Exhibit 10.4
1986
ABBOTT LABORATORIES
MANAGEMENT INCENTIVE PLAN
(as amended and restated effective January 1,
2008)
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 became effective as of January 1, 1986 and is hereby
amended and restated as of January 1, 2008, in accordance with
the requirements of Section 409A of the Internal Revenue Code
of 1986, as amended (“Code Section 409A”).
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 (the “Board of Directors”).
1.4
GRANDFATHERED AMOUNTS.
Notwithstanding anything in the Plan to the contrary, any amounts
under the Plan that were earned and vested before January 1,
2005 (as determined in accordance with Code Section 409A) with
respect to participants who retired before January 1, 2005
(“Grandfathered Amounts”) shall be subject to the terms
and conditions of the Plan as administered and as in effect on
December 31, 2004. Amendments made to the Plan pursuant
to this amendment and restatement or otherwise shall not affect the
Grandfathered Amounts unless expressly provided for in the
amendment. The terms and conditions applicable to the
Grandfathered Amounts are set forth in Exhibit A attached
hereto.
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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.
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. 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
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
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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 or 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 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:
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(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 200 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 plus the
includible portion (as described below) of any “Eligible
Restricted Stock Award,” as defined in Section 5-2 of
the Abbott Laboratories Supplemental Pension Plan and does not
include bonuses, other awards or any other compensation of any
kind. The includible portion of a participant’s Eligible
Restricted Stock Award shall be the portion of the
participant’s Eligible Restricted Stock Award that is
included in the participant’s final earnings under the Abbott
Laboratories Supplemental Pension Plan for such year. 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 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 awards, or any other compensation of any
kind.
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:
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(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 200 percent of such participant’s base
salary for that year.
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 at the time specified in subsection 5.2 (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, which payment shall be made no later than the last day
of the “applicable 2 ½ month period”, as such
term is defined in Treasury Regulation §
1.409A-1(b)(4)(i)(A);
(b)
current payment of 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 B)
and the balance paid to the participant approximately equal to the
participant’s aggregate federal, state and local individual
income and employment taxes (determined in accordance with
subsection 6.7); provided that all payments or contributions to the
Grantor Trust and participant contemplated by this subsection
5.1(b) shall be made no later than the last day of the
“applicable 2 ½ month period”, as such term is
defined in Treasury Regulation § 1.409A-1(b)(4)(i)(A);
or
(c)
deferral of payment until such time
and in such manner as determined in accordance with subsection
5.14.
5.2
TIME OF ELECTION.
(a)
A participant must make the election
described in subsection 5.1 by filing it with the Committee or its
delegate on or before December 31
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of the year prior to the fiscal year
during which the incentive compensation is earned under the
Plan.
(b)
Notwithstanding the timing
requirements described above, an individual who newly becomes
eligible to participate in the Plan by being designated as a
participant under subsection 2.1 (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 subsection 5.1 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 subsection
5.1 shall be irrevocable for the fiscal year to which the election
applies.
5.3
SEPARATE ACCOUNTS. The Committee
shall establish accounts for participants who have made elections
pursuant to subsection 5.1(b) or 5.1(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 MIP
award under subsection 5.1(c). The Deferred Account shall
consist of allocations deferred according to subsection
5.1(c) and any adjustments made in accordance with subsection
5.4.
(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 elected to have a portion of his or her MIP award deposited
in cash to a Grantor Trust according to subsection 5.1(b).
The Pre-Tax Account shall consist of the aggregate of all
allocations contemplated by subsection 5.1(b), whether deposited to
the participant’s Grantor Trust or made in cash to the
participant, and any adjustments made in accordance with subsection
5.5. The After-Tax Account shall consist of allocations
deposited to the participant’s Grantor Trust in cash
according to subsection 5.1(b) and any adjustments made in
accordance with subsection 5.6.
5.4
ADJUSTMENT OF DEFERRED ACCOUNTS. As
of the end of each fiscal year, each participant’s Deferred
Account shall be adjusted by the Committee as follows:
(a)
FIRST, reduced by an amount equal to
any distributions made to the participant during that year pursuant
to subsections 5.14 or 5.15;
(b)
NEXT, increased by an amount equal
to the allocation for that year that is deferred pursuant to
subsection 5.1(c); and
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(c)
FINALLY, increased by an amount
equal to the interest earned for that year according to subsection
5.7.
5.5
ADJUSTMENT OF PRE-TAX ACCOUNTS. As
of the end of each fiscal year, each participant’s Pre-Tax
Account shall be adjusted by the Committee 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 subsection 5.1(b) had instead been
deferred under subsection 5.1(c);
(b)
NEXT, increased by an amount equal
to any allocation for that year that is paid to the participant
(including the amount deposited in the participant’s Grantor
Trust) according to subsection 5.1(b); and
(c)
FINALLY, increased by an amount
equal to the interest earned for that year according to subsection
5.7.
5.6
ADJUSTMENT OF AFTER-TAX ACCOUNTS. As
of the end of each fiscal year, each participant’s After-Tax
Account shall be adjusted by the Committee as follows:
(a)
FIRST, reduced, in any year in which
the participant is in receipt of a benefit distribution from his or
her Grantor Trust, by an amount calculated as provided in
subsection 5.19 which represents the distribution for such
year;
(b)
NEXT, increased by an amount equal
to the allocation for that year that is deposited in the
participant’s Grantor Trust according to subsection 5.1(b);
and
(c)
FINALLY, increased by an amount
equal to the interest earned for that year according to subsection
5.7.
5.7
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;
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(ii)
plus 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 provided above, multiplied by the aggregate of
the federal, state and local individual income tax rates determined
in accordance with subsection 6.7 (the “After-Tax
Interest”).
(c) This 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.
5.8 GUARANTEED RATE PAYMENTS. In addition to any
allocation made to a participant for any fiscal year in accordance
with subsection 5.1(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 the year is an amount
equal to the After-Tax Interest credited to the participant’s
After-Tax Account for that year in accordance with subsection
5.7.
5.9 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 specified shall
be consistent with the provisions of subsection 3(b) of the
form of Grantor Trust attached hereto as Exhibit B.
5.10
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 subsection 5.10, 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 Plan and the Predecessor Plans. 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 Plan or a Predecessor Plan). 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
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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 who 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 subsection 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 such 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:
(iii)
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
(iv)
the legal representative of the
estate of the deceased participant or deceased beneficiary as the
case may be.
5.11
STATUS OF BENEFICIARIES. Following a
participant’s death, the participant’s beneficiary or
beneficiaries will be considered and treated as an inactive
participant for all purposes of this Plan.
5.12
NON-ASSIGNABILITY AND FACILITY OF
PAYMENT. Amounts payable to participants and their beneficiaries
under the Plan 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 preceding provisions of
this subsection shall not be construed as restricting in any way a
designation right granted to a beneficiary pursuant to the terms of
subsection 5.10. 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.
5.13
PAYER OF AMOUNTS ALLOCATED TO
PARTICIPANTS. Any amount allocated to a participant in the Plan and
any interest credited thereto will be
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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
this Plan 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.
5.14
MANNER OF PAYMENT OF DEFERRED
ACCOUNTS. Subject to subsection 5.15, 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 subsection
5.1(c). Payment of a participant’s Deferred Account
shal
