Note 9 Incentive Plans and Stock Options

At December 31, 2000, the 1992 Praxair Long-Term Incentive Plan (the "1992 Plan") and the 1996 Praxair, Inc. Performance Incentive Plan (the "1996 Plan") provide for granting of nonqualified or incentive stock options, stock grants, performance awards, and other stock-related incentives for key employees. On February 21, 2001, the Board of Directors terminated the 1996 Plan effective on February 28, 2001 and adopted the 2002 Praxair, Inc. Long-Term Incentive Plan (the "2002 Plan"), effective January 1, 2002.

Under the 1992 Plan, which expires on December 31, 2001, the total number of shares available for options or stock grants in each calendar year may not exceed one percent of the number of shares outstanding on the first day of each year, plus any shares that were available but not used in a prior year up to two percent of the total number of shares outstanding on the first day of the year of the grant. Exercise prices for Incentive Stock Options must be equal to the closing price of Praxair's common stock on the date of the grant. The options issued under the 1992 Plan become exercisable only after one or more years, and the option term can be no more than ten years.

Under the 1996 Plan, before being terminated effective on February 28, 2001, the number of shares of stock available for options or share grants in each calendar year was limited to a percentage of the total number of shares of common stock outstanding. The provisions of the 1996 Plan governing the granting and administration of stock options are identical to those in the 1992 Plan.

Under the 2002 Plan, the number of shares available for option or stock grants is limited to a total of 7,900,000 shares for the ten-year term of the Plan. The 2002 Plan provides for the granting of only nonqualified and incentive stock options, stock grants and performance awards and further provides that the aggregate number of shares granted as restricted stock or pursuant to performance awards may not exceed 20% of the total shares available under the Plan. The 2002 Plan also provides calendar year per-participant limits on grants of options, restricted stock and performance awards. Exercise prices for options granted under the 2002 Plan may not be less than the closing market price of the Company's common stock on the date of grant and granted options may not be repriced or exchanged without shareholder approval. Options granted under the 2002 Plan become exercisable after a minimum of one year and have a maximum duration of 10 years. Both officer and non-officer employees are eligible for awards under the 2002 Plan.

Effective January 1, 1997, Praxair initiated a three-year long-term incentive program by granting performance share equivalents and stock options to corporate officers and other key employees under the applicable Incentive Plan. Because Praxair's average annual earnings per share growth for the three year performance period was 10.7% versus the 15% target established for this program, 71.1% of the performance share equivalents or 652,421 share equivalents vested on January 1, 2000, according to a pre-determined formula. Vested performance share equivalents were distributed primarily in shares of Praxair, Inc. common stock in March 2000. Pre-tax compensation expense related to this plan totaled $33 million ($10 million in 1999, $8 million in 1998 and $15 million in 1997).

The following table summarizes the changes in outstanding shares under option and performance share equivalents for 2000, 1999, and 1998 (options in thousands):

(a) The weighted-average price per share on the date performance share equivalents were granted was $50.26 in 1998 and $46.25 in 1997.

(b) The following table summarizes information about options outstanding and exercisable at December 31, 2000 (options in thousands, life in years):

Pro forma information:
SFAS No. 123 requires Praxair to disclose pro forma net income and pro forma earnings per share amounts as if compensation expense was recognized for options granted after 1994. Using this approach, pro forma net income and the related basic and diluted earnings per share amounts would be as follows:

The weighted average fair value of options granted during 2000 was $15.46 ($13.80 in 1999 and $12.57 in 1998). These values, which were used as a basis for the pro forma disclosures, were estimated using the Black-Scholes Options-Pricing Model with the following weighted average assumptions used for grants in 2000, 1999, and 1998:

These pro forma disclosures may not be representative of the effects for future years since options vest over several years, and additional awards generally are made each year.