Abbott Mgt. Incentive Plan

Adopted by the Board of Directors on December 13,
1985. Amended by the Board of Directors on
3/14/86, 12/11/87, 4/14/89, 2/8/91, 4/10/92,
9/10/93 and 12/1/96.


1986
ABBOTT LABORATORIES
MANAGEMENT INCENTIVE PLAN


SECTION 1
INTRODUCTION


1.1 BACKGROUND AND PURPOSES. This 1986 ABBOTT LABORATORIES MANAGEMENT INCENTIVE PLAN (the "Plan") is a successor Plan to the 1961, 1971 and 1981 Management Incentive Plans (the "Predecessor Plans"). This Plan is being established by ABBOTT LABORATORIES ("Abbott") for the following purposes:
(a) To provide greater incentive for participants in the Plan to attain
and maintain the highest standards of managerial performance by
rewarding them for services rendered with compensation, in addition to
their base salaries, in proportion to the success of Abbott and to the
participants' respective contribution to such success; and


(b) To attract and retain in the employ of Abbott and its subsidiaries
persons of outstanding competence.


1.2 EFFECTIVE DATE AND FISCAL YEAR. The Plan shall be effective as of January 1, 1986. The term "fiscal year," as used in this Plan, means the fiscal period from time to time employed by Abbott for the purpose of reporting earnings to shareholders.
1.3 ADMINISTRATION. The Plan will be administered by the Compensation Committee (the "Committee") appointed by the Board of Directors of Abbott.
SECTION 2
ELIGIBILITY AND PARTICIPATION


2.1 PERSONS ELIGIBLE FOR PARTICIPATION. Participation in the Plan will be limited to those Officers and managerial employees of Abbott and its subsidiaries who, from time to time, shall be selected as participants by the Committee.


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2.2 PARTICIPANTS. The term "participant," as used in the Plan, shall include both active participants and inactive participants.
2.3 ACTIVE PARTICIPANTS. For each fiscal year, there shall be a group of active participants which, except as provided below, shall not exceed forty-five persons and shall consist of those persons eligible for participation who shall have been designated as active participants and notified of that fact by the Committee at any time before or during the fiscal year. If, as a result of the growth of Abbott and its subsidiaries or changes in Abbott's organization, the Board of Directors deems it appropriate, the Board of Directors may, in its discretion, from time to time, increase the number of persons who may be designated as active participants for any fiscal year beyond the limit of forty-five persons provided for above. Selection as an active participant for any fiscal year shall not confer upon any person a right to be an active participant in any subsequent fiscal year, nor shall it confer upon him the right to receive any allocation under the Plan, other than amounts allocated to him by the Committee pursuant to the Plan, and all such allocations shall be subject to all of the terms and conditions of the Plan.
2.4 INACTIVE PARTICIPANTS. Inactive participants shall consist of those persons, including beneficiaries of deceased participants, if any, for whom an allocation shall have been made for a prior fiscal year under this Plan or a Predecessor Plan, the payment of which was deferred and remains unpaid. Status as an inactive participant shall not preclude a person from also being an active participant during any fiscal year.


SECTION 3
MANAGEMENT INCENTIVE PLAN FUND


3.1 BASE FOR MANAGEMENT INCENTIVE PLAN FUND. The "base earnings" for determining whether any portion of consolidated net income for any fiscal year may be allocated to the Management Incentive Plan Fund for such year shall be that amount of consolidated net income (as defined in subsection 3.2) which is equal to 15 percent of the Abbott Common Shareholder's Equity for such fiscal year. For this purpose, "Abbott Common Shareholders' Equity" for any
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fiscal year shall mean the Shareholders' Investment, as reflected in the consolidated balance sheet of Abbott as of the close of the next preceding fiscal year, plus or minus such adjustments thereof as may be determined by the Committee in order to reflect:
(a) The existence, issuance, sale, exchange, conversion or retirement of
any securities, other than common shares, of Abbott (whether involving
preferred stock, debt, convertible preferred stock or convertible debt
securities); and


(b) The issuance or retirement of any common shares or any changes in
accounting methods or period adopted by Abbott since the close of such
next preceding fiscal year.


Any adjustments to be made in accordance with (a) and (b) above in determining Abbott Common Shareholders' Equity for any fiscal year shall be determined by the Committee after consultation with Abbott's independent auditors, and any determination made by the Committee after such consultation shall be conclusive upon all persons.
3.2 CONSOLIDATED NET INCOME. For the purposes of this Plan, for any fiscal year or period, the "consolidated net income" shall be the consolidated net income of Abbott and its subsidiaries, prepared in accordance with generally accepted accounting principles, consistently applied, after provision for any interest accrued with respect to such period on account of deferred payments under this Plan or a Predecessor Plan, but before allowances for any amount to be allocated to the Management Incentive Plan Fund, both net of applicable income taxes, and after such adjustments for the following, as may be determined by the Committee after consultation with Abbott's independent auditors (all net of applicable income taxes):
(a) The exclusion of any charges for amortization of goodwill arising out
of acquisitions made for securities which, as a result of adjustments
made in determining Abbott Common Shareholders' Equity pursuant to
subsection 3.1, are treated as common share equivalents; and


(b) The exclusion of any interest on debt securities which are convertible
into common shares of Abbott and which shall have been considered as
common share equivalents in determining Abbott
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Common Shareholders' Equity pursuant to subsection 3.1 hereof; and


(c) The deduction of any dividend requirement for preferred shares which
has not been considered as common share equivalents in determining
Common Shareholders' Equity pursuant to subsection 3.1 hereof.


In the sole discretion of the Committee there shall also be excluded in the calculation of "consolidated net income" unusual gains and losses and the tax effects thereof, changes in generally accepted accounting principles and the tax effects thereof and extraordinary gains and losses.
3.3 DETERMINATION OF MANAGEMENT INCENTIVE PLAN AMOUNT FOR ANY YEAR. For each fiscal year that consolidated net income exceeds base earnings, and as soon as practicable after ascertainment of that fact, the Committee shall determine a tentative amount as the Management Incentive Plan Amount for that year, which tentative amount shall not exceed the lesser of:
(a) an amount which, when treated as an expense currently deductible for
income tax purposes in such year, would cause a 5 percent reduction in
such year's excess of consolidated net income over the base earnings
for such year; and


(b) an amount which, when treated as an expense currently deductible for
income tax purposes in such year, would cause a 1-1/2 percent
reduction in such year's consolidated net income; and


(c) an amount which equals 100 percent of the aggregate base salaries of
all active participants for such year.


For purposes of the Plan "base salary" means the amount of salary paid to each active participant by Abbott and its subsidiaries for such year, and does not include bonuses, awards, or any other compensation of any kind. Following determination of such tentative Management Incentive Plan Amount, the Committee shall report in writing the amount of such tentative amount to the Board of Directors. At the meeting of the Board of Directors coincident with or next following receipt by it of the Committee's determination, the Board of Directors shall have the power to approve or
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reduce, but not to increase, the tentative amount reported to it by the Committee. The amount approved by the Board of Directors shall be the Management Incentive Plan Amount for such year.
3.4 THE MANAGEMENT INCENTIVE PLAN FUND. The Management Incentive Plan Fund at any time shall consist of an amount equal to the aggregate of the Management Incentive Plan Amounts established pursuant to subsection 3.3 of this Plan for all fiscal years during which this Plan shall have been operative, plus the amounts established as Management Incentive Plan Amounts for any prior fiscal year pursuant to a Predecessor Plan, reduced by an amount equal to the aggregate of the amounts of awards which shall have been allocated to participants in accordance with this Plan or a Predecessor Plan, and which awards either have been paid or remain payable to participants or their beneficiaries.


SECTION 4
ALLOCATION OF MANAGEMENT INCENTIVE FUND


4.1 ANNUAL ALLOCATION OF MANAGEMENT INCENTIVE FUND. As soon as practicable after the close of each fiscal year, part or all of the amount then in the Management Incentive Plan Fund (including the Management Incentive Plan Amount for such fiscal year) will be allocated by the Committee among active participants in the Plan for such fiscal year, having due regard for the purposes for which the Plan was established, in the following manner and order:
(a) First, if the Chairman of the Board of Abbott shall be an active
participant for such year, the members of the Committee, other than
the Chairman of the Board, shall determine the amount, if any, to be
allocated to the Chairman of the Board from such Fund for such year;
and


(b) Next, all or a part of the balance of such Fund may be allocated among
the active participants (other than the Chairman of the Board) for
such year, in such amounts and proportions as the Committee shall
determine.


provided, however, that the amount allocated to any active participant for any year shall not exceed 125 percent of such participants' base salary for that year.


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4.2 COMMITTEE'S DISCRETION IN ALLOCATIONS. In making any allocations in accordance with subsection 4.1 for any year, the discretion of the Committee shall be absolute, and no active participants for any year, by reason of their designation as such, shall be entitled to any particular amounts or any amount whatsoever.


SECTION 5
PAYMENT OF AMOUNTS ALLOCATED TO PARTICIPANTS


5.1 TIME OF PAYMENT. For fiscal years beginning after December 31, 1988, a participant shall direct the payment or deferral of an allocation made to him pursuant to subsection 4.1 (subject to such conditions relating to the right of the participant to receive Payment of such amount as established by the Committee) by one or more of the following methods:
(a) current payment in cash to the participant;


(b) current payment of a portion of the allocation in cash for the
participant directly to a "Grantor Trust" established by the
participant, provided such trust is in a form which the Committee
determines is substantially similar to the trust attached to this
Plan as Exhibit A; and current payment of the balance of the
allocation in cash directly to the participant, provided that the
payment made directly to the participant shall approximate the
aggregate federal, state and local individual income taxes
(determined in accordance with subsection 6.7) attributable to
the allocation paid pursuant to this paragraph (b); or


(c) deferral of payment until such time and in such manner as
determined in accordance with subsection 5.11.


A participant shall make the preceding direction within 30 days of the date he is notified of his eligibility to participate in the Plan. A participant may change such direction with respect to any future allocation, provided that the change is made prior to the beginning of the fiscal year to which such allocation relates. Payment of a participant's allocation for the 1988 fiscal year and of any allocations deferred under the Plan prior to such year shall be made in accordance with the provisions of either or both of paragraphs (a) and (b) above. The Committee shall establish and
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maintain a Trust Account in accordance with subsection 5.2 and for purposes of subsection 5.4, shall treat such payment as if it were an allocation made for that fiscal year.
5.2 SEPARATE ACCOUNTS. The Committee will maintain two separate Accounts, a "Deferred Account" and a "Trust Account," in the name of each participant. The Deferred Account shall be comprised of any allocations the payment of which is deferred pursuant to subsection 5.1(c) and any adjustments made pursuant to subsection 5.3. The Trust Account shall be comprised of any allocations paid in cash to a participant (including amounts paid to a participant's Grantor Trust) pursuant to subsection 5.1(b) and any adjustments made pursuant to subsection 5.4.
5.3 ADJUSTMENT OF DEFERRED ACCOUNTS. As of the end of each fiscal year, the Committee shall adjust each participant's Deferred Account as follows:
(a) FIRST, charge an amount equal to any payments made to the
participant during that year pursuant to subsections 5.11 or
5.12;


(b) NEXT, credit an amount equal to the allocation for that year that
is deferred pursuant to subsection 5.1(c); and


(c) FINALLY, credit an amount equal to the Interest Accrual earned
for that year pursuant to subsection 5.5.


5.4 ADJUSTMENT OF TRUST ACCOUNTS. As of the end of each fiscal year, the Committee shall adjust each participant's Trust Account as follows:
(a) FIRST, charge an amount equal to the product of: (i) any
payments made to the participant during that year from the
participant's Grantor Trust (other than distributions of trust
earnings in excess of the Net Interest Accrual authorized by the
administrator of the trust to provide for the Tax Gross Up under
subsection 6.6); multiplied by (ii) a fraction, the numerator of
which is the balance in the participant's Trust Account as of the
end of the prior fiscal year and the denominator of which is the
balance of the participant's Grantor Trust (as determined by the
administrator of the trust) as of that same date;


(b) NEXT, credit an amount equal to the allocation for that year that
is paid to the Participant (including the amount paid to
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the participant's Grantor Trust) pursuant to subsection 5.l(b);
and


(c) FINALLY, credit an amount equal to the Interest Accrual earned
for that Year pursuant to subsection 5.5.


5.5 INTEREST ACCRUALS ON ACCOUNTS. As of the end of each fiscal year, a participant's Deferred Account and Trust Account shall be credited with interest equal to: (a) the average of the prime rates of interest charged by the two largest banks located in the City of Chicago on loans made by them as of January 1 and the end of each month of the fiscal year; plus (b) two hundred twenty-five (225) basis points. Such interest shall be credited on the conditions established by the Committee, provided that any allocation of an award from the Management Incentive Plan Fund shall be considered to have been made and credited to a participant's Deferred Account and Trust Account as of the first day of the fiscal year in which such award is made regardless of the date upon which the Committee actually makes the determination to award such allocation.
5.6 GUARANTEED RATE PAYMENTS. In addition to any allocation made to a participant for any fiscal year pursuant to subsection 4.1 which is paid or deferred pursuant to subsection 5.1, Abbott shall also make a payment to a participant's Grantor Trust (a "Guaranteed Rate Payment") for any year in which the net earnings of such trust do not equal or exceed the participant's Net Interest Accrual for that year. A participant's "Net Interest Accrual" for a year is an amount equal to: (a) the Interest Accrual credited to the participant's Trust Account for that year; less (b) the product of (i) the amount of such Interest Accrual, multiplied by (ii) the aggregate of the federal, state and local individual income tax rates (determined in accordance with subsection 6.7). The Guaranteed Rate Payment shall equal the difference between the participant's Net Interest Accrual and the net earnings of the participant's Grantor Trust for the year, and shall be paid within 90 da ...