Notes to Consolidated Financial Statements

NOTE 10. STOCK INCENTIVE AND OPTION PLANS

The company's stock incentive and option plans provide for grants of stock options, stock awards and other incentives. Common shares available for grant as of December 31 were 4,216,012 for 2004, 8,674,459 for 2003 and 12,305,052 for 2002. Common shares available for grant reflect 12 million shares approved by shareholders during 2002 for issuance under the plans.

Options may be granted to purchase shares of the company's stock at not less than fair market value at the date of grant. Options granted in 2004, 2003 and 2002 generally become exercisable over three years from date of grant and expire within ten years from date of grant. A summary of stock option activity and average exercise prices is as follows:

Shares	2004	2003	2002
Granted	4,876,408	4,765,823	4,912,674
Exercised	(3,625,117)	(6,383,227)	(4,432,722)
Canceled	(386,512)	(379,634)	(1,473,670)
December 31:      Outstanding	22,732,505	21,867,726	23,864,764
Exercisable	15,332,623	12,823,743	14,444,562

Average exercise price per share	2004	2003	2002
Granted	$ 33.49	$ 27.18	$ 24.24
Exercised	16.55	19.84	10.27
Canceled	24.81	21.87	21.08
December 31:      Outstanding	24.20	20.87	19.35
Exercisable	$ 21.31	$ 17.96	$ 17.77

Information related to stock options outstanding and stock options exercisable as of December 31, 2004, is as follows:

Options Outstanding
Range of   Exercise   Prices	Options Outstanding	Weighted-Average Remaining Contractual Life	Weighted- Average Exercise Price
$ 5.80 - $10.95	1,175,852	1.8 years	$   9.15
$13.45 - $18.96	3,683,114	6.3 years	18.35
$19.27 - $23.90	4,352,780	5.4 years	19.83
$24.04 - $24.90*	4,295,281	7.9 years	24.35
$25.21 - $27.39*	4,729,364	9.0 years	27.31
$28.70 - $35.07*	4,493,892	9.9 years	34.03
$37.07 - $93.42*	2,222	4.1 years	$ 53.36

*Includes 15,872 shares of Ecolab's common stock subject to stock options which Ecolab assumed in connection with the acquisition of Alcide Corporation in June 2004.

Options Exercisable
Range of   Exercise   Prices	Options Exercisable	Weighted- Average Exercise Price
$ 5.80 - $10.95	1,175,852	$   9.15
$13.45 - $18.96	3,683,114	18.35
$19.27 - $23.90	4,294,623	19.78
$24.04 - $24.90*	3,078,127	24.36
$25.21 - $27.39*	2,255,193	27.33
$28.70 - $35.07*	843,492	33.00
$37.07 - $93.42*	2,222	$ 53.36

*Includes 15,872 shares of Ecolab's common stock subject to stock options which Ecolab assumed in connection with the acquisition of Alcide Corporation in June 2004.

The weighted-average grant-date fair value of options granted in 2004, 2003 and 2002, and the significant assumptions used in determining the underlying fair value of each option grant, on the date of grant, utilizing the Black-Scholes option-pricing model, were as follows:

	2004	2003	2002
Weighted-average grant-date fair      value of options granted at      market prices	$9.45	$7.85	$7.10
Assumptions      Risk-free interest rate	3.8%	3.5%	3.6%
Expected life	6 years**	6 years	6 years
Expected volatility	25.5%	26.8%	26.5%
Expected dividend yield	1.0%	1.2%	1.1%

**Reload options were also granted during 2004 with a weighted-average expected life of 3.5 years.

The expense associated with shares of restricted stock issued under the company's stock incentive plan is based on the market price of the company's stock at the date of grant and is amortized on a straight-line basis over the periods during which the restrictions lapse. The company currently has restricted stock outstanding that vests over periods between 18 and 48 months. Stock awards are not performance based and vest with continued employment. Stock awards are subject to forfeiture in the event of termination of employment. The company granted 13,550 shares in 2004, 10,500 shares in 2003 and 67,200 shares in 2002 under its restricted stock award program.

The company uses the intrinsic value-based method of accounting to measure compensation expense for its stock incentive and option plans. See Note 2 to the consolidated financial statements for the pro forma net income and related basic and diluted per common share amounts had the company used the fair value-based method of accounting to measure compensation expense. Effective with third quarter 2005, the company expects to adopt SFAS No. 123R and its requirements to expense the fair value of its stock options, barring further rulings.