 of the Plan to receive a cash payment from the Company (or a
Subsidiary) based upon the extent to which the Participant's Performance
Goal(s) are achieved during the relevant Performance Period and subject to
the Committee's discretion pursuant to Section 3.1.
2.2 "BOARD" means the Board of Directors of the Company.
2.3 "CODE" is defined in Section 1 of the Plan.
2.4 "COMMITTEE" is defined in Section 3 of the Plan.
2.5 "COMPANY" is defined in Section 1 of the Plan.
2.6 "COVERED EMPLOYEE" means an individual who with respect to a
Performance Period is a "covered employee" within the meaning of Section
162(m)(3) of the Code.
2.7 "DISABILITY" means the disability of the Participant such as would
entitle the Participant to receive disability income benefits pursuant to the
long-term disability plan of the Company or Subsidiary then covering the
Participant or, if no such plan exists or is applicable to the Participant, a
determination by the Committee that the Participant is permanently and totally
disabled within the meaning of Section 22(e)(3) of the Code.
2.8 "EXECUTIVE OFFICER" means an executive officer of the Company
within the meaning of Rule 3b-7 under the Securities Exchange Act of 1934, as
amended.
2.9 "GAAP" means generally accepted accounting principles set forth in
the opinions, statements and pronouncements of the Financial Accounting
Standards Board, United States (or predecessors or successors thereto or
agencies with similar functions), or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination and in any event applied in a manner consistent with the
application thereof used in the preparation of the Company's financial
statements.
2.10 "PARTICIPANT" means an Executive Officer of the Company to whom an
Award is granted by the Committee under the Plan.
2.11 "PERFORMANCE GOAL" means a performance objective established by
the Committee for a particular Participant for a Performance Period pursuant to
Section 5 of the Plan for the purpose of determining the extent to which an
Award has been earned for such Performance Period. Each Performance Goal will
consist of (a) "PERFORMANCE CRITERIA," as defined in Section 5.2 of the Plan,
which are one or more objectively determinable measures related to individual,
business unit or Company performance, and (b) a "PERFORMANCE TARGET," which is
the level at which the relevant Performance Criteria must be achieved for
purposes of determining whether a cash payment is to be made under an Award,
which may be stated as a threshold level below which no payment will be made, a
maximum level at or above which full payment will be made and intermediate
targets which will result in payment between such threshold and maximum level.
2.12 "PERFORMANCE PERIOD" means a Plan Year or, for an Executive
Officer who is first hired as an Executive Officer after the first day of the
Plan Year and who becomes a Participant during the Plan Year, such portion of
the Plan Year as determined by the Committee.
2.13 "PLAN" is defined in Section 1 of the Plan.
2.14 "PLAN YEAR" means the fiscal year of the Company.
2.15 "RETIREMENT" means termination of employment at an age and length
of service such that the Participant would be eligible to an immediate
commencement of benefit payments under the Company's defined benefit pension
plan available generally to its employees, whether or not such individual
actually elects to commence such payments (provided that if the Participant is
not covered by the Company's defined benefit pension plan the Participant will
be deemed to be covered by such plan for purposes of this Plan).
2.16 "SUBSIDIARY" means any entity that is directly or indirectly
controlled by the Company, as determined by the Committee.
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3. PLAN ADMINISTRATION.
3.1 THE COMMITTEE. The Plan will be administered by a committee
appointed by the Board consisting solely of two or more directors, each of whom
is an "outside director" within the meaning of Section 162(m)(4)(C)(i) of the
Code (the "Committee"). In accordance with and subject to the provisions of the
Plan, the Committee will have full authority and discretion with respect to
Awards made under the Plan, including without limitation the following: (a)
selecting the Executive Officers to be Participants; (b) establishing the terms
of each Award; (c) determining the time or times when Awards will be granted;
and (d) establishing the restrictions and other conditions to which the payment
of Awards may be subject. The Committee will have no authority under the Plan to
amend or modify, in any manner, the terms of any outstanding Award; provided,
however, that (x) the Committee shall have the authority provided for in Section
3.2 of the Plan; and (y) the Committee shall have the authority to reduce or
eliminate the compensation or other economic benefit due pursuant to an Award
upon the attainment of one or more Performance Goals included in such Award.
Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan will be conclusive and binding
for all purposes and on all persons, and no member of the Committee will be
liable for any action or determination made in good faith with respect to the
Plan or any Award granted under the Plan.
3.2 ADJUSTMENTS. In the event of (a) any merger, reorganization,
consolidation, recapitalization, liquidation, reclassification, stock dividend,
stock split, combination of shares, rights, offering, extraordinary dividend
(including a spin-off) or other similar change affecting the Company's shares,
(b) any purchase, acquisition, sale or disposition of a significant amount of
assets other than in the ordinary course of business, or of a significant
business, (c) any change resulting from the accounting effects of discontinued
operations, extraordinary income or loss, changes in accounting as determined
under GAAP, or restatement of earnings or (d) any charge or credit resulting
from an item which is classified as "non-recurring," "restructuring," or similar
unusual item on the Company's audited annual Statement of Income which, in the
case of (a) - (d), results in a change in the components of the calculations of
any of the Performance Criteria, as established by the Committee, in each case
with respect to the Company or any other entity whose performance is relevant to
the achievement of any Performance Goal included in an Award, the Committee (or,
if the Company is not the surviving corporation in any such transaction, a
committee of the board of directors of the surviving corporation consisting
solely of two or more "outside directors" within the meaning of Section
162(m)(4)(C)(i) of the Code) shall, without the consent of any affected
Participant, amend or modify the terms of any outstanding Award that includes
any Performance Goal based in whole or in part on the financial performance of
the Company (or any Subsidiary or division thereof) or such other entity so as
equitably to reflect such event or events, such that the criteria for evaluating
such financial performance of the Company or such other entity (and the
achievement of the corresponding Performance Goal) will be substantially the
same (as determined by the Committee or the committee of the board of directors
of the surviving corporation) following such event as prior to such event;
provided, however, that the Committee shall not take any action pursuant to this
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Section which would constitute an impermissible exercise of discretion pursuant
to Section 162(m) of the Code.
4. PARTICIPATION.
The Participants for any Performance Period shall be those Executive
Officers who are granted Awards by the Committee under the Plan for such
Performance Period.
5. GRANT OF AWARDS.
5.1 NATURE OF AWARDS. An Award granted under the Plan shall provide for
a cash payment to be made solely on account of the attainment of one or more
pre-established, objective Performance Goals included in such Award, subject to
the Committee's authority pursuant to Sections 3 and 10 of the Plan.
5.2 PERFORMANCE CRITERIA. Performance Criteria which the Committee may
include in Awards made under the Plan include the following measurements, or
changes in such measurements between different Plan Years (or combination
thereof) as applied to the Company as a consolidated entity or, except as to
Diluted Earnings Per Share, a business division or business or staff unit
thereof:
(a) "DILUTED EARNINGS PER SHARE" ("EPS") means net income (loss) per
common share, diluted, as reported in the Company's audited year-end
Consolidated Statement of Income ("Statement of Income") for the Plan
Year;
(b) "OPERATING INCOME" means "operating income" as reported or included
in the Company's Statement of Income;
(c) "NET SALES" means "net sales" as reported or included in the
Company's Statement of Income;
(d) "DAYS SALES OUTSTANDING" ("DSO") means the 12 point average of
month-end DSO numbers, and month-end DSO numbers shall mean monthly
performance for days sales invested in trade accounts receivable,
determined by using the "exhaustion method" ;
(e) "CAPITAL EXPENDITURES" means "capital expenditures" reported or
included in the Company's year-end audited Consolidated Statement of
Cash Flows for the Plan year;
(f) "INVENTORY DAYS ON HAND" ("DOH") means, by category of inventory,
the average of the 12 month-end DOH numbers, and the month-end DOH
numbers shall mean, by category of inventory, (i) inventory on hand at
standard cost, divided by (ii) cost of goods at standard cost based on
either forecasted requirements or historical shipments;
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(g) "CONTROLLABLE EXPENSES" means expenses under the control of the
Participant;
(h) "RETURN ON BEGINNING EQUITY" means net income (loss) as reported or
included in the Company's Statement of Income divided by beginning of
the year "shareholders equity" as reported or included in the Company's
year-end audited financial statements for the Plan year; and
(i) "RETURN ON NET ASSETS" means (i) Operating Income, less income
taxes at the applicable effective rate, divided by (ii) total assets
less cash and cash equivalents, investments is securities and
non-interest bearing liabilities as reported or included in the
Company's year-end audited financial statements for the Plan year,
including footnotes.
5.3 ESTABLISHMENT OF PERFORMANCE GOALS. Not later than 90 days after
the commencement of the Plan Year (or such earlier date as may be required
pursuant to Section 162(m) of the Code) the Committee shall determine in writing
for each Participant:
(a) the Performance Goal(s) for the Participant, including in each case
one or more of the Performance Criteria set forth in Section 5.2 of the
Plan and the Performance Target for each Performance Criteria;
(b) if more than one Performance Goal is specified for a Participant,
the relative weight assigned to each Performance Goal; and
(c) the cash award expressed as threshold, maximum and intermediate
percentages of the base salary for the Participant for the Performance
Period, ranging from 10% to 250% of such base salary to be received by
the Participant to the extent such Performance Goals are achieved,
provided that the Committee shall also place a maximum dollar amount on
such cash award which may not exceed $2.5 million.
For an Executive Officer who is first hired as an Executive Officer and
who becomes a Participant after the first day of the Plan Year, the Performance
Goals shall be established by the Committee as set forth in this Section within
the time period permitted by Section 162(m) of the Code.
6. PAYMENT OF AWARDS.
As soon as practicable after the Committee has received the appropriate
financial and other data after the end of a Plan Year, the Committee will for
each Participant certify in writing the extent to which the applicable
Performance Goals for such Participant have been met and the corresponding
amount of the Award earned by such Participant. Payment of each Award in a cash
lump sum, less applicable withholding taxes pursuant to Section 8 of the Plan,
shall be
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made as soon as practicable thereafter. Notwithstanding anything in the
Plan to the contrary, no payment made pursuant to any Award in respect of any
Performance Period shall exceed $2.5 million. If the Committee determines in
good faith that there is a reasonable likelihood that any compensation paid or
payable to a Participant by the Company or a Subsidiary pursuant to the Plan for
a Plan Year would not be deductible by the Company or the Subsidiary solely by
reason of the limitation under Section 162(m) of the Code, the Committee may
defer all or a portion of the amounts otherwise payable pursuant to the Plan to
the extent deemed necessary by the Committee to ensure that the entire amount of
any distribution to such Participant is deductible. If so determined by the
Committee, such deferred amounts, when paid to the Participant, may be
accompanied by interest at a reasonable rate (as determined by the Committee).
7. EFFECT OF TERMINATION OF EMPLOYMENT.
7.1 TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT. In the event a
Participant's employment with the Company and all Subsidiaries is terminated by
reason of death, Disability or Retirement during a Performance Period, the
Participant (or the Participant's estate) (subject to the Committee's discretion
as allowed by clause (y) of Section 3.1 of the Plan) shall be paid (pursuant to
Section 6 of the Plan after the completion of the Plan Year) a percentage of the
amount earned according to the terms of the Award equal to the portion of the
Performance Period through the Participant's death, Disability or Retirement, as
the case may be, as determined by the Committee.
7.2 TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR RETIREMENT.
In the event a Participant's employment is terminated with the Company and all
Subsidiaries prior to the end of the Performance Period for any reason other
than death, Disability or Retirement, or a Participant is in the employ of a
Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company (unless
the Participant continues in the employ of the Company or another Subsidiary),
the Participant's Award for such Performance Period shall be immediately
forfeited and the Participant shall have no right to any payment thereafter;
provided, however, that under such circumstances the Committee may pay the
Participant an amount not to exceed a percentage of the amount earned according
to the terms of the Award equal to the portion of the Performance Period through
the Participant's termination.
8. PAYMENT OF WITHHOLDING TAXES.
The Company is entitled to withhold and deduct from the payment made
pursuant to an Award or from future wages of the Participant (or from other
amounts that may be due and owing to the Participant from the Company or a
Subsidiary), or make other arrangements for the collection of, all legally
required amounts necessary to satisfy any and all federal, state and local
withholding and employment-related tax requirements attributable to any payment
made pursuant to an Award.
9. RIGHTS OF ELIGIBLE EXECUTIVE OFFICERS AND PARTICIPANTS; TRANSFERABILITY.
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9.1 EMPLOYMENT. Nothing in the Plan will interfere with or limit in any
way the right of the Company or any Subsidiary to terminate the employment or
otherwise modify the terms and conditions of the employment of any Executive
Officer or Participant at any time, nor confer upon any Executive Officer or
Participant any right to continue in the employ of the Company or any
Subsidiary.
9.2 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will or
the laws of descent and as otherwise expressly permitted by the Plan, no right
or interest of any Participant in an Award will be assignable or transferable,
or subjected to any lien, during the lifetime of the Participant, either
voluntarily or involuntarily, directly or indirectly, by operation of law or
otherwise.
9.3 NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to modify or rescind any previously approved compensation plans or
programs of the Company or any Subsidiary or create any limitations on the power
or authority of the Board or any committee thereof to adopt such additional or
other compensation arrangements as the Board or committee may deem necessary or
appropriate.
10. PLAN AMENDMENT, MODIFICATION AND TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at
any time, and may amend the Plan from time to time in such respects as the Board
may deem advisable in order that Awards under the Plan will conform to any
change in applicable laws or regulations or in any other respect the Board may
deem to be in the best interests of the Company; provided, however, that no
amendments to the Plan will be effective without the approval of the
stockholders of the Company if stockholder approval of the amendment is then
required for the Plan to continue to be a qualified performance-based
compensation plan pursuant to Section 162(m) of the Code. Any termination,
suspension or amendment of the Plan may adversely affect any outstanding Award
without the consent of the affected Participant.
11. UNFUNDED, UNSECURED OBLIGATION.
A Participant's only interest under the Plan shall be the right to
receive a cash payment under an Award pursuant to the terms of the Award and the
Plan (subject to the authority of the Committee pursuant to Sections 3 and 10 of
the Plan). No portion of the amount payable to Participants upon the achievement
of any Performance Goal therein shall be held by the Company or any Subsidiary
in trust or escrow or any other form of asset segregation. To the extent that a
participant acquires a right to receive such a cash payment under the Plan, such
right shall be no greater than the right of any unsecured, general creditor of
the Company.
12. EFFECTIVE DATE AND DURATION OF THE PLAN.
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The Plan, as amended and restated, was approved by the Board on
February 19, 1999, subject to the approval of the stockholders of the Company as
required by Section 162(m) of the Code. No benefits will be granted or amounts
will be paid pursuant to the Plan unless and until such approval of the Plan by
the stockholders of the Company. The Plan shall be effective for the Plan Year
beginning on January 1, 1999 and will remain in effect through and including the
Plan Year ending December 31, 2003. The Plan may be terminated at any time by
the Board. Any payments pursuant to Awards outstanding upon termination of the
Plan may continue to be made in accordance with the terms of the Awards, subject
to the authority of the Committee pursuant to Sections 3 and 10 of the Plan.
13. MISCELLANEOUS.
13.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the internal, substantive laws of the State of Minnesota, without regard to
the conflict of law rules of the State of Minnesota or any other jurisdiction.
13.2 SUCCESSORS. The Plan will be binding upon and inure to the benefit
of the successors of the Company and the Participants.
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