Document:

Exhibit 10.8

 

As Amended and Restated

Effective as of January 1, 2008

 

1998 PERFORMANCE INCENTIVE PLAN (PIP) RULES

409A DOCUMENT

 

The following rules shall govern the administration of the 1998
Abbott Laboratories Performance Incentive Plan (PIP) and any comparable
successor plan with respect to all amounts that are not Grandfathered Amounts.  Capitalized terms used but not otherwise
defined in these Rules shall have the meaning provided in the PIP.  These rules shall remain in effect until
amended by the Committee:

 

1.                       Fiscal Year. 
The term “fiscal year”, as used in the PIP, means the fiscal period from
time to time employed by Abbott for the purpose of reporting earnings to
shareholders.

 

2.                       Consolidated Net Income. 
“Consolidated Net Income” shall be the consolidated net income for such
fiscal year as stated in Abbott’s Audited Financial Statements.  Excluded from the calculation of consolidated
net income will be the effect of changes in GAAP and the tax effects thereon,
and extraordinary gains and loses and the tax effects thereon if presented in
the audited Consolidated Statement of Earnings.

 

3.                       Naming of Participants. 
For any fiscal year, all participants in the PIP must be named by the Committee
prior to the completion of the immediately preceding fiscal year.  A PIP participant may not be an active
participant in the MIP in the same fiscal year.

 

4.                       Inclusion in Pensionable Earnings. 
The full amount of any PIP award earned under Rule 5 will be
included in the participant’s pensionable earnings.

 

5.                       Time of Payment. 
Beginning with any award allocation paid after December 31, 1998, a
participant must direct payment or deferral of an allocation made to the participant
under the PIP by one or more of the following methods:

 

(a)                  In cash to the participant, which
payment shall be made no later than the last day of the “applicable 2 1⁄2 month
period”, as such term is defined in Treasury Regulation
§ 1.409A-1(b)(4)(i)(A);

 

(b)                 A portion in cash and deposited to a
grantor trust (the “Grantor Trust”) established by the participant (in a form
which the Committee determines is substantially similar to the trust in Exhibit A)
and the balance paid to the participant approximately equal to the participant’s
aggregate federal, state and local individual income and employment taxes;
provided that all payments or contributions 

 

 

to the Grantor Trust and
participant contemplated by this Section 5(b) shall be made no later
than the last day of the “applicable 2 1⁄2 month period”, as such term is defined
in Treasury Regulation § 1.409A-1(b)(4)(i)(A); or

 

(c)                 Deferral of payment until the time,
and in the manner determined in Rule 17.

 

Amounts paid under the PIP will
not be considered amounts paid under the MIP for purposes of subsections 3.3
and 3.4 and Section 4 of the MIP. 
The base salaries of PIP participants will not be considered for
determination of the MIP amount in subsection 3.3 of the MIP.

 

6.                       Time of Election.

 

(a)                  A participant must make the election
described in Rule 5 by filing it with the Committee before expiration of
the election period established by the Committee, which period shall end  no
later than December 31 of the fiscal year prior to the year during which
the performance incentive compensation is earned under the PIP.

 

(b)                 Notwithstanding the timing requirements
of Rule 6(a), an individual who newly becomes eligible to participate in
the PIP by being designated as a participant under Section 3.1 of the PIP
(and who was not eligible to participate in any other plan that would be
aggregated with the Plan under Treasury Regulation §1.409A-1(c)) may make the
an initial deferral election described in Rule 5 by filing it with the
Committee or its delegate within the thirty (30) day period immediately
following the date he or she first is designated as participant, provided,
that the compensation deferred pursuant to such election relates solely to
services performed after the date of such election.  For this purpose, an election shall be deemed
to apply to compensation paid for services performed after the election if the election
applies to no more than the amount prescribed by Treasury Regulation
§1.409A-2(a)(7)(i).

 

(c)                  Any election described in Rule 5
shall be irrevocable for the fiscal year to which the election applies.

 

7.                       Accounts. 
The Committee shall establish accounts for participants who have made
elections pursuant to Rule 5(b) or 5(c) as follows.

 

(a)                  The Committee will maintain a “Deferred
Account” in the name of each participant who has elected to defer payment of
all or a portion of his or her PIP award under Rule 5(c).  The Deferred Account shall consist of
allocations deferred according to Rule 5(c) and any adjustments made
in accordance with Rule 8.

 

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(b)                 The Committee will maintain two separate
Accounts, a “Pre-Tax Account” and an “After-Tax Account”, in the name of each
participant who has declined to defer allocations by electing to have a portion
of his or her PIP award deposited in cash to a Grantor Trust according to Rule 5(b).  The Pre-Tax Account shall consist of the
aggregate of all allocations contemplated by Rule 5(b), whether deposited
to the participant’s Grantor Trust or made in cash to the participant, and any
adjustments made in accordance with Rule 9.  The After-Tax Account shall consist of
allocations deposited to the participant’s Grantor Trust in cash according to Rule 5(b) and
any adjustments made in accordance with Rule 10.

 

8.                       Adjustment of Deferred Accounts. 
At the end of each fiscal year, a participant’s Deferred Account will be
adjusted as follows:

 

(a)                  First, reduced by an amount equal to
any distribution made to the participant during the year according to Rule 17
or Rule 18;

 

(b)                 Next, increased by an amount equal
to any allocation for that year that is deferred according to Rule 5(c);
and

 

(c)                  Last, increased by an amount equal
to the interest earned for that year according to Rule 11.

 

9.                       Adjustment of Pre-Tax Accounts. 
At the end of each fiscal year, a participant’s Pre-Tax Account will be
adjusted as follows:

 

(a)                  First, reduced, in any year in which
the participant is entitled to receive a distribution from his or her Grantor
Trust, by an amount equal to the distribution that would have been made to the
participant if the aggregate amounts allocated according to Rule 5(b) had
instead been deferred under Rule 5(c);

 

(b)                 Next, increased by an amount equal
to any allocation for that year that is paid to the participant (including the
amount paid to the participant’s Grantor Trust) according to Rule 5(b);
and

 

(c)                  Last, increased by an amount equal
to the interest earned for that year according to Rule 11.

 

10.                 Adjustment of After-Tax Accounts. 
At the end of each fiscal year, a participant’s After-Tax Account will
be adjusted as follows:

 

(a)                  First, reduced, in any year in which
the participant is in receipt of a distribution from his or her Grantor Trust,
by an amount calculated as provided in Rule 28 which represents the
distribution for such year;

 

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(b)                 Next, increased by an amount equal
to the allocation for that year that is deposited in the participant’s Grantor
Trust according to Rule 5(b); and

 

(c)                  Last, increased by an amount equal
to the interest earned for that year according to Rule 11.

 

11.                 Interest Accruals on Accounts.

 

(a)                  As of the end of each fiscal year, a
participant’s Deferred Account or Pre-Tax Account, as applicable, shall be
credited with interest (“Interest”) at the following rate:

 

(i)                                     the average of the “prime rate” of
interest  published by The Wall Street
Journal (Mid-West Edition) or comparable successor quotation service on the
first business day of January and the last business day of each month of
the fiscal year; plus

 

(ii)                                  two hundred twenty-five (225) basis
points.

 

(b)                 As of the end of each fiscal year, a
participant’s After-Tax Account shall be credited with the amount of Interest
set forth above, multiplied by the aggregate of the federal, state and local
individual income tax rates determined in accordance with Rule 26 (the “After-Tax
Interest”).

 

(c)                  The Interest and After-Tax Interest,
as applicable, shall be credited on the conditions established by the
Committee, provided that any award allocation shall be considered to have been
made and credited to a participant’s Account as of the first day of the fiscal
year in which the award is made.

 

12.                 Guaranteed Rate Payments. 
In addition to any allocation made to a participant for any fiscal year
in accordance with Rule 5(b), Abbott shall also make a payment to a
participant’s Grantor Trust (a “Guaranteed Rate Payment”) for each year in
which the Grantor Trust is in effect.  The
Guaranteed Rate Payment shall equal the excess, if any, of the participant’s
Net Interest Accrual (as defined below) over the net earnings of the
participant’s Grantor Trust for the year, and shall be paid within the thirty (30)
days beginning April 1 of the following fiscal year.  A participant’s Net Interest Accrual for a
year is an amount equal to the After-Tax Interest credited to the participant’s
After-Tax Account for that year in accordance with Rule 11(b).

 

13.                 Grantor Trust Assets. 
Each participant’s Grantor Trust assets shall be invested solely in the
instruments specified by investment guidelines established by the
Committee.  Such investment guidelines,
once established, may be changed by the Committee, provided that any change
shall not take effect until the year following the year in which the change is
made and provided further that the instruments 

 

4

 

specified
shall be consistent with the provisions of Section 3(b) of the form
of Grantor Trust attached hereto as Attachment A.

 

14.                 Designation of Beneficiaries. 
Subject to the conditions and limitations set forth below, each
participant, and after a participant’s death, each primary beneficiary designated
by a participant in accordance with the provisions of this Rule 14, shall
have the right from time to time to designate a primary beneficiary or
beneficiaries and, successive or contingent beneficiary or beneficiaries to
receive unpaid amounts from the participant’s Deferred Account under the
PIP.  Beneficiaries may be a natural
person or persons or a fiduciary, such as a trustee of a trust or the legal
representative of an estate.  Any such
designation shall take effect upon the death of the participant or such
beneficiary, as the case may be, or in the case of any fiduciary beneficiary,
upon the termination of all of its duties (other than the duty to dispose of
the right to receive amounts remaining to be paid under the PIP).  The conditions and limitations relating to
the designation of beneficiaries are as follows:

 

(a)                  A nonfiduciary beneficiary shall
have the right to designate a further beneficiary or beneficiaries only if the
original participant or the next preceding primary beneficiary, as the case may
be, shall have expressly so provided in writing; and

 

(b)                 A fiduciary beneficiary shall
designate as a further beneficiary or beneficiaries only those persons or other
fiduciaries that are entitled to receive the amounts payable from the
participant’s account under the trust or estate of which it is a fiduciary.

 

Any beneficiary designation or grant of any power to any beneficiary
under this Rule 14 may be exercised only by an instrument in writing,
executed by the person making the designation or granting such power and filed
with the Secretary of Abbott during the person’s lifetime or prior to the
termination of a fiduciary’s duties.  If
a deceased participant or a deceased nonfiduciary beneficiary who had the right
to designate a beneficiary as provided above dies without having designated a
further beneficiary, or if no beneficiary designated as provided above is
living or qualified and acting, the Committee, in its discretion, may direct
distribution of the amount remaining from time to time to either: (i)  any
one or more or all of the next of kin (including the surviving spouse) of the
participant or the deceased beneficiary, as the case may be, and in such
proportions as the Committee determines; or (ii)  the legal representative
of the estate of the deceased participant or deceased beneficiary as the case
may be.

 

15.                 Non-assignability and Facility of
Payment.  Amounts payable to participants and their
beneficiaries under the PIP are not in any way subject to their debts and other
obligations, and may not be voluntarily or involuntarily sold, transferred or assigned;
provided that the provisions of these Rules shall not be construed as
restricting 

 

5

 

in any way a
designation right granted to a beneficiary under Rule 14.  When a participant or the beneficiary of a
participant is under legal disability, or in the Committee’s opinion is in any
way incapacitated so as to be unable to manage his or her financial affairs,
the Committee may direct that payments shall be made to the participant’s or
beneficiary’s legal representative, or to a relative or friend of the
participant or beneficiary for the benefit of the participant or beneficiary,
or the Committee may direct the payment or distribution for the benefit of the
participant or beneficiary in any manner that the Committee determines.

 

16.                 Payer of Amounts Allocated to
Participants.  Any amount allocated to a participant in the
PIP and any interest credited thereto will be paid by the employer (or such
employer’s successor) by whom the participant was employed during the fiscal
year for which any amount was allocated, and for that purpose, if a participant
shall have been employed by two or more employers during any fiscal year the
amount allocated under the PIP for that year shall be an obligation of each of
the respective employers in proportion to the respective amounts of base salary
paid by each of them in that fiscal year.

 

17.                 Manner of Payment of Deferred
Accounts.  Subject to Rule 18, a participant shall
elect to receive payment of his Deferred Account in substantially equal annual
installments over a minimum period of ten years, or a longer period, at the
time of his deferral election under Rule 5.  Payment of a participant’s Deferred Account
shall commence on the first business day of January of the year following
the year in which the participant incurs a termination of employment.

 

18.                 Payment Upon Termination Following
Change in Control.  Notwithstanding any other provision of the
PIP or the provisions of any award made under the PIP, if a participant incurs
a termination of employment with Abbott and its subsidiaries for any reason within
two (2) years following the date of a Change in Control, provided that the
event constituting a Change in Control is also a “change in control event”, as
such term is defined in Treasury Regulation § 1.409A-3(i)(5): (a) with
respect to a participant whose allocations under the PIP are deferred in
accordance with Section 5(c), the aggregate unpaid balance of the
participant’s Deferred Account shall be paid to such participant in a lump sum
within thirty (30) days following the date of such termination of employment,
and (b) with respect to a participant whose allocations under the PIP are
made pursuant to Section 5(b), (i) the aggregate of the participant’s
unpaid allocation under Section 5(b) (if any) for the fiscal year in
which the termination occurs and (ii) a pro rata portion of the unpaid Guaranteed
Rate Payment under Rule 12 attributable to the portion of the year elapsed
prior to the date of termination, shall be paid to such participant’s Grantor
Trust in a lump sum within thirty (30) days following the date of such
termination of employment.

 

19.                 Change in Control. 
A “Change in Control” shall be deemed to have occurred on the earliest
of the following dates:

 

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(a)                  the date any Person is or becomes
the Beneficial Owner, directly or indirectly, of securities of Abbott (not
including in the securities beneficially owned by such Person any securities
acquired directly from Abbott or its Affiliates) representing 20% or more of
the combined voting power of Abbott’s then outstanding securities, excluding any
Person who becomes such a Beneficial Owner in connection with a transaction
described in clause (i) of paragraph (c) below; or

 

(b)                 the date the following individuals
cease for any reason to constitute a majority of the number of directors then
serving: individuals who, on the date hereof, constitute the Board and any new
director (other than a director whose initial assumption of office is in
connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of directors of
Abbott) whose appointment or election by the Board or nomination for election
by Abbott’s shareholders was approved or recommended by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or

 

(c)                  the date on which there is
consummated a merger or consolidation of Abbott or any direct or indirect
subsidiary of Abbott with any other corporation or other entity, other than (i) a
merger or consolidation (A) immediately following which the individuals
who comprise the Board immediately prior thereto constitute at least a majority
of the Board of Directors of Abbott, the entity surviving such merger or
consolidation or, if Abbott or the entity surviving such merger or
consolidation is then a subsidiary, the ultimate parent thereof and (B) which
results in the voting securities of Abbott outstanding immediately prior to
such merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any trustee
or other fiduciary holding securities under an employee benefit plan of Abbott
or any subsidiary of Abbott, at least 50% of the combined voting power of the securities
of Abbott or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation, or (ii) a merger or
consolidation effected to implement a recapitalization of Abbott (or similar
transaction) in which no Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of Abbott (not including in the securities Beneficially
Owned by such Person any securities acquired directly from Abbott or its
Affiliates) representing 20% or more of the combined voting power of Abbott’s
then outstanding securities; or

 

(d)                 the date the shareholders of Abbott
approve a plan of complete liquidation or dissolution of Abbott or there is
consummated an agreement for the sale or disposition by Abbott of all or
substantially all of Abbott’s assets, other than a sale

 

7

 

 

or disposition
by Abbott of all or substantially all of Abbott’s assets to an entity, at least
50% of the combined voting power of the voting securities of which are owned by
shareholders of Abbott, in combination with the ownership of any trustee or
other fiduciary holding securities under an employee benefit plan of Abbott or
any subsidiary of Abbott, in substantially the same proportions as their
ownership of Abbott immediately prior to such sale.

 

Notwithstanding the foregoing, a “Change in Control” shall not be
deemed to have occurred by virtue of the consummation of any transaction or
series of integrated transactions immediately following which the record
holders of the common stock of Abbott immediately prior to such transaction or
series of transactions continue to have  substantially
the same proportionate ownership in an entity which owns all or substantially
all of the assets of Abbott immediately following such transaction or series of
transactions.

 

For purposes of these Rules: “Affiliate”
shall have the meaning set forth in Rule 12b-2 promulgated under Section 12
of the Exchange Act; “Beneficial Owner” shall have the meaning set forth in Rule 13d-3
under the Exchange Act; “Exchange Act” shall mean the Securities Exchange Act
of 1934, as amended from time to time; and “Person” shall have the meaning
given in Section 3(a)(9) of the Exchange Act, as modified and used in
Sections 13(d) and 14(d) thereof, except that such term shall not
include (i) Abbott or any of its subsidiaries, (ii) a trustee or
other fiduciary holding securities under an employee benefit plan of Abbott or
any of its Affiliates, (iii) an underwriter temporarily holding securities
pursuant to an offering of such securities, or (iv) a corporation owned,
directly or indirectly, by the shareholders of Abbott in substantially the same
proportions as their ownership of stock of Abbott.

 

20.                 Potential Change in Control. 
A “Potential Change in Control” shall exist during any period in which
the circumstances described in paragraphs (a), (b), (c) or (d), below,
exist (provided, however, that a Potential Change in Control shall cease to
exist not later than the occurrence of a Change in Control):

 

(a)                  Abbott enters into an agreement, the
consummation of which would result in the occurrence of a Change in Control,
provided that a Potential Change in Control described in this paragraph (a) shall
cease to exist upon the expiration or other termination of all such agreements.

 

(b)                 Any Person (without regard to the
exclusions set forth in subsections (i) through (iv) of such
definition) publicly announces an intention to take or to consider taking
actions the consummation of which would constitute a Change in Control;
provided that a Potential Change in Control described in this paragraph (b) shall
cease to exist upon the withdrawal of such intention, or upon a

 

8

 

determination
by the Board that there is no reasonable chance that such actions would be
consummated.

 

(c)                  Any Person becomes the Beneficial
Owner, directly or indirectly, of securities of Abbott representing 10% or more
of either the then outstanding shares of common stock of Abbott or the combined
voting power of Abbott’s then outstanding securities (not including any
securities beneficially owned by such Person which are or were acquired
directly from Abbott or its Affiliates).

 

(d)                 The Board adopts a resolution to the
effect that, for purposes of this Agreement, a Potential Change in Control
exists; provided that a Potential Change in Control described in this paragraph
(d) shall cease to exist upon a determination by the Board that the
reasons that gave rise to the resolution providing for the existence of a
Potential Change in Control have expired or no longer exist.

 

21.                 Prohibition Against Amendment. 
The provisions of Rules 18, 19, 20 and this Rule 21 may not be
amended or deleted, nor superseded by any other Rule, (i) during the
pendency of a Potential Change in Control and (ii) during the period beginning
on the date of a Change in Control and ending on the date five (5) years
following such Change in Control.

 

22.                 Reliance Upon Advice. 
The Board and the Committee may rely upon any information or advice
furnished to it by any Officer of Abbott or by Abbott’s independent auditors,
or other consultants, and shall be fully protected in relying upon such information
or advice.  No member of the Board or the
Committee shall be liable for any act or failure to act on their part,
excepting only any acts done or omitted to be done in bad faith, nor shall they
be liable for any act or failure to act of any other member.

 

23.                 Taxes. 
Any employer shall be entitled, if necessary or desirable, to pay, or
withhold the amount of any federal, state or local tax, attributable to any
amounts payable by it under the PIP after giving the person entitled to receive
such amount notice as far in advance as practicable, and may require payment from
the participant in an amount necessary to satisfy such taxes prior to remitting
such taxes.

 

24.                 Rights of Participants. 
Employment rights of participants with Abbott and its subsidiaries shall
not be enlarged or affected by reason of establishment of or inclusion as a participant
in the PIP.  Nothing contained in the PIP
shall require Abbott or any subsidiary to segregate or earmark any assets,
funds or property for the purpose of payment of any amounts which may have been
deferred.  The Deferred, Pre-Tax and
After-Tax Accounts established in accordance with Rule 7 are for the
convenience of the administration of the PIP and no trust relationship with
respect to such Accounts is intended or should be implied.  Participant’s rights shall be limited to payment
to them at the time or times and in such amounts as are contemplated by the PIP
and these Rules.  Any decision made by
the Board or the Committee, which is

 

9

 

within the
sole and uncontrolled discretion of either, shall be conclusive and binding
upon the other and upon all other persons whomsoever.

 

25.                 Tax Adjustment Payment. 
In addition to the allocations provided in accordance with Rule 5,
each participant who has established a Grantor Trust (or, if the participant is
deceased, the beneficiary designated under the participant’s Grantor Trust)
shall be entitled to a Tax Adjustment Payment for each year in which the Grantor
Trust is in effect.  Payment of the Tax
Adjustment Payment shall be made by the employers (in such proportions as
Abbott shall designate) directly from their general corporate assets, no later
than the end of the calendar year in which the participant remits the related
taxes.  The “Tax Adjustment Payment”
shall equal:

 

(a)                  the amount necessary to compensate
the participant (or beneficiary) for the net increase in the participant’s (or
beneficiary’s) federal, state and local income taxes as a result of the
inclusion in his or her taxable income of the income of the participant’s Grantor
Trust and any Guaranteed Rate Payment for that year; plus

 

(b)                an amount necessary to compensate the participant (or
beneficiary) for the net increase in the taxes described in (a) above as a
result of the inclusion in his or her taxable income of any payment made
pursuant to this Rule 25.

 

26.                 Income Tax Assumptions. 
For purposes of these Rules, a participant’s federal income tax rate shall
be deemed to be the highest marginal rate of federal income individual tax in
effect in the calendar year in which a calculation under the Rules is to
be made, and state and local tax rates shall be deemed to be the highest
marginal rates of individual income tax in effect in the state and locality of
the participant’s residence on the date such a calculation is made, net of any
federal tax benefits without a benefit for any net capital losses.

 

27.                 Change of Conditions Relating to
Payments.  No change to the time of payment or the time
of commencement of payment and any period over which payment shall be made
shall be effected except in strict compliance with the subsequent election requirements
of Treasury Regulation § 1.409A-2(b) to the extent subject thereto.

 

28.                 Administrator’s Calculation of
Grantor Trust Distributions. The Administrator shall calculate the amount to be
distributed from a participant’s Grantor Trust in any year in which the
participant is entitled to a benefit distribution by multiplying (i) the
amount of the reduction determined in accordance with Rule 9(a), by (ii) a
fraction, the numerator of which is the balance in the participant’s After-Tax
Account as of the end of the prior fiscal year and the denominator of which is
the balance of the participant’s Pre-Tax Account as of that same date

 

29.                 Section 409A. 
To the extent applicable, it is intended that these Rules comply
with the provisions of Code Section 409A. 
The Rules will be administered and interpreted

 

10

 

in a manner
consistent with this intent, and any provision that would cause the Rules to
fail to satisfy Code Section 409A will have no force and effect until
amended to comply therewith (which amendment may be retroactive to the extent
permitted by Code Section 409A). 
Notwithstanding anything contained herein to the contrary, for all
purposes of these Rules, a participant shall not be deemed to have had a
termination of employment until the participant has incurred a separation from
service as defined in Treasury Regulation §1.409A-1(h) and, to the extent
required to avoid accelerated taxation and/or tax penalties under Code Section 409A
and applicable guidance issued thereunder, payment of the amounts payable under
the Rules that would otherwise be payable during the six-month period
after the date of termination shall instead be paid on the first business day
after the expiration of such six-month period, plus interest thereon, at a rate
equal to the rate specified in Rule 11 (to the extent that such interest
is not already provided to the participant under Rule 12), from the
respective dates on which such amounts would otherwise have been paid until the
actual date of payment.  In addition, for
purposes of these Rules, each amount to be paid and each installment payment
shall be construed as a separate identified payment for purposes of Code Section 409A.

 

11Exhibit 10.9

ABBOTT
LABORATORIES

1996
INCENTIVE STOCK PROGRAM

(as
amended and restated through the

5th
Amendment January 1, 2008)

 

1.             PURPOSE.  The
purpose of the Abbott Laboratories 1996 Incentive Stock Program (the “Program”)
is to attract and retain outstanding directors, officers and other employees of
Abbott Laboratories (the “Company”) and its subsidiaries, and to furnish
incentives to such persons by providing opportunities to acquire common shares
of the Company, or monetary payments based on the value of such shares or the
financial performance of the Company, or both, on advantageous terms as herein
provided and to further align such persons’ interests with those of the Company’s
other shareholders through compensation that is based on the value of the
Company’s common shares.

 

2.             ADMINISTRATION. 
The Program will be administered by a committee (the “Committee”) of at
least two persons which shall be either the Compensation Committee of the Board
of Directors of the Company (the “Board of Directors”) or such other committee
comprised entirely of persons who are both: (i) “disinterested persons” as
defined in Rule 16b-3 of the Securities and Exchange Commission; and (ii) “outside
directors” as defined under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the “Code”), or any successor provision; as the Board
of Directors may from time to time designate. 
The Committee shall interpret the Program, prescribe, amend and rescind rules and
regulations relating thereto and make all other determinations necessary or
advisable for the administration of the Program. A majority of the members of
the Committee shall constitute a quorum and all determinations of the Committee
shall be made by a majority of its members. Any determination of the Committee
under the Program may be made without notice of meeting of the Committee by a
writing signed by all of the Committee members. 
The Committee may, from time to time, delegate any or all of its duties,
powers and authority to any officer or officers of the Company, except to the
extent such delegation would be inconsistent with Rule 16b-3 of the
Securities and Exchange Commission or other applicable law, rule or
regulation.  The Chief Executive Officer
of the Company may, on behalf of the Committee, grant stock options, restricted
stock awards, and restricted stock units under the Program, other than to
persons subject to Section 16 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”).  All such
grants by the Chief Executive Officer must be reported to, and ratified by, the
Committee within twelve months of the grant date but, if ratified, shall be
effective as of the grant date.

 

3.             PARTICIPANTS. 
Participants in the Program will consist of such officers and other
employees of the Company and its subsidiaries as the Committee in its sole
discretion may designate from time to time to receive Benefits hereunder.  The Committee’s designation of a participant
in any year shall not require the Committee to designate such person to receive
a Benefit in any other year.  The
Committee shall consider such factors as it deems pertinent in selecting
participants and in determining the type and amount of their respective
Benefits, including without limitation (i) the financial condition of the
Company; (ii) anticipated profits for the current or future years; (iii) contributions
of participants to the profitability and development of the Company; (iv) prior
awards to participants; and (v) other compensation

 

 

provided to
participants.  Non-Employee Directors
shall also be participants in the Program solely for purposes of receiving
Restricted Stock Awards and Restricted Stock Units under paragraph 13 and
Non-qualified Stock Options under paragraph 14. 
The term “Non-Employee Director” shall mean a member of the Board of
Directors who is not a full-time employee of the Company or any of its
subsidiaries.

 

4.             TYPES OF BENEFITS. 
Benefits under the Program may be granted in any one of a combination of
(a) Incentive Stock Options; (b) Non-qualified Stock Options; (c) Stock
Appreciation Rights; (d) Limited Stock Appreciation Rights; (e) Restricted
Stock Awards; (f) Restricted Stock Units; (g) Performance Awards; and
(h) Foreign Qualified Benefits, all as described below.

 

5.             SHARES RESERVED UNDER THE PROGRAM.  There is hereby reserved for issuance under
the Program: (i) an aggregate of Five Million (5,000,000) common shares;
plus (ii) an authorization for each calendar year (the “Annual
Authorization”) for the years 1996 through 1999, of seven-tenths of one percent
(0.7%) of the total common shares of the Company issued and outstanding as of
the first day of such calendar year and for the years from and including 2000,
one and a half percent (1.5%) of the total common shares of the Company issued
and outstanding as of the first day of such calendar year; which may be newly
issued or treasury shares. The shares hereby reserved are in addition to the
shares previously reserved under the Company’s 1981 Incentive Stock Program,
1986 Incentive Stock Program and 1991 Incentive Stock Program (the “Prior
Programs”). Any common shares reserved for issuance under the Prior Programs in
excess of the number of shares as to which options or other Benefits have been
awarded on the date of shareholder approval of this Program, plus any such
shares as to which options or other Benefits granted under the Prior Programs
may lapse, expire, terminate or be canceled after such date, shall also be
reserved and available for issuance in connection with Benefits under this
Program. Any common shares reserved under the Program for any calendar year
under an Annual Authorization as to which options or other Benefits have not
been awarded as of the end of such calendar year shall be available for
issuance in connection with Benefits granted in subsequent years.

 

If there is a lapse,
expiration, termination or cancellation of any Benefit granted hereunder
without the issuance of shares or payment of cash thereunder, or if shares are
issued under any Benefit and thereafter are reacquired by the Company pursuant
to rights reserved upon the issuance thereof, or shares are reacquired pursuant
to the payment of the purchase price of shares under stock options by delivery
of other common shares of the Company, the shares subject to or reserved for such
Benefit, or so reacquired, may again be used for new options, rights or awards
of any sort authorized under this Program; provided, however, that in no event
may the number of common shares issued under this Program, and not reacquired
by the Company pursuant to rights reserved upon the issuance thereof or
pursuant to the payment of the purchase price of shares under stock options by
delivery of other common shares of the Company, exceed the total number of
shares reserved for issuance hereunder.

 

6.             INCENTIVE STOCK OPTIONS. 
Incentive Stock Options will consist of options to purchase common
shares at purchase prices not less than One Hundred percent (100%) of the Fair
Market Value of such common shares on the date of grant. An Incentive Stock
Option will not be exercisable after the expiration of ten (10) years from
the date such option is

 

2

 

granted. In the event of
termination of employment for any reason other than retirement, disability or
death, the right of the optionee to exercise an Incentive Stock Option shall
terminate upon the earlier of the end of the original term of the option or
three (3) months after the optionee’s last day of work for the Company and
its subsidiaries. In the event of termination of employment due to retirement
or disability, or if the optionee should die while employed, the right of the
optionee or his or her successor in interest to exercise an Incentive Stock
Option shall terminate upon the end of the original term of the option. If the
optionee should die within three (3) months after termination of
employment for any reason other than retirement or disability, the right of his
or her successor in interest to exercise an Incentive Stock Option shall
terminate upon the earlier of the end of the original term of the option or
three (3) months after the date of such death. To the extent the aggregate
fair market value (determined as of the time the Option is granted) of the
common shares with respect to which any Incentive Stock Option is exercisable
for the first time by any individual during any calendar year (under all option
plans of the Company and its subsidiary corporations) exceeds $100,000, the
excess shall be treated as a Non-qualified Stock Option. An Incentive Stock
Option shall be exercisable as determined by the Committee, but in no event
earlier than six (6) months from its grant date.

 

7.             NON-QUALIFIED STOCK OPTIONS.  Non-qualified Stock Options will consist of
options to purchase common shares at purchase prices not less than One Hundred
percent (100%) of the Fair Market Value of such common shares on the date of
grant. A Non-qualified Stock Option will not be exercisable after the
expiration of ten (10) years from the date such option is granted. In the
event of termination of employment for any reason other than retirement,
disability or death, the right of the optionee to exercise a Non-qualified
Stock Option shall terminate upon the earlier of the end of the original term
of the option or three (3) months after the optionee’s last day of work
for the Company and its subsidiaries. In the event of termination of employment
due to retirement or disability, or if the optionee should die while employed,
the right of the optionee or his or her successor in interest to exercise a
Non-qualified Stock Option shall terminate upon the end of the original term of
the option. If the optionee should die within three (3) months after
termination of employment for any reason other than retirement or disability,
the right of his or her successor in interest to exercise a Non-qualified Stock
Option shall terminate upon the earlier of the end of the original term of the
option or three (3) months after the date of such death. A Non-qualified
Stock Option shall be exercisable as determined by the Committee, but in no
event earlier than six (6) months from its grant date.

 

8.             STOCK APPRECIATION RIGHTS.  The Committee may, in its discretion, grant a
Stock Appreciation Right to the holder of any stock option granted hereunder or
under the Prior Programs. Such Stock Appreciation Rights shall be subject to
such terms and conditions consistent with the Program as the Committee shall
impose from time to time, including the following:

 

(a)                                  A Stock Appreciation Right may be granted with respect to a
stock option at the time of its grant or at any time thereafter up to six (6) months
prior to its expiration.

 

3

 

(b)                                 Stock Appreciation Rights will permit the holder to surrender
any related stock option or portion thereof which is then exercisable and to
elect to receive in exchange therefor cash in an amount equal to:

 

(i)                                     The excess of the Fair Market Value on the date of such
election of one common share over the option price multiplied by

 

(ii)                                  The number of shares covered by such option or portion
thereof which is so surrendered.

 

(c)                                  A Stock Appreciation Right granted to a participant who is
subject to Section 16 of the Exchange Act may be exercised only after six (6) months
from its grant date (unless such exercise would not affect the exemption under Rule 16b-3
of the Securities and Exchange Commission).

 

(d)                                 A Stock Appreciation Right may be granted to a participant
regardless of whether such participant has been granted a Limited Stock Appreciation
Right with respect to the same stock option. 
However, a Stock Appreciation Right may not be exercised during any
period that a Limited Stock Appreciation Right with respect to the same stock
option may be exercised.

 

(e)                                  In the event of the exercise of a Stock Appreciation Right,
the number of shares reserved for issuance hereunder shall be reduced by the
number of shares covered by the stock option or portion thereof surrendered.

 

9.             LIMITED STOCK APPRECIATION RIGHTS.  The Committee may, in its discretion, grant a
Limited Stock Appreciation Right to the holder of any stock option granted
hereunder or under the Prior Programs. 
Such Limited Stock Appreciation Rights shall be subject to such terms
and conditions consistent with the Program as the Committee shall impose from
time to time, including the following:

 

(a)                                  A Limited Stock Appreciation Right may be granted with
respect to a stock option at the time of its grant or at any time thereafter up
to six (6) months prior to its expiration.

 

(b)                                 A Limited Stock Appreciation Right will permit the holder to
surrender any related stock option or portion thereof which is then exercisable
and to receive in exchange therefor cash in an amount equal to:

 

(i)                                     The excess of the Fair Market Value on the date of such
election of one common share over the option price multiplied by

 

(ii)                                  The number of shares covered by such option or portion
thereof which is so surrendered.

 

(c)                                  A Limited Stock Appreciation Right granted to a participant
who is subject to Section 16 of the Exchange Act may be exercised only
after six (6) months from its grant date (unless such exercise would not
affect the exemption under 

 

4

 

Rule 16b-3
of the Securities and Exchange Commission) and only during the sixty (60) day
period commencing on the later of:

 

(i)                                     the day following the date of a Change in Control; or (ii) the
first date on which such exercise would be exempt under Rule 16b-3 of the
Securities and Exchange Commission.

 

(d)                                 A Limited Stock Appreciation Right may be granted to a
participant regardless of whether such participant has been granted a Stock
Appreciation Right with respect to the same stock option.

 

(e)                                  In the event of the exercise of a Limited Stock Appreciation
Right, the number of shares reserved for issuance hereunder shall be reduced by
the number of shares covered by the stock option or portion thereof
surrendered.

 

10.           RESTRICTED STOCK AWARDS AND RESTRICTED STOCK UNITS

 

(a)                                  RESTRICTED STOCK
AWARDS.  Restricted Stock Awards will
consist of common shares transferred to participants without other payment
therefor as additional compensation for their services to the Company or any of
its subsidiaries. Restricted Stock Awards granted under this paragraph 10 shall
be satisfied from the Company’s available treasury shares.  Restricted Stock Awards shall be subject to
such terms and conditions as the Committee determines appropriate, including,
without limitation, restrictions on the sale or other disposition of such
shares and rights of the Company to reacquire such shares upon termination of
the participant’s employment within specified periods.  Subject to such other restrictions as are
imposed by the Committee, the common shares covered by a Restricted Stock Award
granted to a participant who is subject to Section 16 of the Exchange Act
may be sold or otherwise disposed of only after six (6) months from the
grant date of the award (unless such sale would not affect the exemption under Rule 16b-3
of the Securities and Exchange Commission).

 

(b)                                 RESTRICTED STOCK UNITS.  Restricted Stock Units will consist of an
unfunded promise to deliver shares of stock at some future date to participants
without other payment therefor as additional compensation for their services to
the Company or any of its subsidiaries. 
Stock delivered under this paragraph 10(b) shall be satisfied from
the Company’s available treasury shares. 
Restricted Stock Units granted under this paragraph 10(b) shall be
subject to such terms and conditions as the Committee determines appropriate,
including, without limitation, restrictions on the sale or other disposition of
such stock units, the rights of the Company to provide for the forfeiture of
such stock units upon termination of the participant’s employment within
specified periods and the right to receive dividend equivalent payments.

 

(c)                                  No more than ten percent
(10%) of the total number of shares available for grant in any calendar year
may be granted as Restricted Stock Units or 

 

5

 

Restricted Stock Awards (in the aggregate) under
paragraphs 10 and 13 in that year.

 

11.           PERFORMANCE AWARDS. 
Performance Awards in the form of Performance Units or Performance
Shares may be granted to any participant in the Program.  Performance Units shall consist of monetary
awards which may be earned in whole or in part if the Company achieves certain
goals established by the Committee over a designated period of time.
Performance Shares shall consist of common shares or awards denominated in
common shares which may be earned in whole or in part if the Company achieves
certain goals established by the Committee over a designated period of time.
The goals established by the Committee shall be based on any one, or
combination of, earnings per share, return on equity, return on assets, total
shareholder return, net operating income, cash flow, increase in revenue,
economic value added, increase in share price or cash flow return on
investment. Partial achievement of the goal(s) may result in a payment or
vesting corresponding to the degree of achievement. Payment of an award earned
may be in cash or in common shares or in a combination of both, and may be made
when earned, or may be vested and deferred, as the Committee in its sole
discretion determines.  The maximum
amount which may be granted under all Performance Awards for any one year for
any one participant shall be Five Million Dollars ($5,000,000). This limit
shall be applied to Performance Shares by multiplying the number of Performance
Shares granted by the fair market value of one common share on the date of the
award.  During the term of the Program,
no more than 5 million shares of Abbott common stock may be granted in the form
of Performance Units and no more than 5 million shares of Abbott common stock
may be granted in the form of Performance Shares. This paragraph 11 is intended
to comply with the performance-based compensation requirements of Code Section 162(m),
and shall be interpreted in accordance with the rules and regulations
thereunder.

 

12.           FOREIGN QUALIFIED BENEFITS.  Benefits under the Program may be granted to
such employees of the Company and its subsidiaries who are residing in foreign
jurisdictions as the Committee in its sole discretion may determine from time
to time.  The Committee may adopt such
supplements to the Program as may be necessary to comply with the applicable
laws of such foreign jurisdictions and to afford participants favorable
treatment under such laws; provided, however, that no Benefit shall be granted
under any such supplement with terms or conditions which are inconsistent with
the provisions as set forth under the Program.

 

13.           RESTRICTED STOCK UNIT AWARDS FOR NON-EMPLOYEE DIRECTORS.

 

(a)                                  Each year, on the date of the annual shareholders meeting,
each person who is elected a Non-Employee Director at the annual shareholders
meeting shall be awarded both:  (i) Restricted
Stock Units covering a number of common shares with a Fair Market Value on the
date of the award closest to, but not in excess of, an amount equal to six
times the monthly fee in effect under Section 3.1 of the Abbott
Laboratories Non-Employee Director’s Fee Plan on the date of the award and (ii) Restricted
Stock Units covering a number of common shares with a Fair Market Value on the
date of the award closest to, but not in excess of, Fifty Thousand Dollars
($50,000).

 

6

 

(b)                                 VESTING AND PAYMENT. 
The Restricted Stock Units granted under this paragraph 13 shall be
fully vested on the date of the award. 
The Non-Employee Director receiving the Restricted Stock Units shall be
entitled to receive one common share for each common share subject to the award
upon the earliest of the following events (the “Termination Event”):

 

(i)                                     The date the director terminates or retires from the Board;

 

(ii)                                  The date the director dies; or

 

(iii)                               The date of occurrence of a Change in Control (as defined in
paragraph 2(c)) which also qualifies as a “change in control event,” as such
term is defined in Treasury Regulation §1.409A-3(i)(5).

 

(c)                                  DIVIDENDS.  The
Non-Employee Director receiving the Restricted Stock Units shall be entitled to
receive cash payments equal to the dividends and distributions paid on shares
of stock (other than dividends or distributions of securities of the Company
which may be issued with respect to its shares by virtue of any stock split,
combination, stock dividend or recapitalization) to the same extent as if each
Restricted Stock Unit was a share of stock, and those shares were not subject
to the restrictions imposed by this Program, provided that the record date with
respect to such dividend or distribution occurs within the period commencing
with the date of the award and ending upon the date of the Termination Event (the
“Restricted Period”).

 

(d)                                 RESTRICTIONS.  All
Restricted Stock Units granted under this paragraph 13 shall be subject to the
following restrictions during the Restricted Period:

 

(i)                                     The Restricted Stock Units may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of.

 

(ii)                                  Any additional common shares of the Company or other
securities or property issued with respect to shares covered by awards granted
under this paragraph 13 as a result of any stock split, combination, stock
dividend or recapitalization, shall be subject to the restrictions and other
provisions of this paragraph 13.

 

(iii)                               A director shall not be entitled to receive any shares prior
to completion of all actions deemed appropriate by the Company to comply with
federal or state securities laws and stock exchange requirements.

 

7

 

(e)                                  Except in the event of conflict, all provisions of the
Program shall apply to this paragraph 13. 
In the event of any conflict between the provisions of the Program and
this paragraph 13, this paragraph 13 shall control.  Restricted Stock Units granted under this
paragraph 13 shall be satisfied from the Company’s available treasury shares.

 

14.           NON-QUALIFIED STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS.

 

(a)                                  Each Non-Employee Director may elect to receive any or all of
his or her fees earned during the second half of 1996 and each subsequent
calendar year under Section 3 of the Abbott Laboratories Non-Employee
Directors’ Fee Plan (the “Directors’ Fee Plan”) in the form of Non-qualified
Stock Options under this Section 14. 
Each such election shall be irrevocable, and must be made in writing and
filed with the Secretary of the Company by December 31, 1995 (for fees
earned in the second half of 1996) and (for fees earned in subsequent calendar
years) by June 30 of the calendar year preceding the calendar year in
which such fees are earned (or such later date as may be permissible under Rule 16b-3
of the Securities and Exchange Commission, but in no event later than December 31
of such preceding calendar year).

 

(b)                                 A Non-Employee Director may file a new election each calendar
year applicable to fees earned in the immediately succeeding calendar year. If
no new election or revocation of a prior election is received by June 30
of any calendar year (or such later date as may be permissible under paragraph
(a)), the election, if any, in effect for such calendar year shall continue in
effect for the immediately succeeding calendar year. Any election made under
this Section 14 shall take precedence over any election made by the
director for the same period, under the Directors’ Fee Plan, to the extent
necessary to resolve any conflict between such elections.  If a director does not elect to receive his
or her fees in the form of Non-qualified Stock Options, the fees due such
director shall be paid or deferred as provided in the Directors’ Fee Plan and
any applicable election thereunder by the director.

 

(c)                                  The number of common shares covered by each Non-qualified
Stock Option granted in any year under this Section 14 shall be determined
based on an independent appraisal for such year of the intrinsic value of
options granted hereunder and the amount of fees covered by the director’s
election for such year.  The number of
common shares covered by options granted in 1996 (as determined under this
procedure) shall be the number of whole shares equal to (i) the product of
three (3) times the amount of fees which the director has elected under
paragraph (a) to receive in the form of Non-qualified Stock Options,
divided by (ii) One Hundred percent (100%) of the Fair Market Value of one
common share on the grant date. Any fraction of a share shall be disregarded,
and the remaining amount of the fees corresponding to such option shall be paid
as provided in the Directors’ Fee Plan and any applicable election thereunder
by the director.

 

8

 

(d)                                 Effective on October 10, 1997, each Non-qualified Stock
Option due a director under this Section 14 prior to the 1998 annual
shareholders meeting shall be granted on October 10, 1997 at a purchase
price equal to One Hundred percent (100%) of the Fair Market Value of the
common shares covered by such option on the grant date.  Effective with the 1998 Annual Shareholders
Meeting, each Non-qualified Stock Option due a director under this Section 14
shall be granted annually, on the date of the annual shareholders meeting, at a
purchase price equal to One Hundred percent (100%) of the Fair Market Value of
the common shares covered by such option on the grant date.  Each such option shall be immediately
exercisable and nonforfeitable, and shall not be exercisable after the
expiration of ten (10) years from the date it is granted. Each such option
shall contain provisions allowing payment of the purchase price and, to the
extent permitted, any taxes due on exercise, by delivery of other common shares
of the Company (or, in the case of the payment of taxes, by withholding of
shares).

 

(e)                                  All Non-qualified Stock Options granted under this Section 14
prior to October 10, 1997, shall be immediately exercisable and
nonforfeitable, and shall not be exercisable after the expiration of ten (10) years
from the date granted.

 

15.           NONTRANSFERABILITY. 
Except as provided by the Committee, each stock option and stock
appreciation right granted under this Program shall not be transferable other
than by will or the laws of descent and distribution, and shall be exercisable,
during the participant’s lifetime, only by the participant or the participant’s
guardian or legal representative.

 

16.           OTHER PROVISIONS. 
The award of any Benefit under the Program may also be subject to other
provisions (whether or not applicable to the Benefit awarded to any other participant)
as the Committee determines appropriate, including, without limitation,
provisions for the purchase of common shares under stock options in
installments, provisions for the payment of the purchase price of shares under
stock options by delivery of other common shares of the Company having a then
market value equal to the purchase price of such shares, restrictions on resale
or other disposition, such provisions as may be appropriate to comply with
federal or state securities laws and stock exchange requirements and
understandings or conditions as to the participant’s employment in addition to
those specifically provided for under the Program.

 

In the case of a participant
who is subject to Section 16(a) and 16(b) of the Exchange Act,
the Committee may, at any time, add such conditions and limitations to any
Benefit granted to such participant, or any feature of any such Benefit, as the
Committee, in its sole discretion, deems necessary or desirable to comply with Section 16(a) or
16(b) and the rules and regulations thereunder or to obtain any
exemption therefrom. A participant may pay the purchase price of shares under
stock options by delivery of a properly executed exercise notice together with
a copy of irrevocable instructions to a broker to deliver promptly to the
Company the amount of sale or loan proceeds to pay the purchase price.  To facilitate the foregoing, the Company may
enter into agreements for coordinated procedures with one or more brokerage firms.

 

9

 

The Committee may, in its
discretion and subject to such rules as it may adopt, permit or require a
participant to pay all or a portion of the federal, state and local taxes,
including FICA and medicare withholding tax, arising in connection with the
following transactions: (a) the exercise of a Non-qualified Stock Option; (b) the
lapse of restrictions on common shares received as a Restricted Stock Award; or
(c) the receipt or exercise of any other Benefit; by (i) having the
Company withhold common shares, (ii) tendering back common shares received
in connection with such Benefit or (iii) delivering other previously
acquired common shares of the Company having a fair market value approximately
equal to the amount to be withheld.

 

The Committee may grant
stock options under the Program (and, for stock options granted prior to
shareholder approval of this Program, under the Company’s 1991 Incentive Stock
Program) that provide for the grant of replacement stock options if all or any
portion of the purchase price or taxes incurred in connection with the
exercise, are paid by delivery (or, in the case of payment of taxes, by
withholding of shares) of other common shares of the Company.  The replacement stock option shall cover the
number of common shares surrendered to pay the purchase price, plus the number
of shares surrendered or withheld to satisfy the participant’s tax liability,
shall have an exercise price equal to One Hundred percent (100%) of the Fair
Market Value of such common shares on the date such replacement stock option is
granted, shall first be exercisable six months from the date of grant of the
replacement stock option and shall have an expiration date equal to the
expiration date of the original stock option.

 

To the extent applicable, it
is intended that the Program comply with the provisions of Code Section 409A.  The Program will be administered and
interpreted in a manner consistent with this intent, and any provision that
would cause the Program to fail to satisfy Code Section 409A will have no
force and effect until amended to comply therewith (which amendment may be
retroactive to the extent permitted by Code Section 409A).  Notwithstanding anything contained herein to
the contrary, for all purposes of the Program, a participant shall not be
deemed to have had a termination of employment until the participant has
incurred a separation from service as defined in Treasury Regulation §1.409A-1(h) and,
to the extent required to avoid accelerated taxation and/or tax penalties under
Code Section 409A and applicable guidance issued thereunder, payment of
the amounts payable under the Program that would otherwise be payable during
the six-month period after the date of termination shall instead be paid on the
first business day after the expiration of such six-month period.  In addition, for purposes of the Program,
each amount to be paid and each installment payment shall be construed as a
separate identified payment for purposes of Code Section 409A.

 

17.           TERM OF PROGRAM AND AMENDMENT, MODIFICATION, CANCELLATION
OR ACCELERATION OF BENEFITS.  The Program
shall continue in effect until terminated by the Board of Directors, except
that no Incentive Stock Option shall be granted after October 13, 2005 and
that no other Benefits shall be granted after April 27, 2010.  The terms and conditions applicable to any
Benefits may at any time be amended, modified or canceled by mutual agreement
between the Committee and the participant or such other persons as may then
have an interest therein, so long as any amendment or modification does not
increase the number of common shares issuable under this Program; and provided
further, that the Committee may, at any time and in its sole discretion,
declare any or all stock options and 

 

10

 

stock appreciation rights
then outstanding under the Program or the Prior Programs to be exercisable and
any or all the then outstanding Restricted Stock Awards or Restricted Stock
Units to be vested, whether or not such options, rights or awards are then
otherwise exercisable or vested. Notwithstanding the foregoing, except as
provided in paragraph 22, the Committee shall neither lower the purchase price
of any option granted under the Program nor grant any option under the Program
in replacement of a cancelled option which had previously been granted at a
higher purchase price, without shareholder approval.

 

18.           AMENDMENT TO PRIOR PROGRAMS. No options or other Benefits
shall be granted under the Prior Programs on or after the date of shareholder
approval of this Program.

 

19.           INDIVIDUAL LIMIT ON OPTIONS AND STOCK APPRECIATION RIGHTS;
AGGREGATE LIMIT ON INCENTIVE STOCK OPTIONS. The maximum number of shares with
respect to which Incentive Stock Options, Non-qualified Stock Options, Stock
Appreciation Rights and Limited Stock Appreciation Rights may be granted to any
one participant, in aggregate in any one calendar year, shall be Two Million
(2,000,000) shares. Incentive Stock Options with respect to no more than the
lesser of (i) One Hundred and Fifty Million (150,000,000) shares (plus any
shares acquired by the Company pursuant to payment of the purchase price of
shares under incentive stock options by delivery of other common shares of the
Company), or (ii) the total number of shares reserved under paragraph 5
may be issued under the Plan.

 

20.           TAXES.  The Company shall be entitled to withhold the
amount of any tax attributable to any amount payable or shares deliverable
under the Program after giving the person entitled to receive such amount or
shares notice as far in advance as practicable, and the Company may defer
making payment or delivery if any such tax may be pending unless and until
indemnified to its satisfaction.

 

21.           DEFINITIONS.

 

(a)                                  FAIR MARKET VALUE. 
Except as provided below, the Fair Market Value of the Company’s common
shares shall be determined by such methods or procedures as shall be
established by the Committee; provided that, in the case of any Limited Stock
Appreciation Right (other than a right related to an Incentive Stock Option),
the Fair Market Value shall be the higher of:

 

(i)                                     The highest daily closing price of the Company’s common
shares during the sixty (60) day period following the Change in Control; or

 

(ii)                                  The highest gross price paid or to be paid for the Company’s
common shares in any of the transactions described in paragraphs 21(c)(i) and
21(c)(ii).

 

(b)                                 SUBSIDIARY.  The term “subsidiary”
for all purposes other than the Incentive Stock Option provisions in paragraph
6, shall mean any corporation, partnership, joint venture or business trust,
fifty percent (50%) or more of the control of which is owned, directly or
indirectly, by the Company. For 

 

11

 

Incentive Stock Option
purposes the term “subsidiary” shall be defined as provided in Internal Revenue
Code Section 424(f).

 

(c)                                  CHANGE IN CONTROL.  A “Change
in Control” shall be deemed to have occurred on the earliest of the following
dates:

 

(i)                                     the date any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities acquired directly
from the Company or its Affiliates) representing 20% or more of the combined
voting power of the Company’s then outstanding securities, excluding any Person
who becomes such a Beneficial Owner in connection with a transaction described
in clause (a) of paragraph (iii) below; or

 

(ii)                                  the date the following individuals cease for any reason to
constitute a majority of the number of directors then serving: individuals who,
on the date hereof, constitute the Board of Directors and any new director
(other than a director whose initial assumption of office is in connection with
an actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the Company)
whose appointment or election by the Board of Directors or nomination for
election by the Company’s shareholders was approved or recommended by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors on the date hereof or whose appointment, election or nomination for
election was previously so approved or recommended; or

 

(iii)                               the date on which there is consummated a merger or
consolidation of the Company or any direct or indirect subsidiary of the
Company with any other corporation or other entity, other than (a) a
merger or consolidation (I) immediately following which the individuals
who comprise the Board of Directors immediately prior thereto constitute at
least a majority of the Board of Directors of the Company, the entity surviving
such merger or consolidation or, if the Company or the entity surviving such
merger or consolidation is then a subsidiary, the ultimate parent thereof and (II) which
results in the voting securities of the Company outstanding immediately prior
to such merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity or any parent thereof), in combination with the ownership of any trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or any subsidiary of the Company, at least 50% of the combined voting
power of the securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation, or (b) a
merger or consolidation effected to implement a recapitalization of the Company
(or similar transaction) 

 

12

 

in which no Person is or
becomes the Beneficial Owner, directly or indirectly, of securities of the
Company (not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its Affiliates) representing
20% or more of the combined voting power of the Company’s then outstanding
securities; or

 

(iv)                              the date the shareholders of the Company approve a plan of
complete liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or substantially
all of the Company’s assets, other than a sale or disposition by the Company of
all or substantially all of the Company’s assets to an entity, at least 50% of
the combined voting power of the voting securities of which are owned by
shareholders of the Company, in combination with the ownership of any trustee
or other fiduciary holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, in substantially the same proportions as
their ownership of the Company immediately prior to such sale.

 

Notwithstanding the
foregoing, a “Change in Control” shall not be deemed to have occurred by virtue
of the consummation of any transaction or series of integrated transactions
immediately following which the record holders of the common stock of the
Company immediately prior to such transaction or series of transactions
continue to have  substantially the
same proportionate ownership in an entity which owns all or substantially all
of the assets of the Company immediately following such transaction or series
of transactions.

 

For purposes of this
Program: “Affiliate” shall have the meaning set forth in Rule 12b-2 promulgated
under Section 12 of the Exchange Act; “Beneficial Owner” shall have the
meaning set forth in Rule 13d-3 under the Exchange Act; and “Person” shall
have the meaning given in Section 3(a)(9) of the Exchange Act, as
modified and used in Sections 13(d) and 14(d) thereof, except that
such term shall not include (i) the Company or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its Affiliates, (iii) an underwriter temporarily
holding securities pursuant to an offering of such securities, or (iv) a
corporation owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of stock of the
Company.

 

(d)                                 DISABILITY.  The term “disability”
for all purposes of the Program shall mean the participant’s disability as
defined in subsection 4.1(a) of the Abbott Laboratories Extended
Disability Plan for twelve (12) consecutive months.

 

13

 

22.           ADJUSTMENT PROVISIONS.

 

(a)                                  If the Company shall at any time change the number of issued
common shares without new consideration to the Company (such as by stock
dividends or stock splits), the total number of shares reserved for issuance
under this Program, the individual and aggregate limits described in paragraphs
11 and 19 on the number of shares that may be granted or issued (as the case
may be), the number of shares covered by each outstanding Benefit and the
purchase price of such shares shall be adjusted so that the aggregate
consideration payable to the Company and the value of each such Benefit shall
not be changed.  Subject to paragraph
22(c), the Committee shall also have the right to provide for the continuation
of Benefits or for other equitable adjustments after changes in the Company or
in the common shares resulting from reorganization, sale, merger,
consolidation, spin-off or similar occurrence.

 

(b)                                 Subject to paragraph 22(c), without affecting the number of
shares otherwise reserved or available hereunder, the Committee may authorize
the issuance or assumption of Benefits in connection with any merger,
consolidation, acquisition of property or stock, or reorganization upon such
terms and conditions as it may deem appropriate.

 

(c)                                  Notwithstanding any other provision of this Program or the
Prior Programs including the terms of any Benefit granted hereunder, if the
outstanding common shares of the Company shall be combined, or be changed into,
or exchanged for, another kind of stock of the Company, into securities of
another corporation, or into property (including cash) whether through
recapitalization, reorganization, sale, merger, consolidation, spin-off,
business combination or a similar transaction (a “Transaction”), the Company
shall cause its successor, acquiror (or ultimate parent of any successor or
acquiror), as applicable, to assume each stock option, Stock Appreciation Right
and Limited Stock Appreciation Right outstanding immediately prior to the
Transaction (or to cause new options or rights to be substituted
therefor).  Pursuant to such assumed or
substituted option or rights, participants shall thereafter be entitled to
receive, upon due exercise of any portion of the option or right, (a) in
the event of a Transaction in which the outstanding common shares of the
Company are combined, or changed into, or exchanged for, solely another kind of
stock of the Company or securities of another corporation (disregarding, for
this purpose, cash paid in lieu of fractional shares), the securities which
that person would have been entitled to receive for common shares acquired
through exercise of the same portion of such option or right immediately prior
to the effective date of such Transaction, and (b) in the event of a Transaction
in which the outstanding common shares of the Company are changed into, or
exchanged for, property (including cash) other than solely stock of the Company
or securities of another corporation (disregarding, for this purpose, cash paid
in lieu of fractional shares), securities the fair market value of which
immediately following the effective date of such Transaction (as determined by
the Committee) equals the fair market value (as determined by the Committee) of
the property which that person would have been entitled to receive for common
shares acquired through exercise of the same portion of such option or 

 

14

 

right immediately prior to
the effective date of such Transaction. 
In each case such assumed or substituted option or right shall continue
to be subject to the same terms and conditions (including, without limitation,
with respect to any right to receive “replacement options” upon option
exercise) to which it was subject immediately prior to the Transaction.

 

Notwithstanding the
immediately preceding paragraph, upon a Transaction in which the outstanding
common shares of the Company are changed into, or exchanged for, property
(including cash) other than solely stock of the Company or securities of
another corporation (disregarding, for this purpose, cash paid in lieu of
fractional shares) and which constitutes a Change in Control, each participant
may elect to receive, immediately following such Transaction in exchange for
cancellation of any stock option (other than an Incentive Stock Option granted
prior to June 20, 2003), Stock Appreciation Right or Limited Appreciation
Right held by such participant immediately prior to the Transaction, a cash
payment, with respect to each common share subject to such option or right,
equal to the difference between the value of consideration (as determined by
the Committee) received by the shareholders for a common share of the Company
in the Transaction, less any applicable purchase price.

 

(d)                                 Notwithstanding any other provision of this Program or the
Prior Programs including the terms of any Benefit granted hereunder, upon the
occurrence of a Change in Control:

 

(i)                                     All stock options then outstanding under this Program or the
Prior Programs shall become fully exercisable as of the date of the Change in
Control, whether or not then otherwise exercisable;

 

(ii)                                  All Stock Appreciation Rights and Limited Stock Appreciation
Rights then outstanding shall become fully exercisable as of the date of the
Change in Control, whether or not then otherwise exercisable;

 

(iii)                               All terms and conditions of all Restricted Stock Awards then
outstanding shall be deemed satisfied as of the date of the Change in Control;

 

(iv)                              All terms and conditions of all Restricted Stock Units then
outstanding shall be deemed satisfied and all restrictions on those Restricted
Stock Units will lapse as of the date of the Change in Control; and

 

(v)                                 All Performance Awards then outstanding shall be deemed to
have been fully earned and to be immediately payable, in cash, as of the date
of the Change in Control.

 

15

 

Notwithstanding the
foregoing, with respect to each Benefit that is subject to Code Section 409A,
if a Change in Control would have occurred under the Program but such Change in
Control does not also qualify as a “change in control event” (within the
meaning of Treasury Regulation Section 1.409A-3(i)(5)), then each such
Benefit shall become vested and non-forfeitable; provided, however, that the
holder of such Benefit shall not be able to exercise the Benefit, and the
Benefit shall not become payable, except in accordance with the terms of such
Benefit or until such earlier time as the exercise and/or payment complies with
Code Section 409A.

 

23.           AMENDMENT AND TERMINATION OF PROGRAM.  The Board of Directors may amend the Program
from time to time or terminate the Program at any time, but no such action
shall reduce the then existing amount of any participant’s Benefit or adversely
change the terms and conditions thereof without the participant’s consent.
Notwithstanding the foregoing, except as provided in paragraph 22, the Company
shall neither lower the purchase price of any option granted under the Program
nor grant any option under the Program in replacement of a cancelled option
which had previously been granted at a higher purchase price, without
shareholder approval.  To the extent
required for compliance with Rule 16b-3 of the Securities and Exchange
Commission, paragraph 13 of the Program may not be amended more frequently than
once every six months other than to comport with changes in the Code or the rules thereunder,
and no amendment of the Program shall result in any Committee member losing his
or her status as a “disinterested person” as defined in Rule 16b-3 of the
Securities and Exchange Commission with respect to any employee benefit plan of
the Company or result in the Program or awards thereunder losing their exempt
status under said Rule 16b-3.

 

24.           EFFECTIVE DATE.  The
Program was originally adopted by the Board of Directors on October 13,
1995.

 

16

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