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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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FORM 10-K

(MARK ONE)

/x/		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
/ /		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

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For the fiscal year ended December 31, 2000

Commission file number 1-2189

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Shares, Without Par Value (including Preferred Stock Purchase Rights)		New York Stock Exchange Chicago Stock Exchange Pacific Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X   No   

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

The aggregate market value of the 1,444,007,401 shares of voting stock held by nonaffiliates of the registrant, computed by using the closing price as reported on the consolidated transaction reporting system for Abbott Laboratories common shares without par value on January 31, 2001, was approximately $64,778,172,008. Abbott has no non-voting common equity.

Number of common shares outstanding as of January 31, 2001: 1,546,586,357

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2001 Abbott Laboratories Proxy Statement are incorporated by reference into Part III. The Proxy Statement will be filed on or about March 13, 2001.

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PART I

ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS

    Abbott Laboratories is an Illinois corporation, incorporated in 1900. Abbott's* principal business is the discovery, development, manufacture, and sale of a broad and diversified line of health care products and services.

FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS,
GEOGRAPHIC AREAS, AND CLASSES OF SIMILAR PRODUCTS

    Incorporated herein by reference is Note 13 entitled "Segment and Geographic Area Information" of the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data."

NARRATIVE DESCRIPTION OF BUSINESS

    Abbott has five reporting revenue segments: Pharmaceutical Products, Diagnostic Products, Hospital Products, Ross Products, and International. Abbott also has a 50 percent owned joint venture, TAP Pharmaceutical Products Inc. On December 15, 2000, Abbott announced that it has a definitive agreement with BASF to acquire the pharmaceutical business of BASF, which includes the global pharmaceutical operations of Knoll. This acquisition is subject to approval by regulatory agencies and satisfaction of customary closing conditions.

Pharmaceutical Products

    This segment's products include a broad line of adult and pediatric pharmaceuticals which are sold primarily on the prescription or recommendation of physicians.

    The principal products included in this segment are the anti-infectives clarithromycin, sold in the United States under the trademark Biaxin®, Omnicef®, an oral cephalosporin antibiotic, and various forms of erythromycin, sold primarily as PCE® or polymer-coated erythromycin, Erythrocin®, and E.E.S.®; agents for the treatment of epilepsy, migraine, and bipolar disorder, including Depakote®; a broad line of other products, including Flomax® for the treatment of benign prostatic hyperplasia, Mobic® for the treatment of arthritis, Micardis® for the treatment of hypertension, TriCor® for the treatment of elevated triglycerides, and the anti-virals Kaletra™ and Norvir®, protease inhibitors for the treatment of HIV infection. In addition, this segment co-promotes the proton pump inhibitor Prevacid® (lansoprazole) for short-term treatment of duodenal ulcers, gastric ulcers and erosive esophagitis under an agreement with TAP Pharmaceuticals Inc.

    This segment markets its products in the United States. These products are generally sold directly to wholesalers, government agencies, health care facilities, and independent retailers from Abbott-owned distribution centers and public warehouses. Primary marketing efforts for pharmaceutical products are directed toward securing the prescription of Abbott's brand of products by physicians. Managed care purchasers (for example, health maintenance organizations and pharmacy benefit managers) are increasingly important customers.

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*

As used throughout the text of this report on Form 10-K, the term "Abbott" refers to Abbott Laboratories, an Illinois corporation, or Abbott Laboratories and its consolidated subsidiaries, as the context requires.

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    Competition is generally from other broad line pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products which are off-patent.

Diagnostic Products

    This segment's products include diagnostic systems and tests for blood banks, hospitals, reference laboratories, alternate-care testing sites, and consumers.

    The principal products included in this segment are systems and reagents used to perform immunoassay tests including Architect®, AxSYM®, IMx®, Abbott Quantum™; Commander®, and Abbott PRISM®; screening and diagnostic tests for hepatitis B, HTLV-I/II, hepatitis B core, and hepatitis C; tests for detection of HIV antibodies and antigens, and other infectious disease detection systems; tests for determining levels of abused drugs; physiological diagnostic tests; cancer monitoring tests including tests for prostate specific antigen (PSA); therapeutic drug monitoring tests, fertility and pregnancy tests and systems such as TDx® and TDxFlx®; the Murex® line of microtiter-based immunoassay test kits; the LCx® amplified probe system and reagents; the Abbott TestPack® and Determine™ systems for rapid diagnostic testing; clinical chemistry systems such as Abbott Spectrum®, Aeroset®, Alcyon®, and Abbott Vision®; a full line of hematology systems and reagents known as the Cell-Dyn® series; the MediSense® product line of blood glucose monitoring meters, test strips, data management software and accessories for people with diabetes including Precision Xtra™, MediSense Optium®, Sof-Tact™, Soft-Sense™, Precision Q.I.D.®, MediSense II™, ExacTech® and ExacTech RSG®, Precision Link™ Direct, and Precision™ Sure-Dose insulin syringes. In addition, this segment distributes the i-STAT® point-of-care testing system through an exclusive worldwide sales and marketing alliance with i-STAT Corporation.

    This segment markets its products worldwide. These products are generally marketed and sold directly to hospitals, laboratories, clinics, and physicians' offices from Abbott-owned distribution centers and public warehouses. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. Blood glucose monitoring meters and test strips for people with diabetes are also sold over the counter to consumers.

    This segment's products are subject to competition in technological innovation, price, convenience of use, service, instrument warranty provisions, product performance, long-term supply contracts, and product potential for overall cost-effectiveness and productivity gains. Some products in this segment can be subject to rapid product obsolescence. Abbott has benefitted from technological advantages of certain of its current products; however, these advantages may be reduced or eliminated as competitors introduce new products. Certain of this segment's products are subject to restrictions on their sale in the United States. These restrictions are discussed in the section captioned "Regulation" on page 7.

Hospital Products

    This segment's products include drugs and drug delivery systems, perioperative and intensive care products, cardiovascular products, renal products, oncology products, intravenous and irrigation solutions, related manual and electronic administration equipment, and diagnostic imaging products for hospitals and alternate-care sites.

    The principal products included in this segment are hospital injectables including Carpuject® and FirstChoice® generics; premixed intravenous drugs in various containers; ADD-Vantage® and Nutrimix® drug and nutritional delivery systems; anesthetics, including Pentothal®, Amidate®, Ultane®, isoflurane, and enflurane; products for anxiety, nausea and pain associated with surgery; Precedex™ for sedation; cardiovascular products including Corlopam®; Techstar®, Prostar®, and The Closer™ vessel closure products; Opticath® and OptiQ™ advanced sensor catheters; Transpac® for hemodynamic monitoring;

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peripheral wires, catheters, and other specialty cardiac products; Calcijex® and Zemplar™, injectable agents for treatment of bone disease in hemodialysis patients; intravenous solutions and related administration equipment sold as the LifeCare® line of products, LifeShield® needleless products, and Venoset® products; irrigating fluids; parenteral nutritionals such as Aminosyn® and Liposyn®; Plum®, Omni-Flow®, and Abbott AIM® electronic drug delivery systems; Abbott Pain Manager®; patient-controlled analgesia systems; venipuncture products; diagnostic imaging products used in MRI (magnetic resonance imaging) and CT (computed tomography) imaging; and Faultless® rubber sundry products.

    This segment markets its products primarily in the United States. They are generally distributed to wholesalers and directly to hospitals from Abbott-owned distribution centers and public warehouses. This segment also develops and manufactures products for other companies.

    This segment's products are subject to competition in technological innovation, price, convenience of use, instrument warranty provisions, service, product performance, long-term supply contracts, and product potential for overall cost effectiveness and productivity gains. Some products in this segment can be subject to rapid product obsolescence. Abbott has benefitted from technological advantages of certain of its current products; however, these advantages may be reduced or eliminated as competitors introduce new products.

Ross Products

    This segment's products include a broad line of adult and pediatric nutritionals. These products are sold primarily on the recommendation of physicians or other health care professionals. The segment also includes specialty pharmaceuticals and self-care consumer products.

    Principal nutritional products include various forms of prepared infant formula, including Similac®, Similac®II, Isomil®, Isomil®II, Alimentum®, and NeoSure®; and other adult and pediatric products, including Ensure®, Ensure Plus®, Ensure® High Protein, Ensure® Light, Jevity®, Glucerna®, PediaSure®, Pedialyte®, and Pulmocare®. Principal consumer products include the Fact Plus® and Fact Plus® One Step pregnancy tests, the dandruff shampoo Selsun Blue®; Murine® eye care and ear care products; and Tronolane® hemorrhoid medication. The principal pharmaceutical product is Survanta®. In addition, this segment co-promotes Synagis® under an agreement with MedImmune Incorporated.

    This segment markets its products in the United States. Nutritional products are generally sold directly to retailers, wholesalers, health care facilities, and government agencies. In most cases, they are distributed from Abbott-owned distribution centers or public warehouses. Primary marketing efforts for nutritional products are directed toward securing the recommendation of Abbott's brand of products by physicians or other health care professionals. Competition is generally from other broad line and specialized health care manufacturers. Nutritional products are subject to competition in price, formulation, scientific innovation, and promotional initiatives.

    This segment's pharmaceutical products are generally marketed and sold directly to physicians, retailers, wholesalers, health care facilities, and government agencies. In most cases, they are distributed from Abbott-owned distribution centers or public warehouses. Primary marketing efforts for this segment's pharmaceutical products are directed at securing the prescription of these products by physicians. Competition is generally from other broad line pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products which are off-patent.

    Consumer products and PediaSure®, Pedialyte®, and Ensure® retail products are promoted directly to the public by consumer advertising. These products are generally sold directly to retailers and wholesalers. Competitive products are sold by other diversified consumer and health care companies. Competitive

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factors include consumer advertising, formulation, scientific innovation, price, and availability of generic product forms.

    Ensure® is the leading adult nutritional supplement and Similac® and Isomil® are leading infant formulas in the United States. (Source: A. C. Nielsen Co.)

International

    This segment's products include a broad line of hospital, pharmaceutical, and adult and pediatric nutritional products marketed and primarily manufactured outside the United States. These products are sold primarily on the prescription or recommendation of physicians and other health care professionals. This segment also includes consumer products.

    This segment's principal products include the anti-infectives clarithromycin, sold under the trademarks Biaxin®, Klacid® and Klaricid®, tosufloxacin, sold in Japan under the trademark Tosuxacin®, and various forms of the antibiotic erythromycin, sold primarily as PCE® or polymer-coated erythromycin, Erythrocin®, and E.E.S.®; the anti-viral Norvir®, a protease inhibitor for the treatment of HIV infection; Lupron®, also marketed as Lucrin®, and Lupron Depot® used for the palliative treatment of advanced prostate cancer, treatment of endometriosis and central precocious puberty and for the preoperative treatment of patients with anemia caused by uterine fibroids; Prevacid® (lansoprazole), a proton pump inhibitor for the short-term treatment of duodenal ulcers, gastric ulcers, and erosive esophagitis; various cardiovascular products, including Loftyl®, a vasoactive agent; Hytrin®, also marketed as Hitrin® and Flotrin®, used as an anti-hypertensive and for the treatment of benign prostatic hyperplasia, and candesartan, sold under the trademarks Blopress™ and Tiadyl™, an angiotension 2 antagonist; meloxicam, a preferential COX-2 inhibitor; various forms of infant formulas and follow-on formulas, including Similac Advance®, Gain®, and Abbott Grow™; various adult medical nutritionals, including Ensure®, Glucerna®, and Jevity®; and a broad line of hospital products, including the anesthesia products sevoflurane (sold outside of the United States primarily under the trademark Sevorane® and in a few other markets as Ultane®), isoflurane, and enflurane; specialty injectables such as Calcijex® and Survanta®; and electronic drug delivery systems sold in select international markets.

    This segment's pharmaceutical and nutritional products are generally sold directly to government agencies, retailers, wholesalers, and health care facilities. In most cases, they are distributed from Abbott-owned distribution centers. Certain products are co-marketed with other companies. Some of these products are marketed and distributed through distributors. Primary marketing efforts for pharmaceutical products are directed toward securing the prescription of Abbott's brand of products by physicians. Competition is generally from other broad line and specialized pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products. Primary marketing efforts for nutritional products are directed toward securing the recommendation of Abbott's brand of products by physicians or other health care professionals. Competition is generally from other broad line and specialized health care manufacturers and food companies. Nutritional products are subject to competition in price, scientific innovation, formulation, and promotional initiatives.

    This segment's hospital products are generally distributed to wholesalers and directly to hospitals from distribution centers maintained by Abbott. This segment is subject to competition in technological innovation, price, convenience of use, instrument warranty provisions, service, product performance, long-term supply contracts, and product potential for overall cost effectiveness and productivity gains. Products in this segment can be subject to rapid product obsolescence. Abbott has benefitted from technological advantages of certain of its current products; however, these advantages may be reduced or eliminated as competitors introduce new products.

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TAP Pharmaceutical Products Inc.

    Under an agreement between Abbott and Takeda Chemical Industries, Ltd. of Japan (Takeda), TAP Pharmaceutical Products Inc. (owned 50 percent by Abbott and 50 percent by an affiliate of Takeda), together with its subsidiary, TAP Pharmaceuticals Inc. (TAP), develops and markets pharmaceutical products for the United States and Canada. TAP markets Lupron®, an LH-RH analog, and Lupron Depot®, a sustained release form of Lupron®, in the United States. Lupron® and Lupron Depot® are used principally for the palliative treatment of advanced prostate cancer and for the treatment of endometriosis and central precocious puberty and for the preoperative treatment of patients with anemia caused by uterine fibroids. TAP also markets Prevacid® (lansoprazole), a proton pump inhibitor, and has a co-promotion arrangement with Abbott for Prevacid®. Its principal indications are for short-term treatment of duodenal ulcers, gastric ulcers, and erosive esophagitis.

    TAP's products are generally sold directly to physicians, retailers, wholesalers, health care facilities, and government agencies. In most cases, they are distributed from Abbott-owned distribution centers. Primary marketing efforts for pharmaceutical products are directed toward securing the prescription of TAP's brand of products by physicians. Managed care purchasers (for example, health maintenance organizations and pharmacy benefit managers) are increasingly important customers. Competition is generally from other pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products that are off-patent.

INFORMATION WITH RESPECT TO ABBOTT'S BUSINESS IN GENERAL

Sources and Availability of Raw Materials

    Abbott purchases, in the ordinary course of business, necessary raw materials and supplies essential to Abbott's operations from numerous suppliers in the United States and overseas. There have been no recent significant availability problems or supply shortages.

Patents, Trademarks, and Licenses

    Abbott is aware of the desirability for patent and trademark protection for its products. Accordingly, where possible, patents and trademarks are sought and obtained for Abbott's products in the United States and all countries of major marketing interest to Abbott. Abbott owns and is licensed under a substantial number of patents and patent applications. Principal trademarks and the products they cover are discussed in the Narrative Description of Business on pages 1 through 5. These, and various patents which expire during the period 2001 to 2021, in the aggregate, are believed to be of material importance in the operation of Abbott's business. Abbott believes that no single patent, license, trademark (or related group of patents, licenses, or trademarks), except for those related to clarithromycin (which is sold under the trademarks Biaxin®, Klacid® and Klaricid®), are material in relation to Abbott's business as a whole. The original United States compound patent covering clarithromycin is licensed from Taisho Pharmaceutical Co., Ltd. of Tokyo, Japan, and will expire in 2005. In addition, the patents, licenses, and trademarks related to divalproex sodium (which is sold under the trademark Depakote®) are significant for Abbott's Pharmaceutical Products segment. The original United States compound patents covering divalproex sodium will expire in 2008. Litigation involving Abbott's patents covering divalproex sodium is discussed in Legal Proceedings on pages 10 and 11.

Seasonal Aspects, Customers, Backlog, and Renegotiation

    There are no significant seasonal aspects to Abbott's business. The incidence of certain infectious diseases which occur at various times in different areas of the world does, however, affect the demand for

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Abbott's anti-infective products. Orders for Abbott's products are generally filled on a current basis, and order backlog is not material to Abbott's business. No single customer accounted for sales equaling 10 percent or more of Abbott's consolidated net sales. No material portion of Abbott's business is subject to renegotiation of profits or termination of contracts at the election of the government.

Research and Development

    Abbott spent $1,351,024,000 in 2000, $1,193,963,000 in 1999, and $1,228,777,000 in 1998 on research to discover and develop new products and processes and to improve existing products and processes. Abbott continues to concentrate research expenditures on pharmaceutical and diagnostic products.

Environmental Matters

    Abbott believes that its operations comply in all material respects with applicable laws and regulations concerning environmental protection. Regulations under federal and state environmental laws impose stringent limitations on emissions and discharges to the environment from various manufacturing operations. Abbott's capital and operating expenditures for pollution control in 2000 were approximately $23 million and $59 million, respectively. Capital and operating expenditures for pollution control are estimated to approximate $27 million and $62 million, respectively, in 2001.

    Abbott has been identified as one of many potentially responsible parties in investigations and/or remediations at 24 locations in the United States including Puerto Rico under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund. The aggregate costs of remediation at these sites by all identified parties are uncertain but have been subject to widely ranging estimates totaling as much as several hundred million dollars. In many cases, Abbott believes that the actual costs will be lower than these estimates, and the fraction for which Abbott may be responsible is anticipated to be considerably less and will be paid out over a number of years. Abbott may participate in the investigation or cleanup at these sites. Abbott is also voluntarily investigating potential contamination at six Abbott-owned sites, and is engaged in remediation at three sites, in cooperation with the Environmental Protection Agency (EPA) or similar state agencies.

    While it is not feasible to predict with certainty the costs related to the previously described investigations and cleanup activities, Abbott believes that such costs, together with other expenditures to maintain compliance with applicable laws and regulations concerning environmental protection, should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations.

Employees

    Abbott employed 60,571 persons as of December 31, 2000.

Regulation

    In late 1998, the United States Food and Drug Administration (FDA) suspended its approval of the release of production lots of Abbott's pharmaceutical product Abbokinase® due to current Good Manufacturing Practice concerns raised by the FDA following inspections of Abbott and its raw material supplier. In January 1999, after Abbott revised the product's labeling to add additional warnings and the FDA issued a health care provider information sheet, the FDA released certain lots that were under its review. No lots have been released since January 1999. Abbott submitted a letter to the FDA on October 7, 1999, responding to the FDA's concerns and committing to meet all outlined criteria for the release of Abbokinase. On December 10, 1999, Abbott met with the FDA to review Abbott's plan for the qualification of new raw materials and reinitiation of manufacturing. The FDA concurred with Abbott's strategy. In the future, Abbott will sell only Abbokinase that is manufactured with new raw materials that meet current criteria. Abbott cannot predict, however, whether it will be successful in qualifying new raw material sources or the effect of this matter on future sales of Abbokinase.

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    On November 4, 1999, a consent decree was entered in the United States District Court for the Northern District of Illinois which settled issues with the United States government involving alleged noncompliance with the FDA's Quality System Regulations at Abbott's diagnostic manufacturing operations in Lake County, Illinois. The decree required Abbott to make a payment of $100 million to the United States government and to ensure its diagnostic manufacturing processes in Lake County, Illinois conform with the FDA's current Quality System Regulation. The consent decree does not represent an admission by Abbott of any violation of the Federal Food, Drug and Cosmetic Act or its regulations. The decree allows for the continued manufacture and distribution of medically necessary diagnostic products made in Lake County, Illinois, such as certain assays for hepatitis, retrovirus, cardiovascular disease, cancer, thyroid disorders, fertility, drug monitoring, and congenital and respiratory conditions. However, Abbott is prohibited from manufacturing or distributing certain other diagnostic products until Abbott ensures the processes in its Lake County, Illinois diagnostics manufacturing operations conform with the current Quality System Regulation. Under the terms of the consent decree, among other actions, Abbott has submitted to the FDA proposed master compliance and validation plans to ensure its processes conform with the current Quality System Regulation. Originally, the decree required Abbott to ensure its facilities are in conformance with the current Quality System Regulation by November 3, 2000. However, on December 19, 2000, upon a joint motion by Abbott and the U.S. government, the Court entered an Amended Consent Decree, which extended to January 15, 2001, the deadline for ensuring conformance with the Quality System Regulation. The consent decree does not affect Abbott's MediSense, i-STAT, hematology or Murex products; the clinical chemistry products Abbott Spectrum®, Aeroset®, and Alcyon®; or any other Abbott divisions or their products. The consent decree allows Abbott to export diagnostic products and components for sale and distribution outside the United States if they meet the export requirements of the Federal Food, Drug and Cosmetic Act.

    The development, manufacture, sale, and distribution of Abbott's products are subject to comprehensive government regulation. Government regulation by various federal, state, and local agencies, which includes detailed inspection of, and controls over, research and laboratory procedures, clinical investigations, and manufacturing, marketing, sampling, distribution, record keeping, storage, and disposal practices, substantially increases the time, difficulty, and costs incurred in obtaining and maintaining the approval to market newly developed and existing products. Government regulatory actions can result in delay in the release of products, seizure or recall of products, suspension or revocation of the authority necessary for their production and sale, and other civil or criminal sanctions.

    Continuing studies of the utilization, safety, and efficacy of health care products and their components are being conducted by industry, government agencies, and others. Such studies, which employ increasingly sophisticated methods and techniques, can call into question the utilization, safety, and efficacy of previously marketed products and in some cases have resulted, and may in the future result, in the discontinuance of marketing of such products and may give rise to claims for damages from persons who believe they have been injured as a result of their use.

    The cost of human health care products continues to be a subject of investigation and action by governmental agencies, legislative bodies, and private organizations in the United States and other countries. In the United States, most states have enacted generic substitution legislation requiring or permitting a dispensing pharmacist to substitute a different manufacturer's version of a pharmaceutical product for the one prescribed. Federal and state governments continue to press efforts to reduce costs of Medicare and Medicaid programs, including restrictions on amounts agencies will reimburse for the use of products. In addition, the federal government follows a diagnosis-related group (DRG) payment system for certain institutional services provided under Medicare or Medicaid and is implementing a prospective payment system (PPS) for services delivered in hospital outpatient, nursing home, and home health settings. DRG and PPS entitle a health care facility to a fixed reimbursement based on diagnosis rather than actual costs incurred in patient treatment, thereby increasing the incentive for the facility to limit or control expenditures for many health care products. Manufacturers must pay certain statutorily-prescribed

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rebates on Medicaid purchases for reimbursement on prescription drugs under state Medicaid plans. The Veterans Health Care Act of 1992 requires manufacturers to extend additional discounts on pharmaceutical products to various federal agencies, including the Department of Veterans Affairs, Department of Defense, and Public Health Service entities and institutions.

    In the United States, governmental cost-containment efforts have extended to the federally funded Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). All states participate in WIC and have sought and obtained rebates from manufacturers of infant formula whose products are used in the program. Over the last five years, all of the states have conducted competitive bidding for infant formula contracts which require the use of specific infant formula products by the state WIC program. States participating in WIC are required to engage in competitive bidding or to use any other cost containment measure that yields savings equal to or greater than the savings generated by a competitive bidding system.

    Governmental regulatory agencies require prescription drug manufacturers to pay fees. The FDA imposes substantial fees on various aspects of the approval, manufacture, and sale of proprietary prescription drugs.

    Abbott expects debate to continue during 2001 at both the federal and the state level over the availability, method of delivery, and payment for health care products and services. Abbott believes that if legislation is enacted, it could have the effect of reducing prices, or reducing the rate of price increases, for medical products and services.

    International operations are also subject to a significant degree of government regulation. Many countries, directly or indirectly through reimbursement limitations, control the selling price of most health care products. Furthermore, many developing countries limit the importation of raw materials and finished products. International regulations also are having an impact on United States regulations. The International Organization for Standardization (ISO) provides the criteria for meeting the regulations for medical devices within the European Union. Abbott has made significant strides in gaining ISO 9000 and European Norm 46000 certification for facilities that manufacture devices for European markets. FDA regulations governing the manufacture of medical devices appear to encompass and exceed the ISO's approach to regulating medical devices. The FDA's adoption of the ISO's approach to regulation and other changes to the manner in which the FDA regulates medical devices will increase the cost of compliance with those regulations.

    Efforts to reduce health care costs are also being made in the private sector. Health care providers have responded by instituting various cost reduction and containment measures.

    It is not possible to predict the extent to which Abbott or the health care industry in general might be affected by the matters discussed above.

INTERNATIONAL OPERATIONS

    Abbott markets products in approximately 130 countries through affiliates and distributors. Most of the products discussed in the preceding sections of this report are also sold outside the United States. In addition, certain products of a local nature and variations of product lines to meet local regulatory requirements and marketing preferences are manufactured and marketed to customers outside the United States. International operations are subject to certain additional risks inherent in conducting business outside the United States, including price and currency exchange controls, changes in currency exchange rates, limitations on foreign participation in local enterprises, expropriation, nationalization, and other governmental action.

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ITEM 2. PROPERTIES

    Abbott's corporate offices are located at 100 Abbott Park Road, Abbott Park, Illinois 60064-6400. The locations of Abbott's principal plants are listed below.

Location		Reportable Revenue Segments of Products Produced
Abbott Park, Illinois		Pharmaceutical Products, Diagnostic Products, and Hospital Products
Abingdon, England		Diagnostic Products
Altavista, Virginia		Ross Products
Ashland, Ohio		Hospital Products
Austin, Texas		Hospital Products
Barceloneta, Puerto Rico		Pharmaceutical Products and Diagnostic Products
Bedford, Massachusetts		Diagnostic Products
Brockville, Canada		International
Campoverde, Italy		International
Casa Grande, Arizona		Ross Products
Columbus, Ohio		Ross Products
Dartford, England		Diagnostic Products
Delkenheim, Germany		Diagnostic Products
Haina, San Cristoba, Dominican Republic		Hospital Products
Irving, Texas		Diagnostic Products
Laurinburg, North Carolina		Hospital Products
McPherson, Kansas		Hospital Products
Mexico City, Mexico		International
Montreal, Canada		International
Morgan Hill, California		Hospital Products
North Chicago, Illinois		Pharmaceutical Products and Hospital Products
Queenborough, England		International
Rocky Mount, North Carolina		Hospital Products
Salt Lake City, Utah		Hospital Products
San Jose, Costa Rica		Hospital Products
Santa Clara, California		Diagnostic Products
Sligo/Donegal/Cootehill/Finisklin, Ireland		Diagnostic Products and International
Sturgis, Michigan		Ross Products
St. Remy, France		International
Tokyo, Japan		Diagnostic Products
Zwolle, The Netherlands		International

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    In addition to the above, Abbott has manufacturing facilities in six other locations in the United States, including Puerto Rico. Outside the United States manufacturing facilities are located in 15 other countries. Abbott's facilities are deemed suitable, provide adequate productive capacity, and are utilized at normal and acceptable levels.

    In the United States, including Puerto Rico, Abbott owns 11 distribution centers. Abbott also has 13 United States research and development facilities located at: Abbott Park, Illinois; Ashland, Ohio; Bedford, Massachusetts; Columbus, Ohio (two locations); Irving, Texas; Long Grove, Illinois; McPherson, Kansas; Morgan Hill, California; North Chicago, Illinois; Redwood City, California; Santa Clara, California; and San Diego, California. Outside the United States, Abbott has research and development facilities in Argentina, Australia, Canada, France, Germany, Ireland, Japan, The Netherlands, South Africa, Spain, and the United Kingdom.

    The corporate offices, and those principal plants in the United States that are listed above, are owned by Abbott or subsidiaries of Abbott. The remaining manufacturing plants and all other facilities are owned or leased by Abbott or subsidiaries of Abbott. There are no material encumbrances on the properties.

ITEM 3. LEGAL PROCEEDINGS

    Abbott is involved in various claims and legal proceedings, including (as of January 31, 2001), 125 antitrust lawsuits and 2 investigations in connection with Abbott's pricing of prescription pharmaceuticals, 3 cases involving Abbott's patents for divalproex sodium, a drug that Abbott sells under the trademark Depakote®, 21 antitrust lawsuits and 2 investigations involving Abbott's patents for terazosin hydrochloride, a drug that Abbott sells under the trademark Hytrin®, 5 cases involving Abbott's alleged noncompliance with the United States Food and Drug Administration's Quality System Regulation at Abbott's Diagnostic Products division facilities in Lake County, Illinois, and 6 investigations regarding the marketing and pricing practices of Abbott with respect to certain Medicare and Medicaid reimbursable products.

    As of January 31, 2001, 110 prescription pharmaceutical pricing antitrust cases were pending in federal court and 15 were pending in state courts. The prescription pharmaceutical pricing antitrust suits allege that various pharmaceutical manufacturers and pharmaceutical wholesalers have conspired to fix prices for prescription pharmaceuticals and/or to discriminate in pricing to retail pharmacies by providing discounts to mail-order pharmacies, institutional pharmacies, and HMOs in violation of state and federal antitrust laws. The suits have been brought on behalf of individual consumers and retail pharmacies and name both Abbott and certain other pharmaceutical manufacturers and pharmaceutical wholesalers and at least one mail-order pharmacy company as defendants. The cases seek treble damages, civil penalties, and injunctive and other relief. Abbott has filed or intends to file a response to each of the complaints denying all substantive allegations. The federal cases are pending in the United States District Court for the Northern District of Illinois under the Multidistrict Litigation Rules as In re: Brand Name Prescription Drug Antitrust Litigation, MDL 997. The state cases are pending in the following state courts: Clarke County, Alabama; Monterey County, California; San Francisco County, California (5 cases); San Joaquin County, California; Santa Clara County, California; Prentiss County, Mississippi; Burleigh County, North Dakota; San Miguel County, New Mexico; Hughes County, South Dakota; Cocke County, Tennessee; and Marshall County, West Virginia. Abbott has settled the consumer lawsuit pending in Prentiss County, Mississippi and is awaiting a formal dismissal order. The investigations are being conducted by the Attorney General of Illinois and the Federal Trade Commission.

    As of January 31, 2001, three cases were pending involving Abbott's patents for divalproex sodium, a drug that Abbott sells under the trademark Depakote®. On October 24, 1997, after having been notified that TorPharm, a division of Apotex, Inc. ("TorPharm") had applied to the Federal Food and Drug Administration (the "FDA") for approval for a generic version of divalproex sodium, Abbott sued TorPharm in the United States District Court for the Northern District of Illinois alleging patent

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infringement. TorPharm contends that its product does not infringe Abbott's patents and that, in any event, the patents are invalid and unenforceable. A trial had been scheduled for October 17, 2000, but has been postponed. A new trial date has been scheduled for October 16, 2001. On August 28, 1992, after having been notified that Alra Laboratories, Inc. ("Alra") had applied to the FDA for approval for a generic version of divalproex sodium, Abbott sued Alra in the United States District Court for the Northern District of Illinois alleging patent infringement. On October 20, 1997, the court granted Abbott's motion for summary judgment and found that Alra's product infringes Abbott's patents. Alra filed a motion for reconsideration of the court's ruling. That motion was granted in part and denied in part. On November 23, 1999, the court re-affirmed its prior rulings granting Abbott summary judgment. Alra has appealed. On March 9, 2000, after having been notified that Andrx Corporation had filed an abbreviated new drug patent application to market a generic version of divalproex sodium, Abbott filed a patent infringement lawsuit against Andrx Corporation, Andrx Pharmaceutical, and Andrx Pharmaceutical, L.L.C. in the United States District Court for the Northern District of Illinois alleging patent infringement. On April 14, 2000, Abbott filed patent infringment lawsuits aginst these three Andrx companies in the United States District Court for the Southern District of Florida. The case in United States District Court for the Northern District of Illinois was then transferred to United States District Court for the Southern District of Florida and consolidated with the case pending in that court. A trial is scheduled for November 2001.

    As of January 31, 2001, 18 antitrust cases were pending in federal court and 3 were pending in state court in connection with the settlement of litigation by Abbott involving terazosin hydrochloride, a drug sold by Abbott under the trademark Hytrin®. Generally, each seeks actual damages, treble damages, and other relief. Each case alleges Abbott violated state or federal antitrust laws, and in some cases, unfair competition laws when it settled 2 cases involving Abbott's patents for terazosin hydrochloride. On March 31, 1998, Abbott and Zenith Laboratories, Inc. ("Zenith") reached an agreement that resolved the patent litigation and the litigation of other claims between the parties. In the settlement, Zenith acknowledged the validity of Abbott's terazosin hydrochloride patents and agreed to refrain from selling a generic version of terazosin hydrochloride until the expiration of one of Abbott's patents for terazosin hydrochloride (U.S. Patent No. 4,251,532). On April 1, 1998, Abbott and Geneva Pharmaceuticals, Inc. ("Geneva") reached an agreement under which Geneva would not market its Food and Drug Administration approved generic terazosin hydrochloride products until resolution of the pending patent litigation between the parties. Abbott agreed to make quarterly payments to Zenith and monthly payments to Geneva until the date on which they could enter the market for terazosin hydrochloride under their agreements. Under the agreements, both Zenith and Geneva would have been free to enter the market for terazosin hydrochloride in the United States if certain of Abbott's patents for terazosin hydrochloride were determined to be invalid and if another company legally entered the generic market in the United States. On August 12, 1999, Abbott and Geneva terminated their April 1, 1998 agreement, and Geneva returned to Abbott a portion of the payments held in escrow under the agreement. On August 13, 1999, Geneva entered the market with its product. The 18 federal court cases are pending in the United States District Court for the Southern District of Florida under the Multidistrict Litigation Rules as In Re: Terazosin Hydrochloride, MDL No. 1317. The 3 state court cases: Asher and New Utrecht Pharmacy v. Abbott Laboratories, Geneva Pharmaceuticals and Zenith Goldline Pharmaceuticals, Inc.; Drug Mart Pharmacy Company Corp. v. Abbott Laboratories, Zenith Goldline Pharmaceuticals, Inc. and Geneva Pharmaceuticals, Inc.; and Lisanti v. Abbott Laboratories, Zenith Goldline Pharmaceuticals, Inc. and Geneva Pharmaceuticals, Inc. have been consolidated by and are pending in the Supreme Court of the State of New York, County of New York. Abbott has filed or intends to file a response to each complaint denying all substantive allegations. The State of Florida, Office of the Attorney General, and the State of New York, Office of the Attorney General, are conducting the investigations.

    As of January 31, 2001, 5 shareholder derivative suits were pending relating to Abbott's alleged noncompliance with the Food and Drug Administration's Quality System Regulation at Abbott's Diagnostic Products division facilities in Lake County, Illinois. (This matter is discussed in greater detail in

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"Regulation" on page 7 and is incorporated herein by this reference.) These lawsuits name as defendants the members of Abbott's Board of Directors as of November 1999, certain other former directors and, nominally, Abbott, and claim that the directors breached their fiduciary duties by, among other things, (a) allowing the alleged regulatory noncompliance, (b) failing to publicly disclose the alleged regulatory noncompliance in supposed violation of federal securities law, (c) misusing or permitting the misuse of corporate information for the personal profit of corporate insiders in supposed violation of federal and state law, and (d) causing Abbott to pay $100 million to the federal government and withdraw certain medical diagnostics kits from the U.S. market. In each case, the plaintiffs request unspecified monetary damages to be paid to Abbott, that the directors indemnify Abbott for all fines, penalties or damages paid by Abbott in connection with the alleged regulatory noncompliance, reimbursement of their legal fees and costs, and various forms of other relief. The United States District Court for the Northern District of Illinois consolidated into "In Re: Abbott Laboratories Derivative Shareholder Litigation" the four derivative lawsuits filed by Leonard Bronstein, the Carpenters Pension Fund of Arkansas and David Kaufman, Leo Farrell, and F. David Seinfeld. On November 9, 2000, these plaintiffs filed a second consolidated and amended verified complaint (the court having dismissed without prejudice their original consolidated complaint), generally alleging that the directors' breached their duty of diligence by failing to (i) prevent Abbott's alleged regulatory non-compliance or (ii) create a monitoring system to prevent and correct regulatory non-compliance. The second consolidated complaint seeks unspecified restitution and/or damages, including punitive and exemplary damages, injunctive relief, and reimbursement of their legal fees and costs. Abbott denies all of the substantive allegations in this lawsuit and will vigorously defend against it. Abbott has moved to dismiss the second consolidated complaint. The fifth shareholder derivative lawsuit was filed by Craig Heneghan and Marjory Motiaytis in the Circuit Court for the Nineteenth Judicial Circuit, Lake County, Illinois. On April 6, 2000, the Lake County Circuit Court granted Abbott's motion to stay the Heneghan/Motiaytis lawsuit until the shareholder derivative suits pending in federal court are decided.

    Abbott has previously reported that fourteen other cases were pending that were related to Abbott's alleged noncompliance with the Food and Drug Administration's Quality System Regulation at Abbott's Diagnostic Products division facilities in Lake County, Illinois. Thirteen of these cases were consolidated by and pending in the United States District Court for the Northern District of Illinois as "In re Abbott Laboratories Securities Litigation." On January 26, 2001, the court dismissed with prejudice the consolidated complaint and each of the lawsuits. The fourteenth case was filed by Lena Gallagher in the United States District Court for the Eastern District of Illinois and purported to be a class action. On January 26, 2001, the court dismissed with prejudice this complaint. The plaintiffs may appeal these decisions.

    Various state and federal agencies, including the United States Department of Justice and the California, Florida, Illinois, Nevada and Texas Attorneys General, are investigating the marketing and pricing practices of Abbott with respect to certain Medicare and Medicaid reimbursable products. These civil investigations seek to determine whether these practices violated any laws, including the Federal False Claims Act or constituted fraud in connection with the Medicare and/or Medicaid reimbursement paid to third parties.

    While it is not feasible to predict the outcome of such pending claims, proceedings, and investigations with certainty, management is of the opinion that their ultimate dispositions should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations.

    In addition to the claims and legal proceedings involving Abbott described above, the United States Department of Justice is investigating the marketing and pricing practices of TAP Pharmaceutical Products Inc. for leuprolide acetate depot suspension (a drug TAP markets as Lupron Depot®). This investigation seeks to determine whether these practices resulted in any violations of civil and/or criminal laws, including the Federal False Claims Act, the Anti-Kickback Act, and the Prescription Drug Marketing Act, or fraud in connection with the Medicare and/or Medicaid reimbursement paid to third parties. The

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Texas Attorney General is also investigating some of these practices. Abbott owns 50 percent of TAP. While it is not feasible to predict the outcome of these proceedings with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on Abbott's financial position or ongoing cash flow and results of operations but that they could have a material adverse effect on Abbott's cash flow and results of operations for a particular period.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

    None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

    Executive officers of Abbott are elected annually by the board of directors. All other officers may be elected by the board or appointed by the chairman of the board. All officers are either elected at the first meeting of the board of directors held after the annual shareholder meeting or appointed by the chairman after that board meeting. Each officer holds office until a successor has been duly elected or appointed and qualified or until the officer's death, resignation, or removal. Vacancies may be filled at any meeting of the board. Any officer may be removed by the board of directors when, in its judgment, removal would serve the best interests of Abbott. Any officer appointed by the chairman of the board may be removed by the chairman whenever, in the chairman's judgment, removal would serve the best interests of Abbott. A vacancy in any office appointed by the chairman of the board may be filled by the chairman.

    Current corporate officers, and their ages as of March 1, 2001, are listed below. The officers' principal occupations and employment from January 1996 to March 1, 2001 and the dates of their first election as officers of Abbott are also shown. Unless otherwise stated, employment was by Abbott for the period indicated. There are no family relationships between any corporate officers or directors.

Miles D. White**, 45

    1999 to present — Chairman of the Board and Chief Executive Officer, and Director.

    1998 to 1999 — Executive Vice President and Director.

    1996 to 1998 — Senior Vice President, Diagnostic Operations.

    Elected Corporate Officer — 1993.

Jeffrey M. Leiden**, 45

    2000 to present — Executive Vice President, Pharmaceuticals and Chief Scientific Officer, and Director.

    2000 — Senior Vice President, Chief Scientific Officer and Director.

    1999 to 2000 — Elkan R. Blount Professor of Biological Sciences, Harvard School of Public Health and Professor of Medicine, Harvard Medical School.

    1996 to 1999 — Frederick H. Rawson Professor of Medicine and Pathology and Chief of the Section of Cardiology, University of Chicago.

    Elected Corporate Officer — 2000.

Richard A. Gonzalez**, 47

    2000 to present — Executive Vice President, Medical Products.

    1998 to 2000 — Senior Vice President, Hospital Products.

    1996 to 1998 — Vice President, Abbott HealthSystems.

    Elected Corporate Officer — 1995.

Joy A. Amundson**, 46

    1998 to present — Senior Vice President, Ross Products.

    1996 to 1998 — Senior Vice President, Chemical and Agricultural Products.

    Elected Corporate Officer — 1990.

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Christopher B. Begley**, 48

    2000 to present — Senior Vice President, Hospital Products.

    1999 to 2000 — Senior Vice President, Chemical and Agricultural Products.

    1998 to 1999 — Vice President, Abbott HealthSystems.

    1996 to 1998 — Vice President, MediSense Operations.

    1996 — Vice President, Hospital Products Business Sector.

    Elected Corporate Officer — 1993.

Thomas D. Brown**, 52

    1998 to present — Senior Vice President, Diagnostic Operations.

    1996 to 1998 — Vice President, Diagnostic Commercial Operations.

    Elected Corporate Officer — 1993.

Gary P. Coughlan**, 57

    1996 to present — Senior Vice President, Finance and Chief Financial Officer. (Mr. Coughlan has announced that he plans to retire on March 31, 2001).

    Elected Corporate Officer — 1990.

Jose M. de Lasa**, 59

    1996 to present — Senior Vice President, Secretary and General Counsel.

    Elected Corporate Officer — 1994.

William G. Dempsey**, 49

    1999 to present — Senior Vice President, International Operations.

    1998 to 1999 — Senior Vice President, Chemical and Agricultural Products.

    1996 to 1998 — Vice President, Hospital Products Business Sector.

    1996 — Divisional Vice President, Hospital Products Business Sector Sales.

    Elected Corporate Officer — 1996.

Arthur J. Higgins**, 44

    1998 to present — Senior Vice President, Pharmaceutical Operations.

    1996 to 1998 — Vice President, Pacific, Asia, and Africa Operations.

    1996 — Divisional Vice President, Pacific, Asia, and Africa Operations.

    Elected Corporate Officer — 1996.

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Thomas M. Wascoe**, 54

    1999 to present — Senior Vice President, Human Resources.

    1996 to 1999 — Divisional Vice President, Human Resources, Diagnostic Products.

    Elected Corporate Officer — 1999.

Lance B. Wyatt**, 56

    2000 to present — Senior Vice President, Specialty Products.

    1996 to 2000 — Vice President, Corporate Engineering.

    Elected Corporate Officer — 1995.

Catherine V. Babington, 48

    1996 to present — Vice President, Investor Relations and Public Affairs.

    Elected Corporate Officer — 1995.

Patrick J. Balthrop, 44

    2001 to present — Vice President, Vascular Devices.

    1998 to 2001 — Vice President, Diagnostic Commercial Operations.

    1996 to 1998 — Vice President, Diagnostic Operations, U.S. and Canada.

    1996 — Divisional Vice President and General Manager, U.S. and Canada, Diagnostic Products.

    Elected Corporate Officer — 1996.

Mark E. Barmak, 59

    2000 to present — Vice President, Government Affairs.

    1996 to 2000 — Vice President, Litigation and Government Affairs.

    Elected Corporate Officer — 1995.

Michael G. Beatrice, 53

    1999 to present — Vice President, Corporate Regulatory and Quality Science.

    1996 to 1999 — Executive Vice President and General Manager, Quintiles Strategic Product
Development Consulting Services (global regulatory and quality systems
consultation service organization).

    1996 — Deputy Director, Center for Biologics Evaluation and Research, United States Food and Drug Administration.

    Elected Corporate Officer — 1999.

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Christopher A. Bleck, 43

    1999 to present — Vice President, Pediatrics, Ross Products.

    1997 to 1999 — Divisional Vice President and President and General Manager, Canada, Abbott
International Division.

    1996 to 1997 — Divisional Vice President, Business Development, Abbott International Division.

    Elected Corporate Officer — 1999.

Douglas C. Bryant, 43

    1998 to present — Vice President, Diagnostic Operations, Asia and Pacific.

    1997 to 1998 — Commercial Director, Asia and Pacific, Diagnostic Products.

    1996 to 1997 — General Manager, United Kingdom and Ireland, Diagnostic Products.

    Elected Corporate Officer — 1998.

Gary R. Byers, 59

    1996 to present — Vice President, Internal Audit.

    Elected Corporate Officer — 1993.

Thomas F. Chen, 51

    1998 to present — Vice President, Pacific, Asia, and Africa Operations.

    1996 to 1998 — Regional Director, Taiwan and People's Republic of China.

    1996 — General Manager, Taiwan and People's Republic of China Task Force.

    Elected Corporate Officer — 1998.

Edward J. Fiorentino, 42

    1998 to present — Vice President, Pharmaceutical Products, Marketing and Sales.

    1996 to 1998 — Divisional Vice President, Marketing, Pharmaceutical Products.

    Elected Corporate Officer — 1998.

Gary L. Flynn**, 51

    1999 to present — Vice President and Controller.

    1996 to 1999 — Divisional Vice President and Controller, Ross Products.

    Elected Corporate Officer — 1999.

Thomas C. Freyman**, 46

    1999 to present — Vice President, Hospital Products Controller. (Mr. Freyman has been elected Senior Vice President, and Chief Financial Officer, effective April 1, 2001).

    1996 to 1999 — Vice President and Treasurer.

    Elected Corporate Officer — 1991.

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Stephen R. Fussell, 43

    1999 to present — Vice President, Compensation and Development.

    1996 to 1999 — Divisional Vice President, Compensation and Benefits.

    1996 — Vice President, Total Compensation, Nestlé USA (diversified food company).

    Elected Corporate Officer — 1999.

David B. Goffredo, 46

    1998 to present — Vice President, European Operations.

    1996 to 1998 — Vice President, Pharmaceutical Products, Marketing and Sales.

    Elected Corporate Officer — 1995.

Robert B. Hance, 41

    1999 to present — Vice President, Diagnostic Operations, Europe, Africa and Middle East.

    1997 to 1999 — Divisional Vice President, European Region, Diagnostic Products.

    1996 to 1997 — Area Business Development Director, Europe, Middle East and Africa, Diagnostic Products.

    1996 — Director, Marketing, IPLS and Clinical Chemistry, Diagnostic Products.

    Elected Corporate Officer — 1999.

Guillermo A. Herrera, 47

    1998 to present — Vice President, Latin America and Canada Operations.

    1996 to 1998 — Vice President, Latin America Operations.

    1996 — Area Vice President, Latin America.

    Elected Corporate Officer — 1996.

James J. Koziarz, 52

    1996 to present — Vice President, Diagnostic Products Research and Development.

    Elected Corporate Officer — 1993.

John C. Landgraf, 48

    2000 to present — Vice President, Corporate Engineering.

    1997 to 2000 — Divisional Vice President, Manufacturing, Abbott International Division.

    1996 to 1997 — Divisional Vice President, Commercial Operations, Chemical and Agricultural
Products.

    Elected Corporate Officer — 2000.

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Elaine R. Leavenworth, 42

    1999 to present — Vice President, Abbott HealthSystems.

    1997 to 1999 — Divisional Vice President, Licensing and New Business Development, Abbott
International Division.

    1996 to 1997 — Director, Licensing and Acquisitions, Abbott International Division.

    1996 — Director, Nutritionals, Abbott International Division.

    Elected Corporate Officer — 1999.

John M. Leonard, 43

    1999 to present — Vice President, Pharmaceutical Development.

    1997 to 1999 — Divisional Vice President, Pharmaceutical Development, Pharmaceutical Products
Research and Development.

    1996 to 1997 — Therapeutic Area Venture Head, Pharmaceutical Products Research and
Development.

    1996 — Venture Head, Pharmaceutical Products Research and Development.

    Elected Corporate Officer — 1999.

Greg W. Linder, 44

    1999 to present — Vice President and Treasurer.

    1996 to 1999 — Divisional Vice President and Controller, Hospital Products.

    1996 — Assistant Controller, Corporate Finance.

    Elected Corporate Officer — 1999.

John F. Lussen, 59

    1996 to present — Vice President, Taxes.

    Elected Corporate Officer — 1985.

Edward L. Michael, 44

    1999 to present — Vice President, Diagnostic Assays and Systems.

    1997 to 1999 — Vice President, Diagnostic Operations, Europe, Africa, and Middle East.

    1996 to 1997 — Director, Area Operations and Scientific Development.

    Elected Corporate Officer — 1997.

Karen L. Miller, 47

    2000 to present — Vice President, Information Technology.

    1997 to 2000 — Divisional Vice President, Information Systems, Diagnostic Products.

    1996 to 1997 — Director, Business Systems, Diagnostic Products.

    Elected Corporate Officer — 2000.

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Daniel W. Norbeck, 42

    1999 to present — Vice President, Pharmaceutical Discovery.

    1998 to 1999 — Divisional Vice President, Discovery, Pharmaceutical Products Research and
Development.

    1996 to 1998 — Divisional Vice President, Area Head, Pharmaceutical Products Research and
Development.

    Elected Corporate Officer — 1999.

Edward A. Ogunro, 48

    1999 to present — Vice President, Hospital Products Research and Development, Medical and
Regulatory Affairs.

    1996 to 1999 — Divisional Vice President, Immunodiagnostics and Chemistry, Diagnostic Products.

    Elected Corporate Officer — 1999.

Marcia A. Thomas, 53

    1999 to present — Vice President, Diagnostic Quality Assurance, Regulatory Affairs and Compliance.

    1996 to 1999 — Vice President, Quality Assurance and Regulatory Affairs.

    1996 — Divisional Vice President, Quality Assurance and Regulatory Affairs, Diagnostic Products.

    Elected Corporate Officer — 1996.

Steven J. Weger Jr., 56

    1996 to present — Vice President, Corporate Planning and Development.

    1996 — Divisional Vice President, Strategic Planning and Technology Assessment, Diagnostic Products.

    Elected Corporate Officer — 1996.

Susan M. Widner, 44

    1998 to present — Vice President, Diagnostic Operations, U.S. and Canada.

    1996 to 1998 — Divisional Vice President, Worldwide Marketing, Diagnostic Products.

    1996 — Director, Venture Marketing, Diagnostic Products.

    Elected Corporate Officer — 1998.

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**

Pursuant to Item 401(b) of Regulation S-K, Abbott has identified these persons as "executive officers" within the meaning of Item 401(b).

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PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Principal Market

    The principal market for Abbott's common shares is the New York Stock Exchange. Shares are also listed on the Chicago Stock Exchange and the Pacific Exchange and are traded on the Boston, Cincinnati, and Philadelphia Exchanges. Outside the United States, Abbott's shares are listed on the London Stock Exchange and the Swiss Stock Exchange.

    Market prices are as reported by the New York Stock Exchange composite transaction reporting system.

Shareholders

    There were 101,272 shareholders of record of Abbott common shares as of December 31, 2000.

Dividends

    Quarterly dividends of $.19 per share and $.17 per share were declared on common shares in 2000 and 1999, respectively.

ITEM 6.  SELECTED FINANCIAL DATA

		Year ended December 31
		2000			1999			1998			1997			1996
		(dollars in millions, except per share data)
Net sales		$	13,745.9		$	13,177.6		$	12,512.7		$	11,889.3		$	11,018.0
Net earnings			2,786.0			2,445.8			2,334.4			2,079.1			1,873.8
Basic earnings per common share			1.80			1.59			1.52			1.34			1.19
Diluted earnings per common share			1.78			1.57			1.50			1.32			1.18
Total assets			15,283.3			14,471.0			13,259.9			12,101.8			11,161.1
Long-term debt			1,076.4			1,336.8			1,339.7			938.0			933.1
Cash dividends declared per common share			.76			.68			.60			.54			.48

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Review

Results of Operations

Sales

    The following table details the components of sales growth by segment for the last three years:

(a)

In 2000, management of the vascular medicine franchise was transferred from the Pharmaceutical Products Segment to the Hospital Products Segment. Percentage changes for 1999 and 1998 have been restated to reflect this transfer.

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(b)

In 2001, management of the FACT PLUS product franchise was transferred from the Diagnostic Products Segment to the Ross Products Segment. Percentage changes for 2000, 1999 and 1998 reflect this transfer.

    Sales of new products in 2000 are estimated to be $939 million, led by the Pharmaceutical, Hospital and Diagnostic segments. Increases, as disclosed in Note 13, in adult nutritionals in all three years and in anti-infectives in 1999 were primarily due to unit increases. The decreases in anti-infectives for 2000 and 1998 were due primarily to unit decreases.

Operating Earnings

    Gross profit margins (sales less cost of products sold, including distribution expenses) were 54.6 percent of net sales in 2000 and 1999, and 56.8 percent in 1998. Excluding the charges described in Note 15 relating to the FDA consent decree, the gross profit margin for 1999 would have been 55.8 percent. Gross profit margins in all three years were affected by unfavorable product mix, primarily pharmaceuticals, and the negative effect of the relatively stronger U.S. dollar. Gross profit margins in all years were also affected by productivity improvements, partially offset by higher project expenses for new products, higher manufacturing capacity costs for anticipated unit growth, and the effects of inflation and competitive pricing pressures in some product lines. In the U.S., states receive price rebates from manufacturers of infant formula under the federally subsidized Special Supplemental Food Program for Women, Infants, and Children. There are also rebate programs for pharmaceutical products. These rebate programs continue to have a negative effect on the gross profit margins of the Ross and Pharmaceutical products segments.

    In August 1999, Geneva Pharmaceuticals, Inc. began shipments of generic HYTRIN in the United States, which has adversely impacted Abbott's HYTRIN sales. Sales of HYTRIN in the United States amounted to $141 million, $466 million, and $542 million in 2000, 1999, and 1998, respectively.

    As a result of the consent decree entered into with the U.S. government in 1999, as discussed in Note 15, Abbott is prohibited from manufacturing or distributing certain diagnostic products until Abbott ensures the processes in its Lake County, Ill., diagnostics manufacturing operations conform with the U.S. Food and Drug Administration's (FDA) Quality System Regulation (QSR). The consent decree resulted in a charge of $168 million in the third quarter of 1999. Abbott estimates that 2000 sales were negatively impacted by approximately $250 million, and earnings per share were negatively impacted by approximately 10 cents per share. Under the terms of the amended consent decree, Abbott must ensure its diagnostics manufacturing operations are in conformance with the QSR by various dates through January 15, 2001. The FDA will determine Abbott's conformance with the QSR after an inspection of Abbott's facilities. If the FDA concludes that the operations are not in conformance with the QSR as of the date required, Abbott may be subject to additional costs.

    Research and development expense was $1.4 billion in 2000 and represented 9.8 percent of net sales in 2000, compared to 9.1 percent of net sales in 1999, and 9.8 percent of net sales in 1998. The increase in research and development expenses in 2000 was concentrated primarily in the Pharmaceutical, Diagnostic and Hospital segments. Research and development expenditures continue to be concentrated on pharmaceutical and diagnostic products.

    Selling, general and administrative expenses increased 1.3 percent in 2000, net of the favorable effect of the relatively stronger U.S. dollar of 2.4 percent, compared to increases of 3.5 percent in 1999, and 2.4 percent in 1998. The net increases, exclusive of exchange impact, reflect inflation and additional selling and marketing support primarily in the International, Pharmaceutical and Hospital segments. In addition, 1999 and 1998 reflect litigation charges, and 1999 includes merger costs of approximately $16.2 million.

    Abbott's income from TAP Pharmaceutical Products Inc. (TAP) joint venture in 2000 was adversely affected as a result of an increase in a litigation reserve related to the U.S. Department of Justice investigation of TAP's marketing and sales practices for LUPRON. While it is not feasible to predict the

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outcome of these proceedings with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on Abbott's financial position or ongoing cash flow and results of operations, but that they could have a material adverse effect on Abbott's cash flow and results of operations for a particular period.

Interest (Income) Expense, Net

    Net interest expense decreased in 2000 and 1999 due to a lower level of borrowings and a higher level of investment securities. Net interest expense increased in 1998 due primarily to a higher level of borrowings as a result of business acquisitions.

Taxes on Earnings

    The effective income tax rates were 27.0 percent in 2000 and 28.0 percent in 1999 and 1998. The tax rate for 2000 was reduced, in part, by the domestic dividend exclusion applicable to the increased earnings of TAP Pharmaceutical Products Inc. In addition, the tax rates for 1999 and 1998 were unfavorably impacted by the reduction in tax incentive grants for Puerto Rico operations.

Financial Condition

Cash Flow

    Abbott expects annual cash flow from operating activities to continue to approximate or exceed Abbott's capital expenditures and cash dividends.

Debt and Capital

    At December 31, 2000, Abbott's bond ratings were AAA by Standard & Poor's Corporation and Aa1 by Moody's Investors Service. Abbott has readily available financial resources, including unused domestic lines of credit of $1.5 billion, which support domestic commercial paper borrowing arrangements. As a result of the proposed acquisition of BASF's pharmaceutical business, Abbott's credit ratings are under review, and it is expected that the ratings may be adjusted to reflect the increased borrowings that will finance the acquisition. In addition, available lines of credit, which will support increased commercial paper borrowings, increased to $6.5 billion in February 2001.

    Under a registration statement filed with the Securities and Exchange Commission (SEC) in February 2001, Abbott may issue up to $3.5 billion of securities in the future. Of the $3.5 billion, Abbott may issue $268 million either in the form of debt securities or common shares without par value. The remaining $3.2 billion may be issued in the form of debt securities. Previously, under a registration statement filed with the SEC in 1999, Abbott may have issued $518 million of securities, which is now included in the $3.5 billion.

    During the last three years, Abbott purchased 31,765,500 of its common shares at a cost of $1.3 billion, including 10.2 million shares of the 25 million shares authorized for purchase by Abbott's Board of Directors in June 2000.

Working Capital

    At December 31, 2000, 1999, and 1998, working capital was $3.1 billion, $1.9 billion, and $624 million, respectively.

Capital Expenditures

    Capital expenditures of $1.0 billion in 2000, $987 million in 1999, and $994 million in 1998 were principally for upgrading and expanding manufacturing, research and development, and administrative

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support facilities in all segments and for laboratory instruments and hospital equipment placed with customers. This level of capital expenditures is expected to continue, with an increased proportion dedicated to the Hospital, International and Diagnostic segments.

Legislative Issues

    Abbott's primary markets are highly competitive and subject to substantial government regulation. Abbott expects debate to continue at both the federal and state levels over the availability, method of delivery, and payment for health care products and services. If legislation is enacted, it could have the effect of reducing prices, or reducing the rate of price increases for medical products and services. International operations are also subject to a significant degree of government regulation. It is not possible to predict the extent to which Abbott or the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, "Business."

Business Combinations and Divestiture

    On December 15, 2000, Abbott and BASF A.G. reached an agreement through which Abbott will purchase the pharmaceutical business of BASF, subject to approval of government regulators. The purchase price is $6.9 billion. Abbott estimates that the acquisition, if completed, will result in purchase accounting charges of approximately $1.0 billion for in-process research and development in 2001, and will result in goodwill and intangibles of approximately $5.0 billion. The purchase will be financed by U.S. dollar and euro-based borrowings described under "Debt and Capital."

    On November 19, 1999, Abbott completed a merger transaction with Perclose, Inc., which was accounted for as a pooling-of-interests transaction. Abbott issued approximately 15.1 million common shares to Perclose shareholders, and Perclose's outstanding stock options were converted into options to purchase approximately 2.9 million Abbott common shares. Merger-related charges of approximately $16.2 million are included in selling, general and administrative expenses for 1999. Abbott's consolidated financial statements for prior periods have been restated to include Perclose and are not significantly different than previously reported amounts.

    In 1999, Abbott acquired certain assets of Glaxo Wellcome Inc.'s U.S. anesthesia business for approximately $217 million in cash. A substantial portion of the purchase price was allocated to intangible assets, which are amortized on a straight-line basis over 15 years. In 1998, Abbott acquired the common stock of International Murex Technologies Corporation, a manufacturer of medical diagnostic products, for approximately $234 million in cash. A substantial portion of the purchase price was allocated to goodwill, which is amortized on a straight-line basis over 20 years. Had these acquisitions taken place on January 1 of the previous years, consolidated sales and income would not have been significantly different from reported amounts.

    In January 2000, Abbott sold its agricultural products business to Sumitomo Chemical Co., Ltd., resulting in a $139 million gain. Under the transaction, Sumitomo acquired research and development, sales, marketing, and support operations for Abbott's entire line of naturally occurring biopesticides, plant growth regulators and other products for agriculture, public health and forestry. Bulk active ingredient manufacturing rights were retained by Abbott. For the full year 1999, Abbott recorded approximately $102 million in sales from this business.

Recently Issued Accounting Standards

    In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires the recognition of the fair value of derivatives as either assets or liabilities. Adoption of the provisions of this statement on January 1, 2001, will result in a transition credit to income of approximately $2 million in 2001.

25

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    The Emerging Issues Task Force (EITF) issued EITF Issues No. 00-10, "Accounting for Shipping and Handling Fees and Costs," and No. 00-14, "Accounting for Certain Sales Incentives," which address the classification of shipping and handling fees and costs and various sales incentives, and were effective for the fourth quarter of 2000. The adoption of the provisions of these EITF Issues did not have a material effect on Abbott's financial statements.

    The Securities and Exchange Commission (SEC) has issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements," as amended on June 26, 2000. SAB No. 101 provides the SEC staff's views in applying generally accepted accounting principles to selected revenue recognition issues, and was effective beginning in the fourth quarter of 2000. Adoption of the provisions of this SAB did not have a material effect on Abbott's financial statements.

Euro Conversion

    On January 1, 1999, the European Economic and Monetary Union took effect and introduced the euro as the official single currency of the participating member countries. On that date, the currency exchange rates of the participating countries were fixed against the euro. There is a three-year transition to the euro, and at the end of 2001, the legacy currencies will be eliminated. Costs required to prepare for the euro are not material to Abbott's financial position, results of operations or cash flows. The impact, if any, of the euro on Abbott's competitive position is unknown.

Private Securities Litigation Reform Act of 1995 — A Caution Concerning Forward-Looking Statements

    Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Abbott cautions investors that any forward-looking statements or projections made by Abbott, including those made in this Item 7, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Exhibit 99.1.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Instruments and Risk Management
(Unaudited)

Interest Rate Sensitive Financial Instruments

    Abbott does not currently use derivative financial instruments, such as interest rate swaps, to manage its exposure to changes in interest rates for its debt instruments and investment securities. As of December 31, 2000, and 1999, Abbott had $185 million and $855 million, respectively, of domestic commercial paper outstanding with an average interest rate of 6.5% and 5.8%, respectively, and with an average remaining life of three days and 13 days, respectively. The fair market value of long-term debt at December 31, 2000, and 1999, amounted to $1.3 billion, and consisted primarily of fixed rate (average of 6.1%) debt with maturities through 2023. As of December 31, 2000, and 1999, the fair market value of current and long-term investment securities maturing through 2023 amounted to $571 million and $734 million, respectively. Approximately 10 percent and 15 percent of these investments as of December 31, 2000, and 1999, respectively, have fixed interest rates (average of 6.9%), while the remaining investments have variable rates. A hypothetical 100-basis point change in the interest rates would not have a material effect on cash flows, income or market values. (A 100-basis point change is a reasonably possible near-term change in rates).

26

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Market Price Sensitive Financial Instruments

    Abbott maintains a portfolio of available-for-sale equity securities from strategic technology acquisitions. The market value of these investments was approximately $215 million and $282 million, respectively, as of December 31, 2000, and 1999. A hypothetical 20 percent decrease in the share prices of these investments would decrease the fair value by approximately $43 million. (A 20 percent decrease is a reasonably possible near-term change in share prices).

Foreign Currency Sensitive Financial Instruments —
Purchased U.S. Dollar Call Options

    Abbott's foreign subsidiaries purchase U.S. dollar call options as a hedge of anticipated intercompany purchases by these foreign subsidiaries whose functional currency, primarily European currencies and Japanese yen, is not the U.S. dollar. At December 31, 2000, there were no such contracts outstanding and at December 31, 1999, Abbott held $85 million of these contracts.

Foreign Currency Forward Exchange Contracts

    Abbott enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated intercompany loans and trade payables and third-party trade payables and receivables. The contracts are marked-to-market, and resulting gains or losses are reflected in income and are generally offset by losses or gains on the foreign currency exposure being hedged. At December 31, 2000, and 1999, Abbott held $1.3 billion and $1.4 billion, respectively, of such contracts which all mature in the next calendar year. The following table reflects the contracts outstanding at December 31, 2000, and 1999:

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ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

			Page
Financial Statements:
	Consolidated Statement of Earnings and Comprehensive Income		29
	Consolidated Statement of Cash Flows		30
	Consolidated Balance Sheet		31
	Consolidated Statement of Shareholders' Investment		33
	Notes to Consolidated Financial Statements		34
Report of Independent Public Accountants			48
Management Report on Financial Statements			48

28

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Abbott Laboratories and Subsidiaries

Consolidated Statement of Earnings and Comprehensive Income
(dollars and shares in thousands except per share data)

		Year Ended December 31
		2000			1999			1998
Net Sales		$	13,745,916		$	13,177,625		$	12,512,734
Cost of products sold			6,238,646			5,977,183			5,406,635
Research and development			1,351,024			1,193,963			1,228,777
Selling, general and administrative			2,894,178			2,857,104			2,759,757
Gain on sale of business			(138,507	)		—			—
Total Operating Cost and Expenses			10,345,341			10,028,250			9,395,169
Operating Earnings			3,400,575			3,149,375			3,117,565
Net interest expense			23,221			81,765			102,540
Income from TAP Pharmaceutical Products Inc. joint venture			(481,340	)		(390,152	)		(266,347	)
Net foreign exchange (gain) loss			7,287			26,238			31,158
Other (income) expense, net			35,000			34,636			8,349
Earnings Before Taxes			3,816,407			3,396,888			3,241,865
Taxes on earnings			1,030,430			951,129			907,512
Net Earnings		$	2,785,977		$	2,445,759		$	2,334,353
Basic Earnings Per Common Share		$	1.80		$	1.59		$	1.52
Diluted Earnings Per Common Share		$	1.78		$	1.57		$	1.50
Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share			1,548,015			1,536,762			1,537,242
Dilutive Common Stock Options			17,564			20,893			23,716
Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options			1,565,579			1,557,655			1,560,958
Outstanding Common Stock Options Having No Dilutive Effect			1,038			1,807			657
Comprehensive Income:
Foreign currency translation adjustments		$	(198,475	)	$	(172,517	)	$	1,504
Tax benefit (expense) related to foreign currency translation adjustments			(476	)		1,286			441
Unrealized gains (loss) on marketable equity securities			31,252			(10,548	)		1,000
Tax benefit (expense) related to unrealized gains (loss) on marketable equity securities			(12,500	)		4,171			(396	)
Reclassification adjustment for realized gains			(29,520	)		—			—
Tax benefit related to reclassification adjustment for realized gains			11,808			—			—
Other comprehensive income (loss), net of tax			(197,911	)		(177,608	)		2,549
Net Earnings			2,785,977			2,445,759			2,334,353
Comprehensive Income		$	2,588,066		$	2,268,151		$	2,336,902
Supplemental Comprehensive Income Information:
Cumulative foreign currency translation loss adjustments, net of tax		$	630,893		$	431,942		$	260,711
Cumulative unrealized (gains) on marketable equity securities, net of tax			(27,681	)		(26,641	)		(33,018	)

The accompanying notes to consolidated financial statements are an integral part of this statement.

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Abbott Laboratories and Subsidiaries

Consolidated Statement of Cash Flows
(dollars in thousands)

		Year Ended December 31
		2000			1999			1998
Cash Flow From (Used in) Operating Activities:
Net earnings		$	2,785,977		$	2,445,759		$	2,334,353
Adjustments to reconcile net earnings to net cash from operating activities —
Depreciation and amortization			827,431			828,006			786,380
Investing and financing (gains) losses, net			69,914			93,723			90,798
Trade receivables			(260,790	)		(176,347	)		(147,489	)
Inventories			(361,377	)		(147,778	)		(112,692	)
Prepaid expenses and other assets			(397,714	)		(521,265	)		(195,020	)
Trade accounts payable and other liabilities			621,078			299,048			179,653
Income taxes payable			(46,394	)		213,936			(60,705	)
Gain on sale of business			(138,507	)		—			—
Net Cash From Operating Activities			3,099,618			3,035,082			2,875,278
Cash Flow From (Used in) Investing Activities:
Acquisition of certain assets of Glaxo Wellcome Inc.'s U.S. anesthesia business in 1999 and International Murex in 1998, net of cash acquired			—			(217,000	)		(249,177	)
Proceeds from sale of business			205,000			—			—
Acquisitions of property, equipment and other businesses			(1,035,873	)		(987,098	)		(993,555	)
Purchases of investment securities			(68,085	)		(210,797	)		(353,453	)
Proceeds from sales of investment securities			235,839			169,356			96,748
Other			45,455			12,187			18,034
Net Cash Used in Investing Activities			(617,664	)		(1,233,352	)		(1,481,403	)
Cash Flow From (Used in) Financing Activities:
Proceeds from (repayments of) commercial paper, net			(670,000	)		(864,000	)		42,000
Proceeds from issuance of long-term debt			—			—			400,000
Other borrowing transactions, net			(2,769	)		6,286			(59,640	)
Purchases of common shares			(464,856	)		—			(876,264	)
Proceeds from issuance of common shares			—			329,490			—
Proceeds from stock options exercised			135,570			42,235			67,329
Dividends paid			(1,145,894	)		(1,003,295	)		(891,661	)
Net Cash Used in Financing Activities			(2,147,949	)		(1,489,284	)		(1,318,236	)
Effect of exchange rate changes on cash and cash equivalents			(27,884	)		(19,587	)		(143	)
Net Increase in Cash and Cash Equivalents			306,121			292,859			75,496
Cash and Cash Equivalents, Beginning of Year			608,097			315,238			239,742
Cash and Cash Equivalents, End of Year		$	914,218		$	608,097		$	315,238
Supplemental Cash Flow Information:
Income taxes paid		$	1,085,083		$	882,957		$	1,060,479
Interest paid			113,922			145,055			153,891

The accompanying notes to consolidated financial statements are an integral part of this statement.

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Abbott Laboratories and Subsidiaries

Consolidated Balance Sheet
(dollars in thousands)

				December 31
				2000			1999			1998
Assets
Current Assets:
Cash and cash equivalents				$	914,218		$	608,097		$	315,238
Investment securities					242,500			115,199			95,827
Trade receivables, less allowances of — 2000: $190,167; 1999: $238,956; 1998: $191,352					2,179,451			2,055,839			1,955,866
Inventories —
	Finished products				903,973			772,478			697,974
	Work in process				370,407			338,818			347,150
	Materials				466,951			384,148			367,616
		Total inventories			1,741,331			1,495,444			1,412,740
Prepaid income taxes					896,083			918,617			847,154
Other prepaid expenses and receivables					1,402,658			1,226,558			962,936
		Total Current Assets			7,376,241			6,419,754			5,589,761
Investment Securities					637,979			954,778			967,819
Property and Equipment, at Cost:
Land					245,850			202,858			165,474
Buildings					1,953,665			1,882,439			1,860,265
Equipment					7,597,553			7,339,578			7,104,805
Construction in progress					330,830			372,692			272,949
					10,127,898			9,797,567			9,403,493
Less: accumulated depreciation and amortization					5,310,987			5,027,508			4,660,555
Net Property and Equipment					4,816,911			4,770,059			4,742,938
Net Intangible Assets					1,555,260			1,574,851			1,349,822
Deferred Charges, Investments in Joint Ventures and Other Assets					896,863			751,602			609,579
				$	15,283,254		$	14,471,044		$	13,259,919

The accompanying notes to consolidated financial statements are an integral part of this statement.

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Abbott Laboratories and Subsidiaries
Consolidated Balance Sheet
(dollars in thousands)

		December 31
		2000			1999			1998
Liabilities and Shareholders' Investment
Current Liabilities:
Short-term borrowings and current portion of long-term debt		$	479,454		$	896,271		$	1,759,145
Trade accounts payable			1,355,985			1,226,854			1,057,417
Salaries, wages and commissions			401,366			383,552			375,804
Other accrued liabilities			1,549,245			1,433,424			1,379,953
Dividends payable			293,800			263,000			227,400
Income taxes payable			217,690			313,610			166,183
Total Current Liabilities			4,297,540			4,516,711			4,965,902
Long-Term Debt			1,076,368			1,336,789			1,339,694
Deferred Income Taxes			—			23,779			108,964
Other Liabilities and Deferrals			1,338,440			1,166,170			1,091,768
Shareholders' Investment:
Preferred shares, one dollar par value Authorized — 1,000,000 shares, none issued			—			—			—
Common shares, without par value Authorized — 2,400,000,000 shares
Issued at stated capital amount — Shares: 2000: 1,563,436,372; 1999: 1,564,670,440; 1998: 1,548,382,682			2,218,234			1,939,673			1,310,500
Common shares held in treasury, at cost — Shares: 2000: 17,502,239; 1999: 17,650,834; 1998: 17,710,838			(255,586	)		(257,756	)		(46,735	)
Unearned compensation — restricted stock awards			(18,116	)		(23,028	)		(25,796	)
Earnings employed in the business			7,229,586			6,174,007			4,743,315
Accumulated other comprehensive loss			(603,212	)		(405,301	)		(227,693	)
Total Shareholders' Investment			8,570,906			7,427,595			5,753,591
		$	15,283,254		$	14,471,044		$	13,259,919

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Abbott Laboratories and Subsidiaries

Consolidated Statement of Shareholders' Investment
(dollars in thousands except per share data)

		Year Ended December 31
		2000			1999			1998
Common Shares:
Beginning of Year
Shares: 2000: 1,564,670,440; 1999: 1,548,382,682; 1998: 1,560,865,737		$	1,939,673		$	1,310,500		$	985,575
Issued shares: 1999: 9,000,000			—			329,490			—
Issued under incentive stock programs Shares: 2000: 11,424,234; 1999: 11,476,536; 1998: 13,929,668			245,668			240,897			259,058
Tax benefit from option shares and vesting of restricted stock awards (no share effect)			50,219			62,458			85,070
Retired — Shares: 2000: 12,658,302; 1999: 4,188,778; 1998: 26,412,723			(17,326	)		(3,672	)		(19,203	)
End of Year
Shares: 2000: 1,563,436,372; 1999: 1,564,670,440; 1998: 1,548,382,682		$	2,218,234		$	1,939,673		$	1,310,500
Common Shares Held in Treasury:
Beginning of Year
Shares: 2000: 17,650,834; 1999: 17,710,838; 1998: 18,280,398		$	(257,756	)	$	(46,735	)	$	(48,238	)
Private transaction in 1999 Shares purchased: 5,099,720 Shares issued: 4,985,475			—			(211,822	)		—
Issued under incentive stock programs Shares: 2000: 148,595; 1999: 174,249; 1998: 569,560			2,170			801			1,503
End of Year
Shares: 2000: 17,502,239; 1999: 17,650,834; 1998: 17,710,838		$	(255,586	)	$	(257,756	)	$	(46,735	)
Unearned Compensation — Restricted Stock Awards:
Beginning of Year		$	(23,028	)	$	(25,796	)	$	(26,187	)
Issued at market value — Shares: 2000: 133,000; 1999: 162,500; 1998: 554,000			(5,479	)		(7,186	)		(20,584	)
Lapses — Shares: 2000: 8,500; 1998: 22,000			320			—			705
Amortization			10,071			9,954			20,270
End of Year		$	(18,116	)	$	(23,028	)	$	(25,796	)
Earnings Employed in the Business:
Beginning of Year		$	6,174,007		$	4,743,315		$	4,355,426
Net earnings			2,785,977			2,445,759			2,334,353
Cash dividends declared on common shares (per share — 2000: $.76; 1999: $.68; 1998: $.60)			(1,176,694	)		(1,038,895	)		(917,611	)
Cost of common shares retired in excess of stated capital amount			(557,628	)		(194,990	)		(1,048,500	)
Cost of treasury shares issued below market value			3,924			218,818			19,647
End of Year		$	7,229,586		$	6,174,007		$	4,743,315
Accumulated Other Comprehensive Loss:
Beginning of Year		$	(405,301	)	$	(227,693	)	$	(230,242	)
Other comprehensive income (loss)			(197,911	)		(177,608	)		2,549
End of Year		$	(603,212	)	$	(405,301	)	$	(227,693	)

The accompanying notes to consolidated financial statements are an integral part of this statement.

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Abbott Laboratories and Subsidiaries

Notes to Consolidated Financial Statements

Note 1 — Summary of Significant Accounting Policies

    NATURE OF BUSINESS AND CONCENTRATION OF RISK — Abbott's principal business is the discovery, development, manufacture and sale of a broad line of health care products and services. Due to the nature of its operations, Abbott is not subject to significant concentration risks relating to customers, products or geographic locations.

    BASIS OF CONSOLIDATION — The consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions. The accounts of foreign subsidiaries are consolidated as of November 30, due to the time needed to consolidate these subsidiaries. No events occurred related to these foreign subsidiaries in December 2000, 1999 and 1998 that materially affected the financial position or results of operations. Certain prior year amounts in the Consolidated Statement of Cash Flows have been reclassified to conform with the 2000 presentation.

    USE OF ESTIMATES — The financial statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Significant estimates include amounts for litigation, income taxes, sales rebates, and inventory and accounts receivable exposures.

    CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES — Cash equivalents consist of time deposits and certificates of deposit with original maturities of three months or less. Investments in marketable equity securities are classified as available-for-sale and are recorded at fair value with any unrealized holding gains or losses, net of tax, included in accumulated other comprehensive income (loss). Impairment losses are charged to income for other than temporary declines in fair value of equity securities. Investments in debt securities are classified as held-to-maturity, as management has both the intent and ability to hold these securities to maturity, and are reported at cost, net of any unamortized premium or discount. Income relating to these securities is reported as a component of interest income.

    INVENTORIES — Inventories are stated at the lower of cost (first-in, first-out basis) or market. Cost includes material and conversion costs.

    LONG-LIVED ASSETS — Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. The following table shows estimated useful lives of property and equipment:

    Intangible assets, primarily purchased intangible assets and goodwill resulting from business acquisitions, are amortized on a straight-line basis over up to 40 years. Accumulated amortization as of December 31, 2000, 1999, and 1998, was $334 million, $228 million, and $163 million, respectively.

    Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable based on projected undiscounted cash flows associated with the affected assets. If the fair value is less than the carrying amount of the asset, a loss is recognized for the difference. Fair value is determined based on market quotes, if available, or is based on valuation techniques.

    PRODUCT LIABILITY — Provisions are made for the portions of probable losses that are not covered by product liability insurance.

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    TRANSLATION ADJUSTMENTS — For foreign operations in highly inflationary economies, translation gains and losses are included in net foreign exchange (gain) loss. For remaining foreign operations, translation adjustments are included as a component of accumulated other comprehensive income (loss).

    REVENUE RECOGNITION — Revenue from product sales is recognized upon shipment to customers. Provisions for discounts and rebates to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales of product rights are recorded as revenue upon disposition of the rights. Revenue from license of product rights, or for performance of research or selling activities, is recorded over the periods earned.

    RESEARCH AND DEVELOPMENT — Internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved.

Note 2 — Supplemental Financial Information (dollars in thousands)

			2000			1999			1998
Other prepaid expenses and receivables:
Receivables purchased from TAP Pharmaceutical Products Inc. under a factoring agreement			$	514,200		$	431,801		$	310,993
All other				888,458			794,757			651,943
	Total		$	1,402,658		$	1,226,558		$	962,936
Other liabilities and deferrals:
Accrued post-employment costs			$	597,910		$	537,309		$	477,417
All other				740,530			628,861			614,351
	Total		$	1,338,440		$	1,166,170		$	1,091,768
Net interest expense:
Interest expense			$	113,938		$	144,689		$	159,986
Interest income				(90,717	)		(62,924	)		(57,446	)
	Total		$	23,221		$	81,765		$	102,540

Note 3 — Taxes on Earnings (dollars in thousands)

    Deferred income taxes reflect the tax consequences on future years of temporary differences between the tax bases of assets and liabilities and their financial reporting amounts. U.S. income taxes are provided on those earnings of foreign subsidiaries and subsidiaries operating in Puerto Rico under tax incentive grants, which are intended to be remitted to the parent company. Undistributed earnings reinvested indefinitely in foreign subsidiaries as working capital and plant and equipment aggregated $2,432,433 at December 31, 2000. Deferred income taxes not provided on these earnings would be approximately $572,016.

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    Earnings before taxes, and the related provisions for taxes on earnings, were as follows:

			2000			1999			1998
Earnings Before Taxes:
Domestic			$	2,773,244		$	2,505,060		$	2,520,985
Foreign				1,043,163			891,828			720,880
	Total		$	3,816,407		$	3,396,888		$	3,241,865
			2000			1999			1998
Taxes on Earnings:
Current:
U.S. Federal and Possessions			$	825,608		$	785,709		$	744,124
State				67,898			70,376			49,869
Foreign				194,944			235,459			184,100
	Total current			1,088,450			1,091,544			978,093
Deferred:
Domestic				(70,383	)		(112,398	)		(92,681	)
Foreign				11,812			(30,215	)		25,219
Enacted tax rate changes				551			2,198			(3,119	)
	Total deferred			(58,020	)		(140,415	)		(70,581	)
	Total		$	1,030,430		$	951,129		$	907,512

    Differences between the effective income tax rate and the U.S. statutory tax rate were as follows:

		2000		1999		1998
Statutory tax rate		35.0	%	35.0	%	35.0	%
Benefit of tax exemptions in Puerto Rico, the Dominican Republic, Ireland, the Netherlands, and Costa Rica		(5.0	)	(5.2	)	(4.9	)
State taxes, net of federal benefit		1.2		1.4		1.0
Domestic dividend exclusion		(3.5	)	(3.2	)	(2.3	)
All other, net		(0.7	)	—		(0.8	)
Effective tax rate		27.0	%	28.0	%	28.0	%

    As of December 31, 2000, 1999, and 1998, total deferred tax assets were $1,458,707, $1,364,867, and $1,286,341, respectively, and total deferred tax liabilities were $463,406, $441,404, and $487,207,

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respectively. Valuation allowances for deferred tax assets were not significant. The temporary differences that give rise to deferred tax assets and liabilities were as follows:

			2000			1999			1998
Compensation and employee benefits			$	344,641		$	293,893		$	254,026
Trade receivable reserves				155,178			178,157			173,525
Inventory reserves				124,759			150,100			115,693
Deferred intercompany profit				204,052			184,687			177,515
State income taxes				53,610			46,964			26,585
Depreciation				(204,595	)		(174,396	)		(197,832	)
Other, primarily other accruals and reserves not currently deductible, and the excess of book basis over tax basis of intangible assets				277,033			215,433			188,678
	Total		$	954,678		$	894,838		$	738,190

Note 4 — Investment Securities (dollars in thousands)

    The following is a summary of investment securities at December 31:

			2000			1999			1998
Current Investment Securities:
Time deposits and certificates of deposit			$	232,500		$	95,000		$	50,000
Other, primarily debt obligations issued or guaranteed by various governments or government agencies				10,000			20,199			45,827
	Total		$	242,500		$	115,199		$	95,827

			2000			1999			1998
Long-Term Investment Securities:
Time deposits and certificates of deposit, maturing through 2003			$	120,000		$	391,500		$	486,500
Corporate debt obligations, maturing through 2008				70,000			73,037			112,320
Debt obligations issued or guaranteed by various governments or government agencies, maturing through 2023				158,301			183,184			185,022
Equity securities				289,678			307,057			183,977
	Total		$	637,979		$	954,778		$	967,819

    Of the investment securities listed above, $590,678, $742,610, and $858,809 were held at December 31, 2000, 1999, and 1998, respectively, by subsidiaries operating in Puerto Rico under tax incentive grants expiring from 2002 through 2007. In addition, these subsidiaries held cash equivalents of $85,925, $11,900, and $74,900 at December 31, 2000, 1999, and 1998, respectively.

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Note 5 — Post-Employment Benefits (dollars in thousands)

    Retirement plans consist of defined benefit, defined contribution, and medical and dental plans.

    Information for Abbott's major defined benefit plans and post-employment medical and dental benefit plans is as follows:

		Defined Benefit Plans									Medical and Dental Plans
		2000			1999			1998			2000			1999			1998
Projected benefit obligations, January 1		$	2,259,741		$	2,348,620		$	2,000,329		$	635,700		$	714,946		$	646,448
Service cost — benefits earned during the year			118,863			131,670			108,754			30,034			31,933			30,664
Interest cost on projected benefit obligations			171,790			157,004			140,287			50,216			44,297			43,770
Losses (gains), primarily changes in discount rate, plan design changes, and differences between estimated and actual health care costs			162,753			(283,135	)		182,829			65,375			(124,269	)		18,057
Benefits paid			(109,589	)		(97,399	)		(85,722	)		(39,953	)		(31,207	)		(23,993	)
Other, primarily translation			(31,332	)		2,981			2,143			—			—			—
Projected benefit obligations, December 31		$	2,572,226		$	2,259,741		$	2,348,620		$	741,372		$	635,700		$	714,946
Plans' assets at fair value, January 1, principally listed securities		$	3,100,222		$	2,550,971		$	2,192,486		$	77,749		$	82,528		$	86,600
Actual return on plans' assets			(154,748	)		608,805			426,023			(6,097	)		23,407			18,656
Company contributions			23,639			24,623			18,945			3,636			3,021			1,265
Benefits paid			(109,589	)		(97,399	)		(85,722	)		(39,953	)		(31,207	)		(23,993	)
Other, primarily translation			(30,723	)		13,222			(761	)		—			—			—
Plans' assets at fair value, December 31		$	2,828,801		$	3,100,222		$	2,550,971		$	35,335		$	77,749		$	82,528
Projected benefit obligations less than (greater than) plans' assets, December 31		$	256,575		$	840,481		$	202,351		$	(706,037	)	$	(557,951	)	$	(632,418	)
Unrecognized actuarial (gains) losses, net			(287,242	)		(837,234	)		(143,876	)		136,188			63,324			137,701
Unrecognized prior service cost			834			3,210			6,134			(64,390	)		(68,682	)		—
Unrecognized transition obligation			(1,808	)		(10,486	)		(21,015	)		—			—			—
Prepaid (accrued) benefit cost		$	(31,641	)	$	(4,029	)	$	43,594		$	(634,239	)	$	(563,309	)	$	(494,717	)
Service cost — benefits earned during the year		$	118,863		$	131,670		$	108,754		$	30,034		$	31,933		$	30,664
Interest cost on projected benefit obligations			171,790			157,004			140,287			50,216			44,297			43,770
Expected return on plans' assets			(233,056	)		(200,260	)		(179,194	)		(6,176	)		(6,813	)		(7,211	)
Net amortization			(3,994	)		(3,082	)		(7,728	)		(1,573	)		1,396			2,290
Net cost		$	53,603		$	85,332		$	62,119		$	72,501		$	70,813		$	69,513

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Note 5 — Post-Employment Benefits (dollars in thousands) (Continued)

    The projected benefit obligations for certain foreign defined benefit plans that do not have plan assets were $65,116, $63,904, and $62,719 at December 31, 2000, 1999, and 1998, respectively.

    Assumptions used for major benefit plans as of December 31 include:

    A five percent annual rate of increase in the per capita cost of covered health care benefits is assumed.

    A one-percentage point increase/(decrease) in the assumed health care cost trend rate would increase/(decrease) the accumulated post-employment benefit obligations as of December 31, 2000, by approximately $125,739/$(75,875), and the total of the service and interest cost components of net post-employment health care cost for the year then ended by approximately $16,347/$(10,122).

    The Abbott Stock Retirement Plan is the principal defined contribution plan. Company contributions to this plan were approximately $86,000 in 2000, $76,000 in 1999, and $67,000 in 1998, equal to 7.33 percent of dividends declared, as provided under the plan.

    Abbott provides certain other post-employment benefits, primarily salary continuation plans, to qualifying domestic employees, and accrues for the related cost over the service lives of the employees.

Note 6 — Financial Instruments and Derivatives

    Abbott enters into foreign currency forward exchange contracts to hedge intercompany loans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity. Such contracts are also used to hedge foreign currency denominated third-party trade payables and receivables. For intercompany loans, the contracts require Abbott to sell foreign currencies, primarily European currencies and Japanese yen, in exchange for primarily U.S. dollars and other European currencies. For intercompany and trade payables and receivables, the currencies hedged are primarily the U.S. dollar, European currencies and Japanese yen. At December 31, 2000, 1999, and 1998, Abbott held $1.3 billion, $1.4 billion, and $1.6 billion, respectively, of foreign currency forward exchange contracts. The contracts outstanding at December 31, 2000, mature in 2001. These contracts are marked-to-market each month. The resulting gains or losses are reflected in income and are generally offset by losses or gains on the exposures being hedged.

    Abbott's foreign subsidiaries whose functional currency is not the U.S. dollar purchase U.S. dollar call options as a hedge of anticipated intercompany purchases. These contracts give Abbott the right, but not the requirement, to purchase U.S. dollars in exchange for foreign currencies, primarily European currencies and Japanese yen, at predetermined exchange rates. At December 31, 1999, and 1998, Abbott held $85 million and $406 million, respectively, of U.S. dollar call option contracts. Realized and unrealized gains and losses on contracts that qualify as hedges of anticipated purchases by foreign subsidiaries are recognized in the same period that the foreign currency exposure is recognized. Contracts that do not qualify for hedge accounting are marked-to-market each month, and the resulting gains or losses are reflected in income.

    Net unrealized losses on foreign currency forward exchange contracts are included in other prepaid expenses and receivables, and net unrealized gains are included in other accrued liabilities. Gains and losses are classified as net foreign exchange (gain) loss. For U.S. dollar call options, net unrealized gains

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and losses and unamortized premiums are included in other prepaid expenses and receivables. For U.S. dollar call options that do not qualify for hedge accounting, gains and losses are included as net foreign exchange (gain) loss. For U.S. dollar call options that qualify for hedge accounting treatment, gains and losses are included in cost of products sold at the time the products are sold.

    In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires the recognition of the fair value of derivatives as either assets or liabilities. Adoption of the provisions of this statement on January 1, 2001, will not have a material effect on the financial statements of Abbott. The transition credit that was recorded to income on January 1, 2001, was approximately $2 million.

    The gross unrealized holding gains (losses) on current and long-term held-to-maturity investment securities totaled $1.3 million and $(21.4) million, respectively, at December 31, 2000; $1.1 million and $(29.9) million, respectively, at December 31, 1999; and $3.7 million and $(9.6) million, respectively, at December 31, 1998. The gross unrealized holding gains (losses) on available-for-sale equity securities totaled $80.3 million and $(34.0) million, respectively, at December 31, 2000; $49.3 million and $(4.7) million, respectively, at December 31, 1999; and $61.7 million and $(6.7) million, respectively, at December 31, 1998.

    The carrying values and fair values of certain financial instruments as of December 31 are shown in the table below. The carrying values of all other financial instruments approximate their estimated fair values. Fair value is the quoted market price of the instrument held or the quoted market price of a similar instrument. The counterparties to financial instruments consist of select major international financial institutions. Abbott does not expect any losses from nonperformance by these counterparties.

		2000						1999						1998
		Carrying Value			Fair Value			Carrying Value			Fair Value			Carrying Value			Fair Value
		(dollars in millions)
Investment Securities:
Current		$	242.5		$	238.0		$	115.2		$	114.4		$	95.8		$	96.4
Long-Term:
Held-to-Maturity Debt Securities			348.3			332.7			647.7			619.7			783.8			777.3
Available-for-Sale Equity Securities			289.7			289.7			307.1			307.1			184.0			184.0
Total Long-Term Debt			(1,326.5	)		(1,328.6	)		(1,337.0	)		(1,280.2	)		(1,340.8	)		(1,400.9	)
Foreign Currency Forward Exchange Contracts:
(Payable) position			(8.1	)		(8.1	)		(23.9	)		(23.9	)		(14.2	)		(14.2	)
Receivable position			29.4			29.4			35.8			35.8			21.7			21.7
Foreign Currency Option Contracts			—			—			3.5			—			14.4			3.6

Note 7 — Incentive Stock Program

    The 1996 Incentive Stock Program authorizes the granting of stock options, replacement stock options, stock appreciation rights, limited stock appreciation rights, restricted stock awards, performance units, and foreign qualified benefits. Stock options, replacement stock options, limited stock appreciation rights, restricted stock awards and foreign qualified benefits have been granted and are currently outstanding under this program and prior programs. The purchase price of shares under option must be at least equal to the fair market value of the common stock on the date of grant, and the maximum term of an option is 10 years. Options granted in 2000, 1999 and 1998 vest equally over three or four years except for

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replacement options, which generally vest in six months. Upon a change in control of Abbott, all outstanding stock options become fully exercisable, and all terms and conditions of all restricted stock awards are deemed satisfied.

    At January 1, 2001, 37.0 million shares were reserved for future grants under the 1996 Program. Subsequent to year end, the Board of Directors granted approximately 18.5 million stock options from this reserve.

    Abbott measures compensation cost using the intrinsic value-based method of accounting. Had compensation cost been determined using the fair market value-based accounting method, pro forma net income and earnings per share (EPS) amounts would have been as follows:

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    The weighted average fair value of an option granted in 2000, 1999 and 1998 was $10.60, $12.26 and $11.02, respectively. For purposes of fair market value disclosures, the fair market value of an option grant was estimated using the Black-Scholes option pricing model with the following assumptions:

Note 8 — Debt and Lines of Credit (dollars in thousands)

    The following is a summary of long-term debt at December 31:

    Payments required on long-term debt outstanding at December 31, 2000, are $250,172 in 2001, $1,059 in 2002, $200,059 in 2003, $59 in 2004, and $150,050 in 2005.

    At December 31, 2000, Abbott had $1,505,000 of unused domestic lines of credit, which support domestic commercial paper borrowing arrangements. Related compensating balances, which are subject to withdrawal by Abbott at its option, and commitment fees are not material. Abbott's weighted average interest rate on short-term borrowings was 5.9%, 5.7%, and 5.5% at December 31, 2000, 1999, and 1998, respectively.

Note 9 — Equity Method Investments (dollars in millions)

    Abbott's 50 percent owned joint venture, TAP Pharmaceutical Products Inc. (TAP), is accounted for under the equity method of accounting. Abbott's share of TAP's income was $481, $390, and $266 in 2000, 1999, and 1998, respectively. The investment in TAP was $491, $521, and $368 at December 31, 2000, 1999,

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and 1998, respectively. Dividends received from TAP were $511, $237, and $209 in 2000, 1999, and 1998, respectively. Summarized financial information for TAP is as follows:

    Undistributed earnings of investments accounted for under the equity method amounted to $467 as of December 31, 2000.

Note 10 — Quarterly Results (Unaudited) (dollars in millions except per share data)

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Note 11 — Stock Purchase Rights

    Common shares outstanding are subject to stock purchase rights. The rights, which are exercisable only under certain conditions, entitle the holder to purchase common shares at prices specified in the Rights Agreement. The rights were not exercisable at December 31, 2000.

Note 12 — Business Combinations and Divestiture

    On December 15, 2000, Abbott and BASF A.G. reached an agreement through which Abbott will purchase the pharmaceutical business of BASF, subject to approval of government regulators. The purchase price is $6.9 billion. Abbott estimates that the acquisition, if completed, will result in purchase accounting charges of approximately $1.0 billion for in-process research and development in 2001, and will result in goodwill and intangibles of approximately $5.0 billion. The purchase will be financed by U.S. dollar and euro-based borrowings.

    On November 19, 1999, Abbott completed a merger transaction with Perclose, Inc., which was accounted for as a pooling-of-interests transaction. Abbott issued approximately 15.1 million common shares to Perclose shareholders, and Perclose's outstanding stock options were converted into options to purchase approximately 2.9 million Abbott common shares. Merger-related charges of approximately $16.2 million are included in selling, general and administrative expenses for 1999. Abbott's consolidated financial statements for prior periods have been restated to include Perclose and are not significantly different than previously reported amounts.

    In 1999, Abbott acquired certain assets of Glaxo Wellcome Inc.'s U.S. anesthesia business for approximately $217 million in cash. A substantial portion of the purchase price was allocated to intangible assets, which are amortized on a straight-line basis over 15 years. In 1998, Abbott acquired the common stock of International Murex Technologies Corporation, a manufacturer of medical diagnostic products, for approximately $234 million in cash. A substantial portion of the purchase price was allocated to goodwill, which is amortized on a straight-line basis over 20 years. Had these acquisitions taken place on January 1 of the previous years, consolidated sales and income would not have been significantly different from reported amounts.

    In January 2000, Abbott sold its agricultural products business to Sumitomo Chemical Co., Ltd., resulting in a $139 million gain. Under the transaction, Sumitomo acquired research and development, sales, marketing, and support operations for Abbott's entire line of naturally occurring biopesticides, plant growth regulators and other products for agriculture, public health and forestry. Bulk active ingredient manufacturing rights were retained by Abbott. For the full year 1999, Abbott recorded approximately $102 million in sales from this business.

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Note 13 — Segment and Geographic Area Information (dollars in millions)

    REVENUE SEGMENTS — Abbott's principal business is the discovery, development, manufacture and sale of a broad line of health care products and services. Abbott's products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians' offices and government agencies throughout the world. Abbott's reportable segments are as follows:

    PHARMACEUTICAL PRODUCTS — U.S. sales of a broad line of pharmaceuticals.

    DIAGNOSTIC PRODUCTS — Worldwide sales of diagnostic systems for blood banks, hospitals, consumers, commercial laboratories and alternate-care testing sites.

    HOSPITAL PRODUCTS — U.S. sales of intravenous and irrigation fluids and related administration equipment, drugs and drug-delivery systems, anesthetics, critical care products, and other medical specialty products for hospitals and alternate-care sites.

    ROSS PRODUCTS — U.S. sales of a broad line of adult and pediatric nutritional products, pediatric pharmaceuticals and consumer products.

    INTERNATIONAL — Non-U.S. sales of all of Abbott's pharmaceutical, hospital and nutritional products. Products sold by International are manufactured by domestic segments and by international manufacturing locations.

    Abbott's underlying accounting records are maintained on a legal entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting. Intersegment transfers of inventory are recorded at standard cost and are not a measure of segment operating earnings. The cost of some corporate functions and the cost of certain employee benefits are sold to segments at predetermined rates which approximate cost. Remaining costs, if any, are not allocated to revenue segments. Effective January 1, 2001, certain intangibles and related amortization are excluded from performance measures by revenue segments. Segment information for 2000, 1999 and 1998 reflects this change. The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and are not presented in accordance with generally accepted accounting principles applied to the consolidated financial statements.

		Net Sales to External Customers									Operating Earnings									Depreciation and Amortization									Additions to Long-Term Assets									Total Assets
		2000			1999			1998			2000			1999			1998			2000			1999			1998			2000			1999			1998			2000			1999			1998
Pharmaceutical (a)		$	2,580		$	2,398		$	2,336		$	1,013		$	1,238		$	1,222		$	43		$	46		$	40		$	145		$	177		$	54		$	1,719		$	1,528		$	1,315
Diagnostics (b)(d)			2,924			3,010			2,764			331			561			477			200			215			211			292			305			304			2,626			2,593			2,527
Hospital (a)(c)			2,507			2,249			2,190			660			523			605			111			115			103			183			161			161			1,702			1,567			1,417
Ross (b)			2,035			1,957			1,846			720			634			545			65			71			72			47			42			66			899			870			919
International (d)			3,307			3,204			3,001			782			675			607			86			104			95			150			180			207			2,576			2,485			2,352
Total Reportable Segments			13,353			12,818			12,137		$	3,506		$	3,631		$	3,456		$	505		$	551		$	521		$	817		$	865		$	792		$	9,522		$	9,043		$	8,530
Other			393			360			376
Net Sales		$	13,746		$	13,178		$	12,513

(a)

In 2000, management of the vascular medicine franchise was transferred from the Pharmaceutical segment to the Hospital segment. The above segment information for 1999 and 1998 has been restated to reflect this transfer.

(b)

In 2001, management of the FACT PLUS product franchise was transferred from the Diagnostics segment to the Ross segment. The above segment information reflects this transfer.

(c)

As of January 2001, certain intersegment royalties are no longer charged to the Hospital segment. Operating earnings for the Hospital segment reflect this change.

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(d)

Net sales and operating earnings were unfavorably affected by the relatively stronger U.S. dollar in each year presented.

(e)

All years include intangibles amortization previously reported by reportable segments and 1999 includes charges of $168 relating to the FDA consent decree, as described in Note 15.

(f)

Sales by country are based on the country that sold the product or service.

    The classes of products that contributed at least 10 percent to consolidated net sales in at least one of the last three years were:

Note 14 — Litigation and Environmental Matters

    Abbott is involved in various claims and legal proceedings including numerous antitrust suits and investigations in connection with the pricing of prescription pharmaceuticals. These suits and investigations allege that various pharmaceutical manufacturers have conspired to fix prices for prescription

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pharmaceuticals and/or to discriminate in pricing to retail pharmacies by providing discounts to mail-order pharmacies, institutional pharmacies and HMOs in violation of state and federal antitrust laws. The suits have been brought on behalf of individuals and retail pharmacies and name both Abbott and certain other pharmaceutical manufacturers and pharmaceutical wholesalers and at least one mail-order pharmacy company as defendants. The cases seek treble damages, civil penalties, and injunctive and other relief. Abbott has filed or intends to file a response to each of the remaining complaints denying all substantive allegations.

    In addition, there are several lawsuits and one investigation pending in connection with the sales of HYTRIN. These suits and the investigation allege that Abbott violated state or federal antitrust laws and, in some cases, unfair competition laws by signing separate agreements with Geneva Pharmaceuticals, Inc. and Zenith Laboratories, Inc. Those agreements related to pending patent infringement lawsuits between Abbott and the two companies. Some of the suits also allege that Abbott violated various state or federal laws by filing frivolous patent infringement lawsuits to protect HYTRIN from generic competition. The cases seek treble damages, civil penalties and other relief. Abbott has filed or intends to file a response to each of the complaints denying all substantive allegations.

    The U.S. Department of Justice is investigating the marketing and sales practices of TAP Pharmaceutical Products Inc. (TAP) for LUPRON. In addition, various state and federal agencies are investigating the pricing practices of TAP with respect to LUPRON and/or Abbott with respect to certain other Medicare and Medicaid reimbursable products.

    Abbott has also been identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico under federal and state remediation laws and is investigating potential contamination at a number of Company-owned locations.

    Abbott expects that within the next year, legal proceedings will occur that may result in a change in the estimated reserves recorded by Abbott. While it is not feasible to predict the outcome of such pending claims, proceedings, investigations and remediation activities with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on Abbott's financial position, ongoing cash flows, or ongoing results of operations. But an adverse outcome in the U.S. Department of Justice's investigation of TAP could have a material adverse effect on Abbott's cash flows and results of operations for a particular period.

Note 15 — U.S. Food and Drug Administration Consent Decree

    In November 1999, Abbott reached agreement with the U.S. government to have a consent decree entered to settle issues involving Abbott's diagnostics manufacturing operations in Lake County, Ill. The decree, which was amended in December 2000, requires Abbott to ensure its diagnostics manufacturing processes in Lake County, Ill., conform with the U.S. Food and Drug Administration's (FDA) Quality System Regulation (QSR). The decree allows for the continued manufacture and distribution of medically necessary diagnostic products made in Lake County, Ill. However, Abbott is prohibited from manufacturing or distributing certain diagnostic products until Abbott ensures the processes in its Lake County, Ill., diagnostics manufacturing operations conform with the QSR. The decree allows Abbott to export diagnostic products and components for sale and distribution outside the United States if they meet the export requirements of the Federal Food, Drug and Cosmetic Act. Under the terms of the amended consent decree, Abbott must ensure its diagnostics manufacturing operations are in conformance with the QSR by various dates through January 15, 2001. The FDA will determine Abbott's conformance with the QSR after an inspection of Abbott's facilities. If the FDA concludes that the operations are not in conformance with the QSR as of the date required, Abbott may be subject to additional costs.

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Abbott Laboratories and Subsidiaries

Report of Independent Public Accountants

To the Shareholders of Abbott Laboratories:

    We have audited the accompanying consolidated balance sheet of Abbott Laboratories (an Illinois corporation) and Subsidiaries as of December 31, 2000, 1999, and 1998, and the related consolidated statements of earnings and comprehensive income, shareholders' investment, and cash flows for the years then ended. These financial statements are the responsibility of Abbott's management. Our responsibility is to express an opinion on these financial statements based on our audits.

    We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

    In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Abbott Laboratories and Subsidiaries as of December 31, 2000, 1999, and 1998, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

Chicago, Illinois January 15, 2001

Arthur Andersen LLP

Management Report on Financial Statements

    Management has prepared, and is responsible for, Abbott's consolidated financial statements and related notes. They have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgments and estimates by management. All financial information in this annual report is consistent with the consolidated financial statements.

    Abbott maintains internal accounting control systems and related policies and procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and properly recorded, and that accounting records may be relied upon for the preparation of consolidated financial statements and other financial information. The design, monitoring and revision of internal accounting control systems involve, among other things, management's judgment with respect to the relative cost and expected benefits of specific control measures. Abbott also maintains an internal auditing function that evaluates and formally reports on the adequacy and effectiveness of internal accounting controls, policies and procedures.

    Abbott's consolidated financial statements have been audited by independent public accountants who have expressed their opinion with respect to the fairness of these statements.

Miles D. White
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER

Gary P. Coughlan
SENIOR VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER

Gary L. Flynn
VICE PRESIDENT AND CONTROLLER

48

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PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

    Incorporated herein by reference are "Committees of the Board of Directors" and "Information Concerning Nominees for Directors" to be included in the 2001 Abbott Laboratories Proxy Statement. The 2001 Proxy Statement will be filed on or about March 13, 2001. Also incorporated herein by reference is the text found under the caption, "Executive Officers of The Registrant" on pages 14 through 20 hereof.

ITEM 11.  EXECUTIVE COMPENSATION

    The material to be included in the 2001 Proxy Statement under the heading "Executive Compensation," other than the Report of the Compensation Committee and the Performance Graph, is incorporated herein by reference. The 2001 Proxy Statement will be filed on or about March 13, 2001.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    Incorporated herein by reference is the text to be included under the caption "Information Concerning Security Ownership" and the material under the heading "Security Ownership of Executive Officers and Directors" in the 2001 Proxy Statement. The 2001 Proxy Statement will be filed on or about March 13, 2001.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

    None.

49

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PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

    (a) Documents filed as part of this Form 10-K.

    1.  Financial Statements:  See Item 8, "Financial Statements and Supplementary Data," on page 28 hereof, for a list of financial statements.

    2.  Financial Statement Schedules:  The required financial statement schedules are found on the pages indicated below. These schedules should be read in conjunction with the Consolidated Financial Statements:

    3.  Exhibits Required by Item 601 of Regulation S-K:  The information called for by this paragraph is incorporated herein by reference to the Exhibit Index on pages 56, 57 and 58 of this Form 10-K.

(b) Reports on Form 8-K during the quarter ended December 31, 2000:

No reports on Form 8-K were filed during the quarter ended December 31, 2000. In a Form 8-K dated December 15, 2000, Abbott furnished both (i) its press release, also dated December 15, 2000, regarding Abbott's pending acquisition of the pharmaceutical business of BASF, including its global Knoll operations and (ii) questions and answers regarding the acquisition of the pharmaceutical business of BASF.

(c) Exhibits filed (see Exhibit Index on pages 56, 57 and 58).

(d) Financial Statement Schedules filed (page 53).

50

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SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Abbott Laboratories has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ABBOTT LABORATORIES
	By		/s/ MILES D. WHITE    Miles D. White Chairman of the Board and Chief Executive Officer
			Date: February 9, 2001

    Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Abbott Laboratories on February 9, 2001 in the capacities indicated below.

/s/ MILES D. WHITE    Miles D. White Chairman of the Board, Chief Executive Officer and Director of Abbott Laboratories (principal executive officer)		/s/ H. LAURANCE FULLER    H. Laurance Fuller Director of Abbott Laboratories
/s/ JEFFREY M. LEIDEN    Jeffrey M. Leiden Executive Vice President, Pharmaceuticals, Chief Scientific Officer, and Director of Abbott Laboratories		/s/ JACK M. GREENBERG    Jack M. Greenberg Director of Abbott Laboratories
/s/ GARY P. COUGHLAN    Gary P. Coughlan Senior Vice President, Finance and Chief Financial Officer (principal financial officer)		/s/ DAVID A. JONES    David A. Jones Director of Abbott Laboratories
/s/ GARY L. FLYNN    Gary L. Flynn Vice President and Controller (principal accounting officer)		/s/ DAVID A. L. OWEN    David A. L. Owen Director of Abbott Laboratories
/s/ ROXANNE S. AUSTIN    Roxanne S. Austin Director of Abbott Laboratories		/s/ BOONE POWELL JR.    Boone Powell Jr. Director of Abbott Laboratories
		/s/ A. BARRY RAND    A. Barry Rand Director of Abbott Laboratories

51

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/s/ W. ANN REYNOLDS    W. Ann Reynolds Director of Abbott Laboratories		/s/ WILLIAM D. SMITHBURG    William D. Smithburg Director of Abbott Laboratories
/s/ ROY S. ROBERTS    Roy S. Roberts Director of Abbott Laboratories		/s/ JOHN R. WALTER    John R. Walter Director of Abbott Laboratories

52

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ABBOTT LABORATORIES AND SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998

Allowances for Doubtful Accounts and Sales Deductions			Balance at Beginning of Year		Provisions Charged to Income(a)		Amounts Charged Off Net of Recoveries		Balance at End of Year
	2000		238,956		(8,169	)	(40,620	)	190,167
	1999		191,352		67,645		(20,041	)	238,956
	1998		167,592		41,655		(17,895	)	191,352

(a)

Represents provisions related to allowances for doubtful accounts and net change in the allowances for sales deductions.

53

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SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Abbott Laboratories:

    We have audited in accordance with auditing standards generally accepted in the United States, the financial statements included in this Annual Report on Form 10-K, and have issued our report thereon dated January 15, 2001. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. Schedule II is the responsibility of Abbott's management, is presented for purposes of complying with the Securities and Exchange Commission's rules, and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Chicago, Illinois
January 15, 2001

54

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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

    As independent public accountants, we hereby consent to the incorporation by reference of the following into Abbott's previously filed Form S-8 Registration Statements 33-4368 for the Abbott Laboratories 1986 Incentive Stock Program, 33-39798 for the Abbott Laboratories 1991 Incentive Stock Program, 333-09071, 333-43381, 333-69547, 333-93253 and 333-52768 for the Abbott Laboratories 1996 Incentive Stock Program, 333-13091 for the Abbott Laboratories Ashland Union 401(k) Plan and Trust, and 33-26685, 33-51585, 33-56897, 33-65127, 333-19511, 333-43383, 333-69579, and 333-93257 for the Abbott Laboratories Stock Retirement Plan and Trust; Abbott's previously filed post-effective Amendment No. 1 to Registration Statement on Form S-8 333-85867 for the Perclose, Inc. 1992 Stock Plan, Perclose, Inc. 1995 Director Option Plan, Perclose, Inc. 1997 Stock Plan and Perclose, Inc. 1995 Employee Stock Purchase Plan; and into Abbott's previously filed S-3 Registration Statements 33-50253, 333-06155, 333-63481, 333-65601, 333-83647 and 333-55446:

    1.  Our supplemental report dated January 15, 2001 included in this Annual Report on Form 10-K for the year ended December 31, 2000; and

    2.  Our report dated January 15, 2001 included in this Annual Report on Form 10-K for the year ended December 31, 2000.

ARTHUR ANDERSEN LLP

Chicago, Illinois
February 15, 2001

55

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EXHIBIT INDEX
ABBOTT LABORATORIES
ANNUAL REPORT
FORM 10-K
2000

10-K Exhibit Table Item No.
2.1		Purchase Agreement between BASF Aktiengesellschaft and Abbott Laboratories recorded on December 14, 2000.***
3.1		* Articles of Incorporation-Abbott Laboratories, filed as Exhibit 3.1 to the Abbott Laboratories Quarterly Report for the quarter ended March 31, 1998 on Form 10-Q. (see also Exhibit 4.23, below.)
3.2		Corporate By-Laws-Abbott Laboratories.
4.1		* Indenture dated as of October 1, 1993, between Abbott Laboratories and Harris Trust and Savings Bank, filed as Exhibit 4.1 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1993, on Form 10-Q.
4.2		* Form of 5.6% Note issued pursuant to the Indenture filed as Exhibit 4.2 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1993, on Form 10-Q.
4.3		* Form of Medium-Term Note, Series A (Fixed Rate) to be issued pursuant to the Indenture filed as Exhibit 4.3 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1993, on Form  10-Q.
4.4		* Form of Medium-Term Note, Series A (Floating Rate) to be issued pursuant to the Indenture filed as Exhibit 4.4 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1993, on Form  10-Q.
4.5		* Resolution of Abbott's Board of Directors filed as Exhibit 4.5 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1993, on Form 10-Q.
4.6		* Actions of the Authorized Officers with respect to Abbott's $200,000,000 5.6% Notes filed as Exhibit 4.6 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1993, on Form  10-Q.
4.7		* Actions of the Authorized Officers with respect to Abbott's Medium-Term Notes, Series A filed as Exhibit 4.7 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1993, on Form  10-Q.
4.8		* Officers' Certificate and Company Order with respect to Abbott's $200,000,000 5.6% Notes filed as Exhibit 4.8 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1993, on Form  10-Q.
4.9		* Form of 6.8% Note issued pursuant to Indenture filed as Exhibit 4.9 to the 1995 Abbott Laboratories Annual Report on Form 10-K.
4.10		* Actions of Authorized Officers with respect to Abbott's $150,000,000 6.8% Notes filed as Exhibit 4.10 to the 1995 Abbott Laboratories Annual Report on Form 10-K.
4.11		* Officers' Certificate and Company Order with respect to Abbott's $150,000,000 6.8% Notes filed as Exhibit 4.11 to the 1995 Abbott Laboratories Annual Report on Form 10-K.
4.12		* Resolution of Abbott's Board of Directors relating to the 6.4% Notes filed as Exhibit 4.12 to the 1996 Abbott Laboratories Annual Report on Form 10-K.
4.13		* Form of $50,000,000 6.4% Note issued pursuant to Indenture filed as Exhibit 4.13 to the 1996 Abbott Laboratories Annual Report on Form 10-K.

56

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4.14		* Form of $200,000,000 6.4% Note issued pursuant to Indenture filed as Exhibit 4.14 to the 1996 Abbott Laboratories Annual Report on Form 10-K.
4.15		* Actions of Authorized Officers with respect to Abbott's 6.4% Notes filed as Exhibit 4.15 to the 1996 Abbott Laboratories Annual Report on Form 10-K.
4.16		* Officers' Certificate and Company Order with respect to Abbott's 6.4% Notes filed as Exhibit 4.16 to the 1996 Abbott Laboratories Annual Report on Form 10-K.
4.17		* Form of $200,000,000 6.0% Note issued pursuant to Indenture filed as Exhibit 4.2 to the Abbott Laboratories Quarterly Report for the quarter ended June 30, 1998, on Form 10-Q.
4.18		* Actions of Authorized Officers with respect to Abbott's 6.0% Note filed as Exhibit 4.3 to the Abbott Laboratories Quarterly Report for the quarter ended June 30, 1998, on Form 10-Q.
4.19		* Officers' Certificate and Company Order with respect to Abbott's 6.0% Note filed as Exhibit 4.4 to the Abbott Laboratories Quarterly Report for the quarter ended June 30, 1998, on Form 10-Q.
4.20		* Form of $200,000,000 5.40% Note issued pursuant to Indenture filed as Exhibit 4.2 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1998, on Form 10-Q.
4.21		* Actions of Authorized Officers with respect to Abbott's 5.40% Note filed as Exhibit 4.3 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1998, on Form 10-Q.
4.22		* Officers' Certificate and Company Order with respect to Abbott's 5.40% Note filed as Exhibit 4.4 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 1998, on Form 10-Q.
4.23		* Certificate of Designations, Preferences and Rights of the Series A Junior Participating Preferred Stock, filed as Exhibit 4.1 to the Abbott Laboratories Current Report on Form 8-K filed on November 15, 1999.
4.24		* Rights Agreement, dated as of November 11, 1999, between Abbott Laboratories and BankBoston, N.A., as Rights Agent, filed as Exhibit 99.1 to the Abbott Laboratories Current Report on Form 8-K filed on November 15, 1999.
4.25		* Amendment No. 1 to Rights Agreement, dated as of December 7, 1999, between Abbott Laboratories and BankBoston, N.A., as Rights Agent, filed as Exhibit 99.1 to the Abbott Laboratories Current Report on Form  8-K filed on December 20, 1999.
4.26		* Amendment No. 2 to Rights Agreement dated as of May 19, 2000 filed as Exhibit 99.1 to the Abbott Laboratories Current Report on Form 8-K filed on May 19, 2000.
4.27		* Indenture dated as of February 9, 2001, between Abbott Laboratories and Bank One Trust Company, N.A., filed as Exhibit 4.1 to Registration Statement 333-55446.
		Other debt instruments are omitted in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K. Copies of such agreements will be furnished to the Securities and Exchange Commission upon request.
10.1		* Supplemental Plan Abbott Laboratories Extended Disability Plan, filed as an exhibit (pages 50-51) to the 1992 Abbott Laboratories Annual Report on Form 10-K.**
10.2		* The Abbott Laboratories 1986 Incentive Stock Program filed as Exhibit 10.2 to the 1997 Abbott Laboratories Annual Report on Form 10-K.**

57

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10.3		* The Abbott Laboratories 1991 Incentive Stock Program filed as Exhibit 10.3 to the 1997 Abbott Laboratories Annual Report on Form 10-K.**
10.4		* Abbott Laboratories 401(k) Supplemental Plan, filed as Exhibit 10.7 to the Abbott Laboratories 1993 Annual Report on Form 10-K.**
10.5		* Abbott Laboratories Supplemental Pension Plan filed as Exhibit 10.1 to the Abbott Laboratories Quarterly Report for the quarter ended June 30, 1998 on Form 10-Q.**
10.6		* The 1986 Abbott Laboratories Management Incentive Plan filed as Exhibit 10.1 to the Abbott Laboratories Quarterly Report for the quarter ended June 30, 1997 on Form 10-Q.**
10.7		* Abbott Laboratories Non-Employee Directors' Fee Plan filed as Exhibit 10.2 to the Abbott Laboratories Quarterly Report for the quarter ended June 30, 2000 on Form 10-Q.**
10.8		* The Abbott Laboratories 1996 Incentive Stock Program filed as Exhibit 10.1 to the Abbott Laboratories Quarterly Reportfor the quarter ended June 30, 2000 on Form 10-Q .**
10.9		* 1998 Abbott Laboratories Performance Incentive Plan filed as Exhibit 10.1 to the Abbott Laboratories Quarterly Report for the quarter ended March 31, 1998 on Form 10-Q. **
10.10		Form of Agreement Between Abbott Laboratories and each of M. D. White, G. P. Coughlan, R. A. Gonzalez, J. A. Amundson, W. G. Dempsey, regarding Change in Control.**
10.11		* Agreement Between Abbott Laboratories and R. L. Parkinson Jr. filed as Exhibit 10.1 to the Abbott Laboratories Quarterly Report for the quarter ended September 30, 2000 on Form 10-Q.**
12		Computation of Ratio of Earnings to Fixed Charges.
21		Subsidiaries of Abbott Laboratories.
23		Consent of Independent Public Accountants.
99.1		Cautionary Statement Regarding Forward-Looking Statements.

    The 2001 Abbott Laboratories Proxy Statement will be filed with the Securities and Exchange Commission under separate cover on or about March 13, 2001.

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*		Incorporated herein by reference. Commission file number 1-2189.
**		Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.
***		Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment separately filed with the Securities and Exchange Commission.

    Abbott will furnish copies of any of the above exhibits to a shareholder upon written request to the Corporate Secretary, Abbott Laboratories, 100 Abbott Park Road, Abbott Park, Illinois 60064-6400.

58

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QuickLinks

PART I

ITEM 1. BUSINESS

GENERAL DEVELOPMENT OF BUSINESS
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS, GEOGRAPHIC AREAS, AND CLASSES OF SIMILAR PRODUCTS
NARRATIVE DESCRIPTION OF BUSINESS
INFORMATION WITH RESPECT TO ABBOTT'S BUSINESS IN GENERAL
INTERNATIONAL OPERATIONS

ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

EXECUTIVE OFFICERS OF THE REGISTRANT
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Private Securities Litigation Reform Act of 1995 — A Caution Concerning Forward-Looking Statements
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statement of Earnings and Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Balance Sheet
Consolidated Statement of Shareholders’ Investment
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Management Report on Financial Statements
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

SIGNATURES
ABBOTT LABORATORIES AND SUBSIDIARIES SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
EXHIBIT INDEX ABBOTT LABORATORIES ANNUAL REPORT FORM 10-K 2000

                               PURCHASE AGREEMENT

                                     between

                             BASF AKTIENGESELLSCHAFT
                               67056 LUDWIGSHAFEN
                                   ("Seller")

                                 on the one hand

                                       and

                               ABBOTT LABORATORIES
                                  ("Purchaser")

                                on the other hand



                                   DEFINITIONS

"ACCRUED TAXES" shall mean currently payable Tax liabilities and provisions for
deferred Tax liabilities;

"ACTIVE INGREDIENTS" shall mean active chemical substances intended for use in
Pharmaceutical Products and any intermediates of such active chemical
substances;

"ACTUAL KNOWLEDGE OF SELLER" shall have the meaning described in Section 14.3;

"AFFILIATES" shall mean any company or other entity which is an affiliated
company within the meaning of Sections 15 ET SEQ. Aktiengesetz (German Stock
Corporation Act);

"AGGREGATE PURCHASE PRICE" shall have the meaning as described in Section 8.1;

"ASSIGNMENTS" shall have the meaning as described in Section 12.1;

"BASF PHARMACEUTICAL BUSINESS" shall mean the business activities conducted by
Seller and its Affiliates within the BASF Pharmaceutical Field;

"BASF PHARMACEUTICAL FIELD" shall mean the research, development, importation,
use, registration, manufacture, distribution or sale of (a) BASF Pharmaceutical
Products and (b) Exclusive Active Ingredients and Mutual Active Ingredients but
excluding the BASF Pharmachemical Field;

"BASF PHARMACEUTICAL PRODUCTS" shall mean Pharmaceutical Products being
researched, developed, imported, used, registered, manufactured, distributed or
sold by Seller or any of its Affiliates, including the Companies, as of the date
of this Agreement or the Closing, including without limitation (a) the products
listed in Exhibit 13.27(a) and clinical compounds listed in Exhibit 13.27(b) and
(b) all line extensions and generic versions of the foregoing provided, however,
that BASF Pharmaceutical Products shall not include the finished pharmaceutical
products that are manufactured as of the date hereof at Knoll AG's production
facility in Uetersen, Germany;


                                     Page 2

"BASF PHARMACHEMICAL BUSINESS" shall mean the business activities conducted by
Seller and its Affiliates within the BASF Pharmachemical Field;

"BASF PHARMACHEMICAL FIELD" shall mean the Pharmachemical Field but excluding
any Exclusive Active Ingredients;

"BEST KNOWLEDGE OF SELLER" shall have the meaning as described in Section 14.3;

"BPC" shall have the meaning as described in Section 1.1;

"BPC SUBSIDIARIES" shall have the meaning as described in Section 1.2;

"CASH" shall mean liquid funds and non-trade receivables from Affiliates;

"CLOSING CONDITIONS" shall have the meaning as described in Section 11.1.1;

"CLOSING NET ASSET VALUE" shall have the meaning as described in Section 9.1(b);

"CLOSING NET ASSET VALUE STATEMENT" shall have the meaning as described in
Section 10.1;

"COMPANIES" shall have the meaning as described in Section 13.1;

"CONVERSION EXCHANGE RATES" shall mean the local currency exchange rates in
effect on the second day prior to Closing, as reported on the Reuters screen at
approximately 9:00AM CST.;

"D2E7" shall mean the compound known as D2E7, and any Pharmaceutical Product
that includes D2E7 as an Active Ingredient;

"DAMAGES" shall have the meaning given to it in Sections 249 et seq. of the
German Civil Code;

"DISCONTINUED/EXCLUDED BUSINESSES" shall mean any or all of the businesses,
operations, personnel and assets of the Seller or any Affiliate of Seller,
including Knoll AG and the Companies (or any predecessor thereof), that prior to
the Closing Date were or are in the process of being (i) closed, wound-up or
otherwise terminated, (ii) ceased to be used in connection with such business or
operations, or (iii) sold or otherwise disposed of to any third person or
entity. Such Discontinued/Excluded Businesses shall include, without limitation,
(a) the Uetersen Business as well as any other businesses of Knoll AG other than
the Knoll Business, (b) the site, operations and businesses conducted at the
site in Nottingham, U.K., (c) the Generics Business as described in Exhibit A
hereto and (d) BASF Pharmachemikalien GmbH & Co. KG.

"DISCONTINUED/EXCLUDED BUSINESSES LIABILITIES" means, except as otherwise
expressly provided for in this Agreement, any and all obligations, liabilities
and expenses arising out of or associated with, or alleged to arise out of or be
associated with, the Discontinued/Excluded Businesses, including, without
limitation, any of the foregoing arising under any applicable environmental
laws, with respect to the employment or termination of employment of any
individual, or under or with respect to any employee benefit plan or program,
including pension, disability, post-retirement medical or severance or income
continuation plan;

"DISPUTED ITEM" shall have the meaning as described in Section 10.4;

"EMPLOYEES" shall mean all individuals who are employed by the Companies on the
Closing Date;


                                     Page 3

"EXCLUSIVE ACTIVE INGREDIENTS" shall mean all Active Ingredients used in any
BASF Pharmaceutical Product other than the Mutual Active Ingredients. The
material Exclusive Active Ingredients are described on Exhibit 13.27(c);

"FINANCIAL DEBT" shall mean financial indebtedness and non-trade liabilities to
Affiliates;

"GROUP PENSION ARRANGEMENT" shall mean a pension plan or vehicle for the
financing and administration of pension promises which is used by the Seller and
its Affiliates in a particular country for providing pension benefits and in
which the Companies participate in connection with providing pension benefits to
their respective employees, except for the Seller U.S. Defined Benefit Plans;

"GROUP PENSION TRANSFER AMOUNT" shall have the meaning as described in Section
23.3;

"HOKURIKU SHARES" shall mean the shares in Hokuriku Seiyaku K. K., a stock
corporation organised under Japanese law, held by Transpharm GmbH and Lupharma
GmbH in the amounts and as described on Exhibit 2;

"INDIA SHARES" shall mean the shares in Knoll Pharmaceuticals LTD India, a stock
corporation organised under Indian law;

"INTERCOMPANY AGREEMENTS" shall mean the agreements listed in Exhibit 13.10
hereto;

"KNOLL AG" shall have the meaning as described in Section 3.1.1;

"KNOLL BUSINESS" shall have the meaning as described in Section 3.2;

"KNOLL BUSINESS EMPLOYEES" shall have the meaning as described in Section 29.3;

"MATERIAL ADVERSE EFFECT" shall mean any event, change, circumstance or effect
that, individually or in the aggregate, is, or could reasonably be expected to
be (a) materially adverse to the BASF Pharmaceutical Business, or the assets,
operations , results of operations, financial condition of the BASF
Pharmaceutical Business, taken as a whole, other than any event, change,
circumstance or effect relating (x) to the economy in general, or (y) in general
to the pharmaceutical industry and not specifically relating to the BASF
Pharmaceutical Business, or the transactions contemplated by this Agreement;

"MUTUAL ACTIVE INGREDIENTS" shall mean the Active Ingredients manufactured by
Seller or its Affiliates as of the date of this Agreement which are used in both
BASF Pharmaceutical Products and other Pharmaceutical Products of third parties
as described in Exhibit 13.27(c);

"OTHER FOREIGN SUBSIDIARIES" shall have the meaning as described in Section 2;

"PAKISTAN SHARES" shall mean the shares in Knoll Pharmaceuticals LTD Pakistan, a
stock corporation organised under Pakistan law;

"PARTNERSHIP" shall have the meaning as described in Section 4.1;

"PENSION ARRANGEMENT" shall mean a defined benefit pension promise which has
been made by any of the Companies on an individual, collective or local labor
law basis to one or more of their employees prior to Closing, including
pension-type indemnities provided upon retirement on a mandatory basis as, for
example in Austria, Italy and France, supplemental executive retirement
programs, defined benefit cash balance plans, seniority awards, disability
pension benefits, survivor



                                  Page 4

pension benefits, early or accelerated retirement arrangements and
post-employment medical benefits, but excluding purely defined contribution
promises such as, for example, 401(k) plans;

"PENSION LIABILITIES" shall mean the liabilities under Pension Arrangements
pertaining to the BASF Pharmaceutical Business whether organized under either
internally or externally financed arrangements, which are transferred to and
assumed by Purchaser, but excluding the pension liabilities which are financed
via the BASF Pensionskasse VVaG. Such obligations shall be determined as of the
Closing valued as the Projected Benefit Obligation on an FAS 87, 106 or 112
basis, as applicable (or, if FAS 87, 106 or 112 is not applicable, using
accounting principles consistent with FAS 87, 106, or 112, as appropriate) using
the Projected Unit Credit Method (PUC) based on plan provisions as in effect at
Closing and applying the following economic assumptions for Pension Arrangements
in Germany, the USA and Japan:




- ----------------------------------------------------------------------------------------------------------------
                          ***                     ***                     ***                    ***
- ----------------------------------------------------------------------------------------------------------------
                                                                                     
Germany                   ***                     ***                     ***                    ***
- ----------------------------------------------------------------------------------------------------------------
U.S.A.                    ***                     ***                     ***                    ***
- ----------------------------------------------------------------------------------------------------------------
Japan Hokuriku            ***                     ***                     ***                    ***
- ----------------------------------------------------------------------------------------------------------------



All other assumptions for Pension Arrangements in such countries and all
assumptions for Pension Arrangements in other countries shall be mutually agreed
upon by Purchaser and Seller within 45 days after the date of this Agreement. If
Purchaser and Seller have not agreed within said 45 day period on such
assumptions to be applied, then within an additional five days they shall
appoint a mutually acceptable actuary who shall establish those assumptions
prior to Closing; provided, however, that in establishing those assumptions the
actuary shall be limited to selecting on a plan by plan basis either the
assumptions proposed by Purchaser or the assumptions proposed by Seller. The
costs of the actuary shall be borne jointly by Seller and Purchaser.

"PHARMACEUTICAL FIELD" shall mean the research, development, importation, use,
registration, manufacture, distribution or sale of Pharmaceutical Products;

"PHARMACEUTICAL PRODUCTS" shall mean drug products in finished form for human or
animal use;

"PHARMACHEMICAL FIELD" shall mean (a) the research, development, importation,
use, registration, manufacture, distribution, physical or galenic processing or
sale of Active Ingredients and (b) custom manufacturing for third parties of
Pharmaceutical Products other than BASF Pharmaceutical Products not based upon
Mutual Active Ingredients;

"REFERENCE NET ASSET VALUE" shall have the meaning as described in Section
9.1(a);

"REMAINING PATENTS" shall have the meaning as described in Section 5.2;

"SEPARATE SALE AND TRANSFER CONTRACTS" shall have the meaning as described in
Section 7.1;

"SHARED SUBSTANCES" shall have the meaning as described in Section 5.3;

- ------------------------
***  Confidential information omitted pursuant to a request for confidential
     treatment filed separately with the Securities and Exchange Commission.



                                     Page 5

"SHARED SUBSTANCE RELATED PATENTS" shall have the meaning as described in
Section 5.4;

"SHARES" shall have the meaning as described in Section 6.2;

"SHARES/INTERESTS VERWALTUNGS-GMBH/PARTNERSHIP" shall have the meaning as
described in Section 6.1;

"STRADDLE PERIOD" shall mean any taxable period beginning on or before and
ending after the Closing Date;

"STRUCTURE OPTION" shall have the meaning as described in Section 7 (A) 1;

"TAX" OR "TAXES" shall mean all taxes of any kind imposed by a federal, state,
local or foreign governmental authority, and any payments made to another party
pursuant to a tax sharing arrangement, indemnity or other similar arrangement,
including but not limited to those on, or measured by or referred to as income,
gross receipts, financial operation, sales, use, AD VALOREM, value added,
franchise, profits, license, withholding, payroll (including all contributions
or premiums pursuant to industry or governmental social security laws or
pursuant to other tax laws and regulations), employment, excise, severance,
stamp, occupation, premium, property, transfer or windfall profit taxes,
customs, duties or similar fees, assessments or charges of any kind whatsoever,
together with any interest and any penalties, additions to tax or additional
amounts imposed by such governmental authority with respect to such amounts;

"TAX ASSETS" shall mean all deferred tax assets valued according to U.S. GAAP
including, but not limited to, those resulting from loss carry forwards or
credit carry forwards, as far as they relate to the BASF Pharmaceutical Business
and are not used up by Seller prior to Closing;

"TRANSACTIONS" or "TRANSACTIONS" contemplated by this Agreement shall include
without limitation, the Demerger and the transactions contemplated by the
Demerger, the Merger, the transfer of the Shares and the transfer of the
Transferred Patents;

"TRANSFERRED PATENTS" shall have the meaning as described in Section 5.1;

"UETERSEN BUSINESS" shall mean the business activities conducted as of the date
hereof by Knoll AG at its production facility in Uetersen, Germany;

"U.S. EMPLOYEES" shall mean all individuals who are employed by the Companies on
the Closing Date in the United States;

"VERWALTUNGS-GMBH" shall have the meaning as described in Section 4.1.



                                     Page 6

                                       I.
                        DESCRIPTION OF SHARES AND ASSETS


                                    SECTION 1
                                 US SUBSIDIARIES


 1.1         BASF Pharma Corporation is a corporation validly existing under
             the laws of the State of Delaware with 1,000 issued shares with no
             par value (hereinafter referred to as "BPC"). All such issued
             shares are directly or indirectly owned by Seller as described in
             Exhibit 1.1.

 1.2         BPC has direct or indirect legal ownership of the participations
             in the companies which are set forth in Exhibit 1.2 (hereinafter
             referred to as "BPC Subsidiaries").

                                    SECTION 2
                           OTHER FOREIGN SUBSIDIARIES

Seller has direct or indirect legal ownership of the participations in the
companies and other entities which are set forth in Exhibit 2 (hereinafter
referred to as "Other Foreign Subsidiaries").

                                    SECTION 3
                       KNOLL AG AND KNOLL DEUTSCHLAND GMBH

3.1

3.1.1        Knoll AG is a stock corporation under the laws of the Federal
             Republic of Germany registered in the Commercial Register of the
             local court Ludwigshafen under docket number HR B 4300 with a
             registered share capital of EUR 50,000,000.00 (hereinafter referred
             to as "Knoll AG") which is directly and indirectly held by Seller.

3.1.2        Knoll Deutschland GmbH is a limited liability company (Gesellschaft
             mit beschraenkter Haftung) under the laws of the Federal Republic
             of Germany registered in the Commercial Register of the local court
             Ludwigshafen under docket number HR 3767 with a registered share
             capital of DM 4,000,000.00 (hereinafter referred to as "Knoll
             GmbH") which is indirectly held by Seller.

3.2          Knoll AG and Knoll GmbH operate the BASF  Pharmaceutical  Business
             in Germany (such Business being the "Knoll Business").

3.3          Knoll AG also operates a business of manufacturing pharmaceutical
             substances in Uetersen.

                                    SECTION 4
                                 KNOLL BUSINESS

4.1          Knoll AG will form a limited partnership in the legal form of a
             GmbH & Co KG (hereinafter referred to as the "Partnership"). The
             sole general partner will be a GmbH with a fully paid up registered
             share capital of EUR 25,000.- (hereinafter referred to as
             "Ver-



                                     Page 7

             waltungs-GmbH"). All capital interest in the Partnership and
             shares in the Verwaltungs GmbH will be held by Knoll AG.

4.2          Seller shall cause Knoll Deutschland GmbH to be merged into Knoll
             AG with economic effect as of January 1, 2001 (the "Merger").
             Subject to the Merger becoming effective, Knoll AG will transfer
             the Knoll Business to the Partnership by way of a demerger
             (Ausgliederung) in the meaning of Section 123 para 3 no. 1
             Conversion Act (Umwandlungsgesetz) with economic effect as of
             January 2, 2001 (the "Demerger"). Copies of the Merger agreement
             and the Demerger agreement, including the exhibits and attachments
             thereto, will be provided to Purchaser for its review and comment a
             reasonable period of time prior to the execution thereof
             (collectively, the "Merger/Demerger Agreements"). Neither this
             Agreement nor the transactions contemplated hereby shall release
             Seller from its liability under the Business Sale and Purchase
             Agreement dated April 27, 2000 by and among Kanoldt Arzneimittel
             GmbH, Knoll AG and Abbott GmbH.

4.3          At the Closing, the Partnership will own as a result of the
             Demerger:

             a)   the shares in the companies set forth in Exhibit 4.2 (b); and

             b)   the other assets and liabilities including contracts of the
                  Knoll Business.

  4.4       If the Structure Option has been exercised by Seller pursuant to
            Section 7 (A), Seller shall not complete the transactions referred
            to in items 4.1 and 4.2 unless such transactions have already been
            commenced at the time of the exercise of the Structure Option and
            Purchaser requires Seller by notice in writing to complete those
            actions.

                                    SECTION 5
                           PATENTS, SHARED SUBSTANCES

5.1          Seller owns, or owns in part as described on Exhibit 5.1 patents
             and patent applications exclusively relating to the Pharmaceutical
             Field and/or the BASF Pharmaceutical Business (hereinafter referred
             to as "Transferred Patents") as listed in Exhibit 5.1, including,
             without limitation, all patents and patent applications relating to
             compounds and substances being researched or developed, or that
             have been researched or developed, at the Nottingham site which
             compounds and substances are described in Exhibit 5.1(a).

5.2          Seller owns certain other patents and patent applications as
             listed in Exhibit 5.2 which also relate but not exclusively
             relate to the Pharmaceutical Field and/or the BASF Pharmaceutical
             Business which are hereinafter referred to as "Remaining
             Patents".

5.3          The substances (Substanzen) collected in the "Compound Library" of
             Seller are physically available on the premises of both the
             Partnership or, if the Structure Option has been exercised by
             Seller pursuant to Section 7 (A), Knoll AG, and Seller in
             Ludwigshafen, Germany (and will hereinafter be referred to as
             "Shared Substances").

5.4          Patents and patent applications, whether owned by Seller or
             by Seller's Affiliates, which relate to any of the Shared
             Substances will hereinafter be referred to as "Shared Substance
             Related Patents".


                                     Page 8

                                    SECTION 6
                                     SHARES

6.1          The shares in Knoll AG are hereinafter referred to as the
             "Knoll AG Shares", the shares in the Verwaltungs-GmbH and the
             interests in the Partnership are hereinafter jointly referred to
             as "Shares/Interests Verwaltungs-GmbH/Partnership".

6.2          "The Shares" shall mean (a) the shares or other equity interests or
             equity in BPC, in the Other Foreign Subsidiaries, in the
             Verwaltungs-GmbH and in the Partnership, or (b) in the event of the
             exercise of the Structure Option the shares or other equity in BPC,
             in the Other Foreign Subsidiaries and the Knoll AG Shares.

                                       II.
                     SALE, STRUCTURE OPTION, PURCHASE PRICE

                                    SECTION 7
                                      SALE

7.1        Seller hereby sells, or shall cause its Affiliates to sell, the
           Shares and the Transferred Patents to Purchaser or to entities
           designated by Purchaser, subject to the occurrence and fulfillment or
           waiver of all of the Closing Conditions and with commercial effect as
           amongst the parties as of the Closing except as otherwise provided in
           Section 7.4 and Seller hereby agrees to transfer, or to cause its
           Affiliates to transfer, the Shares and the Transferred Patents by
           separate sale and transfer contracts (hereinafter referred to as
           "Separate Sale and Transfer Contracts") to Purchaser or to entities
           designated by Purchaser at and effective as of the Closing.

7.2        The Separate Sale and Transfer Contracts shall be entered into and
           completed at the Closing in accordance with Section 12.1, except for
           the sale of the Hokuriku Shares which shall be completed pursuant to
           Section 7.4 below.

7.3        Seller shall cause the businesses described in clauses (a) through
           (d) in the definition of "Discontinued/Excluded Businesses" to be
           transferred to Seller prior to the Closing and Purchaser shall upon
           Seller's request and at Seller's expense cause such transfer to be
           made or completed after the Closing as far as not made or completed
           prior thereto and shall hold such Discontinued/Excluded Businesses
           until completion of their transfer for the account of Seller.

7.4        As far as the Hokuriku Shares are concerned, Purchaser agrees to
           commence within 5 business days after the completion of the
           procedures set forth in Exhibit 7.4 a tender offer procedure as
           required under Japanese law for the acquisition of all outstanding
           shares in Hokuriku Seiyaku K. K. with the commitment that Purchaser
           shall be required to purchase all of the tendered shares in Hokuriku
           Seiyaku K. K. including the Hokuriku Shares tendered by Seller
           directly or indirectly and to complete such tender offer procedure
           within 21 to 60 days after the commencement of such tender offer
           procedure (the "Hokuriku Tender Offer"). Seller agrees to (a) tender
           the Hokuriku Shares at the price per share offered by Purchaser in
           the course of such tender offer (the "Per Share Tender Price") and
           (b) provide such information and take such actions as may be
           necessary to enable Purchaser to comply



                                     Page 9

           with applicable Japanese law. The Per Share Tender Price
           multiplied by the number of Hokuriku Shares tendered by Seller in
           the Hokuriku Tender Offer (such amount, converted from Yen to USD
           using the Conversion Exchange Rates, being the "Final BASF Tender
           Amount") together with Seller's pro rata portion of the Excess
           Hokuriku Payment, if any, shall determine the amount of the
           Aggregate Purchase Price that shall be allocated to the Hokuriku
           Shares.

                                  SECTION 7 (A)
                                STRUCTURE OPTION

7 (A).1    Up to and through 10 working days prior to Closing, Seller shall have
           the option ("Structure Option") to choose to sell the shares in
           Knoll AG ("Knoll AG Shares") rather than the shares in the
           Verwaltungs-GmbH and the interests in the Partnership
           ("Shares/Interests Verwaltungs-GmbH/Partnership").

7 (A).2    The Structure Option can be exercised whether or not the Demerger
           within the meaning of  Section 4.2 has been commenced but may not be
           exercised if the Demerger has been completed.

7 (A).3    In order to exercise the Structure Option, Seller shall communicate
           in writing to Purchaser that it has decided to make use of the
           Structure Option.

7 (A).4    If the Structure Option is exercised, provisions in this Agreement
           intended to address issues associated with the termination  and
           maintenance of the Partnership, including Sections 29 and 30,
           shall be of no further force and effect.

                                    SECTION 8
                                 PURCHASE PRICE

8.1        The aggregate purchase price for the Shares and Transferred Patents
           and the license granted in Section 25.1 below shall be USD
           6,900,000,000.00 (six billion nine hundred million United States
           Dollar) (hereinafter referred to as the "Aggregate Purchase Price"),
           and shall be allocated as set forth in Exhibit 8.1. To the extent
           permitted by law such allocation of the Aggregate Purchase Price
           shall be binding for Seller and Purchaser for all aspects including
           but not limited to tax filings. At the Closing, the Aggregate
           Purchase Price less (i) the Provisional Hokuriku Tender Amount (the
           "Provisional Non-Hokuriku Purchase Price") and (ii) any sums heldback
           pursuant to Section 12.5, shall be paid by transfer of immediately
           available funds and free of wire transfer charges and transfer taxes
           to such bank as Seller may specify in writing within 5 business days
           prior to the Closing.

8.2        The Aggregate Purchase Price shall be adjusted as provided for in
           Sections 9 and 10 below or as a result of a claim for indemnification
           pursuant to Sections 15, 18 and 21 below.

8.3        The "Provisional Hokuriku Tender Amount" shall mean an amount,
           denominated in USD using the Conversion Exchange Rate for Yen to USD,
           equal to (a) the number of Hokuriku Shares held by Seller, times (b)
           the average of the closing prices of the Hokuriku Shares on



                                    Page 10

           the Tokyo Stock Exchange for the five trading days immediately prior
           to the fifth day prior to the Closing Date. If the Final BASF Tender
           Amount exceeds the Provisional Hokuriku Tender Amount (the "Hokuriku
           Overpayment"), an amount of the Provisional Non-Hokuriku Purchase
           Price equal to the Hokuriku Overpayment shall be refunded by Seller
           to Purchaser and the allocation to such other Shares (other than the
           Hokuriku Shares) or assets shall be reduced by the Hokuriku
           Overpayment in such manner as Purchaser and Seller shall mutually
           agree in good faith. If the Provisional Hokuriku Tender Amount
           exceeds the Final BASF Tender Amount (the "Hokuriku Underpayment") an
           amount equal to the Hokuriku Underpayment shall be refunded by
           Purchaser to Seller and allocated to such other Shares (other than
           the Hokuriku Shares) or assets of the Companies upon which Purchaser
           and Seller shall mutually agree in good faith. "Non Hokuriku Purchase
           Price" shall be equal to the Aggregate Purchase Price less the Final
           BASF Tender Amount, including any Excess Hokuriku Payments.

                                    SECTION 9
                     NON-HOKURIKU PURCHASE PRICE ADJUSTMENT

9.1        The Non-Hokuriku Purchase Price shall be adjusted as follows:

 a)        As of September 30, 2000, the net asset value of the BASF
           Pharmaceutical Business amounts to *** (such amount, net of the
           Hokuriku Reference Net Asset Value, being hereinafter referred to as
           "Reference Net Asset Value"). The Reference Net Asset Value has been
           determined on the basis of the unaudited proforma balance sheet
           contained in the attached Exhibit 9.1 (a) in item 3.2 thereof taking
           into account adjustments, as shown in Exhibit 9.1 (b) by the
           elimination of (i) Cash, Financial Debt, deferred Taxes and Accrued
           Taxes as shown in Exhibit 9.1 (a), (ii) deferrals shown in
           Exhibit 9.1 (a) as miscellaneous liabilities related to expenses of
           Seller allocated to the BASF Pharmaceutical Business; and (iii) other
           current assets as shown in Exhibit 9.1 (a) related to one-time
           payments of American Home Products to Seller with regard to a certain
           patent ("Enbrel"). Notwithstanding anything to the contrary set forth
           in this Section 9.1, Exhibit 9.1 (a) or Exhibit 9.1 (b), Section 21.4
           shall govern to the exclusion of this Section 9.1 with respect to the
           calculations described therein.



           b)         If the net asset value of the BASF Pharmaceutical Business
                      as of the Closing (net of the Hokuriku Closing Net Asset
                      Value) as determined in accordance with the principles set
                      forth in Section 10 below and as shown on the Final
                      Closing Net Asset Value Statement (hereinafter referred to
                      as the ("Closing Net Asset Value") is less than the
                      Reference Net Asset Value, Seller shall pay to Purchaser
                      the amount by which the Closing Net Asset Value is less
                      than the Reference Net Asset Value.

           c)         If the Closing Net Asset Value exceeds the Reference Net
                      Asset Value, Purchaser shall pay to Seller in addition to
                      the Aggregate Purchase Price the amount by which the
                      Closing Net Asset Value exceeds the Reference Net Asset
                      Value.

- ------------------------
***  Confidential information omitted pursuant to a request for confidential
     treatment filed separately with the Securities and Exchange Commission.



                                    Page 11

9.2        The amount determined in accordance with Section 9.1 above shall be
           paid by Seller or Purchaser, as the case may be in USD, together
           with any accrued interest at a rate of six percent per annum as of
           the Closing within 5 working days after the Closing Net Asset Value
           Statement has become final in accordance with Section 10.5 hereof
           in immediately available funds free of wire transfer charges and
           transfer taxes to the bank account set forth in Section 8.1 above,
           if payment is to be made to Seller, and to Citibank, N.A., New
           York, New York (ABA #021000089) for credit to Abbott Laboratories
           *** if payment is to be made to Purchaser. Any credit to Purchaser
           shall be made in USD at the spot exchange rate in effect at two
           business days prior to the date of payment.

                                   SECTION 10
                     FINAL CLOSING NET ASSET VALUE STATEMENT

10.1       For the purpose of determining the amount of the purchase price
           adjustment, if any, pursuant to Section 9 above, Seller shall
           deliver to Purchaser as promptly as practicable (but in any event
           no more than 45 days) after the Closing an audited consolidated
           balance sheet and statement of changes in shareholder's equity of
           the Companies as of the Closing (the "Closing Balance Sheet") and
           the Closing Net Asset Value Statement, each prepared by Seller and
           audited by Deloitte & Touche GmbH ("Seller's Auditors")
           (hereinafter referred to as "Closing Net Asset Value Statement")
           reflecting the Closing Net Asset Value, together with the report of
           Seller's Auditors thereon ("Auditor's Report"). The Closing Balance
           Sheet and the statement of changes in shareholder's equity included
           in the Auditor's Report shall be prepared in accordance with the
           Report Principles (as defined in Section 13.20) as of the Closing
           Date, and prepared and consolidated in a manner consistent with
           Exhibit 9.1(a). The Closing Net Asset Value Statement included in
           the Auditor's Report shall be prepared on the basis of, and derived
           from, the balance sheet contained in the Closing Balance Sheet, and
           adjusted in a manner consistent with Exhibit 9.1(b), and further
           adjusted in accordance with the principles set forth in Exhibit
           10.1 hereto. The audit of the Closing Balance Sheet shall include a
           physical count and valuation of the Companies' inventory. The
           Auditor's Report shall provide at least as much detail by financial
           statement line item as is included in Exhibit 9.1(a). Intercompany
           Obligations shall be dealt with as provided in Section 19.
           NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS SECTION
           10.1, EXHIBIT 7.4 SHALL GOVERN THE CALCULATION OF THE HOKURIKU NET
           ASSET VALUE DESCRIBED THEREIN.

10.2       To the extent to which the Closing Net Asset Value Statement
           arrives at a Closing Net Asset Value resulting in an adjustment of
           the Non-Hokuriku Purchase Price pursuant to Section 9, the Closing
           Net Asset Value Statement must also state how the amount by which
           the Non-Hokuriku Purchase Price, as so adjusted, should be
           allocated.

10.3       For the purpose of preparing and auditing the Closing Balance Sheet
           and Closing Net Asset Value Statement, Purchaser shall grant, or
           cause Companies to grant, Seller and Seller's auditors access to
           all relevant information and shall cause Purchaser's employees and
           the employees of the Companies to give Seller and its auditors all
           support and assistance reasonably requested by Seller free of
           charge. Purchaser and Purchaser's outside

- ------------------------
***  Confidential information omitted pursuant to a request for confidential
     treatment filed separately with the Securities and Exchange Commission.



                                    Page 12

           accountants, Arthur Andersen, shall be permitted to observe all
           procedures with respect to the counting and valuation of inventories.

10.4       Purchaser shall have 30 days after receipt of the Closing Net Asset
           Value Statement during which it may review the Closing Net Asset
           Value Statement, and raise in writing and in reasonable detail any
           objections against specified items of the Closing Net Asset Value
           Statement, indicating precisely the higher or lower value which in
           Purchaser's opinion should be allocated to each item in dispute.
           During this period of time, Purchaser and its auditors shall be
           granted access to all relevant information produced by Seller or
           Seller's Auditors; provided, however, that the work papers of
           Seller's Auditors shall be made available only to Purchaser's
           Auditors. The objections raised by Purchaser pursuant to the
           preceding sentence must also specify how the amounts in dispute
           should be allocated in Purchaser's opinion. Any item in the Closing
           Net Asset Value Statement objected to by Purchaser shall
           hereinafter be referred to as "Disputed Item".

10.5       If and insofar as Purchaser does not raise objections to the Closing
           Net Asset Value Statement in accordance with Section 10.4 above, the
           Closing Net Asset Value arrived at in the Closing Net Asset Value
           Statement shall be final and binding upon the parties. To the extent
           to which the Net Asset Value arrived at in the Closing Net Asset
           Value Statement is final and binding upon the parties, the adjustment
           payment to be made by Purchaser or Seller according to Section 9.1
           shall be made forthwith.

10.6         The parties shall use their best efforts to resolve the Disputed
             Items within 15 working days following the receipt by Seller of
             Purchaser's objections pursuant to Section 10.4 above.

10.7         Any Disputed Items not resolved pursuant to Section 10.6 above
             shall be submitted by the parties to Ernst & Young for review.
             Should Ernst & Young become unavailable, the parties shall agree on
             another accounting firm of international standing. If they cannot
             reach agreement within 15 working days, such accounting firm shall
             be determined at the request of either party by the Institut der
             Wirtschaftsprufer e.V. Dusseldorf.

10.8         In rendering its decision, the accounting firm shall consider only
             the Disputed Items and, with respect to each such Disputed Item,
             shall stay within the range of the values allocated to it by the
             parties. The accounting firm shall deliver in writing to Seller and
             Purchaser as promptly as practicable its determination of the
             Disputed Items stating the reasons of its decision. The reasons
             shall specifically address the arguments brought forward by the
             parties with respect to each Disputed Item. Such determination
             shall be final and binding upon the parties absent manifest
             mathematical errors. The accounting firm shall allocate its fees to
             the parties in accordance with Sections 91 et seq. of the German
             Civil Procedure (ZPO).

10.9         No later than 45 days after the Closing, as part of, and
             concurrently with, its preparation of the financial statements
             described in Section 10.1, Seller shall prepare and Seller's
             Auditors shall audit and report on, in accordance with U.S. GAAP
             and the Securities Exchange Act of 1934 and the rules and
             regulations of the U.S. Securities and Exchange Commission
             thereunder (including Regulation S-X) (the "U.S. Securities Laws"),
             such financial statements of the BASF Pharmaceutical Business and
             the Companies as may be



                                    Page 13

             required to be filed by Purchaser under Item 7 of Form 8-K under
             the U.S. Securities Laws (the "U.S. Financial Statements").
             Seller and Seller's Auditors shall permit Purchaser and
             Purchaser's Auditors to have access to all information, including
             Seller's Auditor's work papers, as Purchaser may reasonably
             request in connection therewith; provided, however, that the work
             papers of Seller's Auditors shall be made available only to
             Purchaser's Auditors. The engagement of Seller's Auditors will be
             governed by a separate agreement between Purchaser and Seller's
             Auditors and be based on the General Conditions of Assignment for
             Wirtschaftsprufer and Wirtschaftsprufungsgesellschaften as of
             July 1, 2000 including a limitation of liabilities for all
             damages arising from or in connection with the engagement. All
             fees and expenses of Seller's Auditors incurred in connection
             with the preparation of the U.S. Financial Statements shall be
             paid by Purchaser. After the Closing, Seller shall permit
             Seller's Auditors, Purchaser and its representatives to have
             access, upon reasonable advance notice, to the assets, employees,
             books and records of Seller and its Affiliates and shall furnish,
             or cause to be furnished, to Seller's Auditors and Purchaser,
             such financial, tax and operating data and other available
             information with respect to the BASF Pharmaceutical Business as
             Seller's Auditors and Purchaser may from time to time request or
             otherwise require to prepare the U.S. Financial Statements.
             Seller shall provide such certifications, support and
             attestations, including certifications and attestations as to the
             accuracy of the financial information that forms the basis of the
             U.S. Financial Statements or that is otherwise provided to
             Seller's Auditors. Purchaser and Purchaser's outside accountants
             shall be entitled to observe and participate in Seller's and
             Seller's Auditors preparation and audit of the US Financial
             Statements.

                                      III.
                                     CLOSING

                                    SECTION 11
                                     CLOSING

11.1         The transactions set forth in this Agreement shall be consummated
             at the time, place and manner provided below (the "Closing"). The
             date of the Closing (the "Closing Date") shall be, unless otherwise
             agreed between the parties or terminated pursuant to Section 33, on
             the fifth working day after the Closing Conditions have been
             fulfilled, but not earlier than on March 2, 2001.

11.1.1       The obligation of Purchaser and Seller to effect the Closing shall
             be subject to the satisfaction of the following conditions
             (hereinafter referred to as the "General Closing Conditions" and,
             together with the Purchaser Conditions (as defined in Section
             11.1.2), the "Closing Conditions"):

             a)    The transactions contemplated by this Agreement have been, or
                   are treated as being, approved

                   aa)      under the EU merger control rules;

                   bb)      under the Hart-Scott-Rodino Antitrust
                            Improvements Act of 1976 ("HSR Act") as amended,
                            including, without limitation, the expiration or
                            early termination of any waiting period applicable
                            to the consummation of the purchase under the HSR
                            Act; and


                                     Page 14

                   cc)      under the Industrial Site Recovery Act  implemented
                            by the New Jersey  Department of Environmental
                            Protection; and

             b)     Except if the Structure Option has been exercised by
                    Seller pursuant to Section 7 (A), the Merger shall have
                    been registered in the Commercial Register of Knoll GmbH
                    and Knoll AG, and the Demerger shall have been registered
                    in the Commercial Register of both Knoll AG and the
                    Partnership;

             c)     No preliminary or permanent injunction or other order,
                    decree or ruling issued by a court of competent
                    jurisdiction or by a governmental authority shall be in
                    effect that would prevent the consummation of the
                    transactions contemplated by this Agreement in the United
                    States of America or the European Union.



11.1.2.     The obligation of Purchaser to effect the Closing shall be
            subject to satisfaction of the following conditions
            ("Purchaser Conditions"):

            a)      The Representations of Seller made in Section 13 of this
                    Agreement (other than the representation in the last
                    sentence of Section 13.2) shall be true and correct on and
                    as of the Closing Date as so made anew on and as of such
                    date, unless such failure to be so true and correct would
                    not have, or would not reasonably be expected to have, a
                    Material Adverse Effect. Purchaser shall have received a
                    certificate, dated the Closing Date, to such effect by an
                    officer of Seller.

             b)     Seller shall have performed and complied in all material
                    respects with all covenants, terms and agreements to be
                    performed and complied with by it on or before the Closing
                    Date, unless any failure to so perform or comply would not
                    have, or would not reasonably be expected to have, a
                    Material Adverse Effect. Purchaser shall have received a
                    certificate, dated the Closing Date, to such effect by an
                    officer of Seller.

             c)     Seller shall have obtained, or shall have caused the
                    Companies to have obtained, all Material Agreement
                    Consents (as defined in Section 13.21).

11.2         Each of the parties will inform the other promptly of the
             fulfillment of the Closing Conditions.

11.3         The Closing shall take place at the offices of Hengeler Mueller
             Weitzel Wirtz, Frankfurt am Main, Germany, or such other place as
             agreed upon by the parties.

                                   SECTION 12
                       ACTIONS TO BE TAKEN AT THE CLOSING

12.1         At the Closing, Seller and Purchaser shall deliver:

             a.   except if the Structure Option has been exercised by Seller
                  pursuant to Section 7 (A) a notarial deed between Knoll AG and
                  Purchaser or its designee on the transfer of title to the
                  shares in Verwaltungs-GmbH;



                                    Page 15

              b.  except if the Structure Option has been exercised by Seller
                  pursuant to Section 7 (A) a duly executed agreement between
                  Knoll AG and Purchaser or its designee on the transfer of the
                  limitedccccc partnership interests in the Partnership;

              c.  except if the Structure Option has been exercised by
                  Seller pursuant to Section 7 (A) an application for
                  registration of the change of the limited partner of the
                  Partnership in the commercial register duly executed by
                  Knoll AG, Verwaltungs-GmbH and Purchaser or its designee;

              d.  duly executed assignments, in recordable form, of each of the
                  Transferred Patents entered into by Seller and Purchaser or
                  its designees (the "Assignments");

              e.  duly executed Separate Sales and Transfer Contracts

              f.  a duly executed license agreement relating to the Remaining
                  Patents to be negotiated in good faith by Purchaser and
                  Seller.

12.2         At the Closing, Seller shall deliver or cause to be delivered to
             Purchaser:

             a.       certificates representing the Shares sold pursuant to
                      Section 12.1 (e) above and, if the Structure Option is
                      exercised by Seller pursuant to Section 7 (A), the Knoll
                      AG Shares duly endorsed for transfer to Purchaser or its
                      designees or such evidence of the transfer of such Shares
                      as required by the applicable law of the jurisdictions of
                      incorporation of the companies to which the shares relate;

              b.      except if the Structure Option has been exercised by
                      Seller pursuant to Section 7 (A), executed copies of all
                      Merger/Demerger documents, including, without limitation,
                      all executed instruments of assignment and assumption and
                      filings made in connection therewith; and

             c.       a duly executed assignment of (i) all Intellectual
                      Property owned or licensed by Seller or any of its
                      Affiliates that relates exclusively to the Pharmaceutical
                      Field or the BASF Pharmaceutical Business, and (ii) all
                      Intellectual Property relating to the compounds and
                      substances described in Exhibit 5.1(a).

12.3         At the Closing, Purchaser shall pay to Seller such portion of the
             Aggregate Purchase Price as is payable at Closing in accordance
             with Section 8.

12.4         The deliveries of the agreements and other documents set forth in
             Section 12.1, deliveries to be made by Seller pursuant to Section
             12.2, and the payment of the purchase price by Purchaser pursuant
             to Section 12.3 above shall all be made concurrently (Zug um Zug).

12.5         If and insofar as the transfer of any of the Shares and/or the
             Transferred Patents is prohibited due to a missing approval from
             antitrust authorities or governmental authorities other than those
             mentioned in Section 11.1.1(a), this shall not delay or prevent the
             Closing pursuant to Sections 12.1, 12.2 and 12.3 provided, however,
             that the portion of the Aggregate Purchase Price attributable to
             such Shares and/or Transferred Patents shall not be delivered and
             paid at Closing, but shall be held by Purchaser until such
             approval(s) have been obtained and such Shares and/or Transferred
             Patents shall have been transferred. The parties shall use their
             best efforts to obtain such approvals. All earnings from the
             relevant Companies shall be held for the account of Purchaser.The
             respective Shares or Transferred Patents shall be transferred
             without undue delay after the approval has



                                    Page 16

             been obtained with commercial effect as amongst the parties as of
             the Closing and the respective portion of the Aggregate Purchase
             Price attributable to such Shares and/or Transferred Patents
             shall be paid simultaneously together with interest thereon for
             the period from the Closing Date to the receipt of payment at an
             interest rate of six percent per annum.

                                       IV.
                            REPRESENTATIONS OF SELLER

                                   SECTION 13
                            REPRESENTATIONS OF SELLER

Seller hereby absolutely and unconditionally represents and warrants in the form
of an independent guarantee to Purchaser that the following statements (the
"Representations") are true and accurate as of the date of this Agreement and as
of the Closing Date except as otherwise provided herein:

13.1         (a) BPC, BPC Subsidiaries, Other Foreign Subsidiaries, the
             Partnership and Verwaltungs GmbH or, in the event of an exercise of
             the Structure Option pursuant to Section 7 (A), BPC, BPC
             Subsidiaries, Other Foreign Subsidiaries, Knoll Deutschland GmbH
             and Knoll AG, (together in either case, hereinafter referred to as
             the "Companies") are duly organized, validly existing and (where
             such concept applies) in good standing under the laws of the
             jurisdiction of their respective incorporation and each of them has
             the requisite corporate power and authority to own, operate or
             lease the properties that it purports to own, operate or lease and
             to carry on its businesses as they are now being conducted. Each of
             the Companies is duly qualified and in good standing to do business
             in each jurisdiction in which the nature of its business or the
             ownership or leasing of its properties makes such qualification
             necessary. Seller and each of its Affiliates (as applicable)
             including the Companies has all requisite corporate power and
             authority to enter into this Agreement and to consummate the
             Transactions contemplated hereby.

             (b) The execution and delivery of this Agreement and the
             consummation of the Transactions contemplated hereby and thereby
             have been duly authorized by all necessary corporate action on the
             part of Seller and each of its Affiliates (as applicable),
             including the Companies, shareholder approval not being required by
             any of them. This Agreement and transaction documents provided for
             herein have been, or upon execution, shall have been, duly executed
             and delivered by Seller, its Affiliates (as applicable), including
             the Companies and constitutes a valid and binding agreement of each
             of them, enforceable against them in accordance with their terms.

13.2         Except for the manufacture of the Mutual Active Ingredients and
             certain of the Exclusive Active Ingredients pursuant to certain
             Intercompany Agreements (the "Intercompany Manufacturing
             Agreements"), Seller conducts the BASF Pharmaceutical Business only
             through the Companies, and neither Seller nor any of Seller's
             Affiliates (including the entities and operations listed in clauses
             (a)-(d) of the definition of Discontinued Excluded Businesses)
             other than the Companies owns, leases or uses, or has any interest
             in, any assets or properties, real or personal, tangible or
             intangible, including Intellectual Property, related to the BASF
             Pharmaceutical Business, other than (i) the manufacturing
             facilities operated in connection with the Intercompany
             Manufacturing Agreements, and (ii) the Transferred Patents and the
             Remaining Patents. Except as disclosed on Exhibits 1.1, 1.2, 2 and
             4.2(b), Seller has no direct or indirect subsidiary corporations,
             and owns no interest, direct or indirect, in any other business
             enterprise, firm or corporation that, in each



                                    Page 17

             case, is engaged in the BASF Pharmaceutical Business. Seller
             holds, as set forth in Exhibits 1.1, 1.2, 2 and 4.2(b), good and
             marketable title to the Shares (including all the issued and
             outstanding shares of the BPC Subsidiaries) and the Shares are
             free and clear of all liens, encumbrances, pledges, options,
             claims, charges and restrictions of any nature and, except as
             disclosed in Exhibit 13.2(d), are free of other third party
             rights and can be freely disposed of by the respective
             assignors. Each respective assignor has the full right and power
             to transfer to Purchaser the Shares (including all the issued
             and outstanding shares of the BPC Subsidiaries) pursuant to this
             Agreement, without obtaining the consent of any third party
             except as set forth on Exhibit 13.2(d). No consent, approval,
             order or authorization of, or registration, declaration or
             filing with, any governmental entity is required by or with
             respect to Seller or the Companies in connection with the
             execution and delivery of this Agreement or the consummation of
             the transactions contemplated hereby, except the necessary
             consents and approvals described in Section 11.1.1 (a)
             ("Consents").

13.3         The authorized and issued share capital of each of the Companies is
             described, and is held by the persons and in the amounts as set
             forth in Sections 1 through 4 and the appertaining Exhibits and all
             shares of such share capital are duly authorized, validly issued,
             outstanding, fully paid and non-assessable. There are no
             outstanding contractual obligations of any of the Companies to
             repurchase, redeem or otherwise acquire or to issue, sell or
             otherwise dispose of any outstanding shares or capital of, or
             otherwise ownership interests in or any warrant, option or other
             security exercisable, for exchange for, or convertible into any
             shares of, any of the Companies, or to make any investment (in the
             form of a loan, capital contribution or otherwise) in any other
             entity. No bonds, debentures, notes or other indebtedness of any of
             the Companies having the right to vote on any matters on which
             stockholders may vote are issued or outstanding.

13.4         Except if the Structure Option has been exercised by Seller
             pursuant to Section 7 (A), as of the Closing, the Demerger set
             forth in Section 4 above will have been duly authorized and
             implemented in accordance with governing law and will have resulted
             in the transfer to the Partnership of all assets and liabilities as
             described in Section 4.3 above.

13.5         Except as set forth in Exhibit 13.5, the execution and delivery of
             this Agreement and the consummation of the transactions
             contemplated hereby, will not (i) conflict with or violate the
             articles of incorporation or bylaws or equivalent organizational
             documents of Seller, any of its Affiliates, or any of the
             Companies, (ii) subject to making the filings and obtaining the
             approvals identified in Section 11.1.1(a) and Exhibit 13.2(e) or
             such other filings and approvals the absence of which would not
             reasonably be expected to have a Material Adverse Effect and are
             necessary under other applicable merger, investment, drug or
             environmental control statutes, conflict with or violate any
             statute, rule, regulation or other legal requirement or temporary,
             preliminary or permanent order, judgment or decree or any
             memorandum of understanding with any governmental entity applicable
             to Seller, any of its Affiliates, as applicable, or any of the
             Companies or by which any property or asset of Seller, any of its
             Affiliates, as applicable, or any of the Companies is bound or
             affected, or (iii) result in any breach of or constitute a default
             (or an event which with notice or lapse of time or both would
             become a default) under, result in the loss of a benefit under, or
             give to others any right of purchase or sale, or any right of
             termination, amendment, acceleration, increased payments or
             cancellation of, or result in the creation of a lien on any
             property or asset of Seller, any of its Affiliates, as applicable,
             or any of the Companies pursuant to, any note, bond, mortgage,
             indenture, con-


                                    Page 18

             tract, agreement, lease, license, permit, franchise, authorization
             or other instrument or obligation to which Seller, any of its
             Affiliates, as applicable, or any of the Companies is a party or
             by which Seller, any of its Affiliates, as applicable, or any of
             the Companies or any property or asset of Seller, any of its
             Affiliates, as applicable, or any of the Companies is bound or
             affected, except, in the case of clauses (ii) and (iii) for any
             such conflicts, violations, breaches, defaults, events, losses,
             rights, payments, cancellations, encumbrances or other
             occurrences that could not either (x) result in a default or
             event of default or accelerate or require that Seller, any of its
             Affiliates, as applicable, or any of the Companies pay prior to
             the scheduled maturity date or repurchase or offer to repurchase
             indebtedness owed to any person that is in excess of EUR
             10,000,000 or indebtedness in excess of EUR 30,000,000 in the
             aggregate, or (y) with respect to any other obligation, document
             or instrument, individually or in the aggregate, be reasonably
             expected to have a Material Adverse Effect.

13.6         As of the Closing, there exist no obligations of the Companies
             under any tax sharing agreements between the Companies and the
             Seller which will survive with effect after Closing , agreements of
             domination or profit and loss pooling agreements or agreements of a
             similar kind or effect between any of the Companies and Seller or
             any of Seller's Affiliates.

13.7.1       All Tax returns required to have been filed by or with respect to
             any of the Companies have been duly and timely filed, and all Taxes
             shown to be due on such Tax returns for which any of the Companies
             is liable have been timely paid. To the Best Knowledge of Seller,
             the Tax Assets represent valid reductions of Tax that will be
             available to the Purchaser or the Companies after the Closing.


13.7.2       All Tax assessments relating to any of the Companies with respect
             to Tax periods ending on or before the date of this Agreement have
             been timely paid or are being contested in good faith

13.7.3       Except for the ongoing audits listed in Exhibit 13.7.3, there is no
             action, suit or investigation, claim or assessment pending or to
             the Best Knowledge of Seller threatened with respect to Taxes of
             the Companies.

13.8         Except as disclosed in Exhibit 13.8, none of the Companies has
             received any written Tax ruling or entered into any written and
             legally binding agreement or is currently under negotiations to
             enter into any such agreements with any Tax authority which would
             affect the Tax situation of any of the Companies in any time period
             ending after the Closing.

13.9         a) Except for (i) the manufacturing facilities operated in
             connection with the Intercompany Manufacturing Agreements, and (ii)
             the Transferred Patents and the Remaining Patents, the assets,
             properties, rights and interests owned by the Companies, or which
             the Companies have valid, subsisting and enforceable rights to use
             constitute all of the assets, properties, rights and interests
             necessary to conduct the BASF Pharmaceutical Business in
             substantially the same manner as conducted by Seller and its
             Affiliates, including the Companies, prior to the date of this
             Agreement. The Companies have good and marketable title, or are
             otherwise legally entitled to use, all assets whether tangible or
             intangible, (except for (i) the manufacturing facilities operated
             in connection with the Intercompany Manufacturing Agreements, and
             (ii) the intellectual property rights as otherwise



                                    Page 19

             addressed in Sections 13.15 through 13.17) which are used in, or
             are necessary for, the conduct of the BASF Pharmaceutical
             Business as currently conducted free and clear of material
             restrictions on, or conditions to, transfer or assignment, and of
             liens, pledges, charges, encumbrances, security interest,
             equities, claim, covenants, conditions and restrictions, except
             as set forth in Exhibit 13.9(a).

13.10        The Intercompany Agreements listed in Exhibit 13.10 are validly
             existing and binding on the parties thereto.

13.11.1      For purposes of this Section 13.11, the following terms have the
             definitions set forth below:

             a)       "ERISA Affiliate" means, with respect to any entity, trade
                      or business, any other entity, trade or business that is a
                      member of a group described in Section 414(b), (c), (m) or
                      (o) of the Internal Revenue Code of 1986, as amended
                      (hereinafter referred to as "Code"), or Section 4001(b)(1)
                      of the Employee Retirement Income Security Act of 1974, as
                      amended (hereinafter referred to as "ERISA"), that
                      includes the first entity, trade or business, or that is a
                      member of the same "controlled group" as the first entity,
                      trade or business pursuant to Section 4001(a)(14) of
                      ERISA.

             b)       An "Employee Benefit Plan" means any employee benefit
                      plan, program, policy, practice, or other arrangement
                      providing benefits to any current or former employee,
                      officer or director of any of the Companies or any
                      beneficiary or dependent thereof that is sponsored or
                      maintained by the Seller, any of the Companies or any
                      Affiliate of the Seller or any of the Companies or to
                      which the Seller, any of the Companies or any Affiliate of
                      Seller or any of the Companies contributes or is obligated
                      to contribute, whether or not written or funded or
                      unfunded, including without limitation any Pension
                      Arrangement, disability, death benefit, hospitalization,
                      medical or other employee welfare benefit plan or employee
                      pension benefit plan (including any employee welfare
                      benefit plan within the meaning of Section 3(1) of ERISA
                      or any employee pension benefit plan within the meaning of
                      Section 3(2) of ERISA whether or not such employee welfare
                      benefit or employee pension benefit plan is subject to
                      ERISA), and any bonus, incentive, deferred compensation,
                      vacation, stock purchase, stock option, stock
                      appreciation, severance, early retirement, seniority,
                      employment, change of control or fringe benefit plan,
                      program or agreement.

13.11.2      As of the Closing, Exhibit 13.11.2 includes a complete
             list of all Employee Benefit Plans which (i) represent
             Pension Arrangements, (ii) cover 100 or more Employees or
             former employees, (iii) represent an annual operating
             expense of USD 250,000 or more, or (iv) represent post-
             retirement obligations of which the market value or
             present value is USD 250,000 or more, none of which is a
             multiemployer plan subject to Title IV of ERISA. True and
             complete copies of all such Employee Benefit Plans,
             including, but not limited to, any trust instrument or
             insurance contract forming a part of any such Employee
             Benefit Plan, and all amendments thereto, have been
             provided or made available to Purchaser.

13.11.3      Each Employee Benefit Plan complies with all applicable
             local laws, including but not limited to the Code and
             ERISA, and any contract or labor, works council or
             collective bargaining agreement, and has been administered
             in accordance with its terms. All contributions, premiums
             and other payments due from Seller, the Companies or any of
             their



                           Page 20

             Affiliates to (or under) any Employee Benefit Plan
             through the date of this Agreement and as of the Closing
             have been fully paid or, to the extent not required to be
             paid on or before such date, have been provided for in
             accordance with Exhibit 13.20 (a) (the Report Principles).
             There are no liabilities arising out of or under any
             Employee Benefit Plan or other employee benefit plan
             sponsored, maintained or contributed to by Seller or any of
             its Affiliates or ERISA Affiliates, whether absolute,
             accrued, contingent or otherwise, that could become a
             liability of Purchaser and its Affiliates, including the
             Companies, upon or after the consummation of the
             transactions contemplated by this Agreement other than those
             liabilities (i) specifically assumed by Purchaser under
             Sections 22 and 23 or accrued on the Closing Net Asset Value
             Statement, or (ii) which arise out of an event occurring
             after the Closing under an Employee Benefit Plan then
             maintained by any of the Companies.

13.11.4      Except as disclosed by Jeffrey Rosen of Wasserstein
             Perella & Co. Inc. to Steve Fussell, William Dempsey and
             Jeffrey Leiden of Purchaser on December 12, 2000 at the
             offices of Hengeler Mueller, Bockenheimer Landstrasse 51,
             60325 Frankfurt am Main, neither the execution and delivery
             of this Agreement nor the consummation of the transactions
             contemplated hereby will, either alone or in conjunction
             with any other event, (i) result in any payment becoming
             due, or increase the amount or value of compensation or
             benefits due, any current or former Employee, including,
             without limitation, any severance payment or benefit; (ii)
             increase any benefits otherwise payable under any Employee
             Benefit Plan or (iii) result in the acceleration of the
             time of payment, funding or vesting of any such benefits.



13.12        Except as disclosed in Exhibit 13.12(a), there is no court,
             administrative or arbitration proceeding, litigation, action, suit,
             investigation or claim (including, but not limited to, product
             liability cases) that (a) would reasonably be expected to have a
             Material Adverse Effect, or (b) involves an amount in dispute,
             individually or in the aggregate, in excess of EUR 5,000,000
             pending or, to the Best Knowledge of Seller, threatened in writing
             against any of the Companies or Seller with respect to the BASF
             Pharmaceutical Business. Neither any of the Companies nor Seller or
             any of its Affiliates (with respect to the BASF Pharmaceutical
             Business) is subject to, or bound by, any judgment, order,
             injunction or decree of any court, agency or instrumentality.
             Neither BASF (with respect to the BASF Pharmaceutical Business),
             nor any of the Companies have received any notice, citations or
             order from any government authority or from any professional or
             consumer body (a) asserting that any product is or may be defective
             or dangerous, or fails to meet any applicable standards promulgated
             by any governmental or regulatory authority or agency, (b)
             constituting any warning or similar notice, or (c) requesting that
             any of them recall any of its products or to inform the public or
             its customers of an adverse effect, or a defect or danger in any of
             their products or linked to their use and, to the Best Knowledge of
             Seller, no facts or conditions exist which could reasonably be
             expected to result in any of the foregoing.

13.13        By January 31, 2001 Seller shall deliver to Purchaser a complete
             and accurate list of all real property and leaseholds belonging to
             the Companies and material to the BASF Pharmaceutical Business, as
             well as all other facilities used or occupied by the Companies in
             connection with the BASF Pharmaceutical Business and shared with
             Seller, or any Affiliate of Seller other than one of the Companies
             (collectively, the "Real Property"). The Companies own, or have a
             valid leasehold or other valid interest in the Real



                                    Page 21

             Property. None of the owned Real Property is subject to any lien
             against such Real Property or to any encumbrance other than minor
             imperfections of title, if any, none of which is substantial in
             amount, detracts from the value or impairs the use of the
             property subject thereto or which would reasonably be expected to
             have a Material Adverse Effect. All of the leased Real Property
             is subject to valid lease agreements that are in full force and
             effect in accordance with their terms, the Companies have the
             right to quiet enjoyment with respect to such leased Real
             Property, and there exists no material breach or default
             thereunder on part of any of the Companies or, to the Actual
             Knowledge of Seller, any other party thereto. The Companies are
             in sole possession of each parcel of Real Property and no portion
             of the leased Real Property has been sublet nor has any portion
             of the document creating such leasehold interest been assigned.

13.14        As of the date of this Agreement, Exhibit 13.14(a) lists all
             patents owned, and applications made for registration of such
             rights, by Seller or its Affiliates, including any of the Companies
             (excluding the Transferred Patents and the Remaining Patents listed
             in Exhibit 5.1 and Exhibit 5.2) which relate to or are used in the
             BASF Pharmaceutical Business. Within 30 days of the date of this
             Agreement Seller shall furnish to Purchaser a list of all
             trademarks owned, and applications made for registration of such
             rights, by Seller or its Affiliates, including any of the Companies
             which relate to or are used in the BASF Pharmaceutical Business,
             which list shall be deemed part of Exhibit 13.14(a). Exhibit
             13.14(b) lists all contracts, all of which are valid, binding and
             enforceable, under which Seller or its Affiliates, including any of
             the Companies is licensed or otherwise permitted to use any
             Intellectual Property right which is material to the BASF
             Pharmaceutical Business. Exhibit 13.14(a), Exhibit 13.14(b),
             Exhibit 5.1 and Exhibit 5.2 list all the patents and, upon delivery
             of the list referred to in the second sentence of this Section
             13.14, trademarks, owned, and applications made for registration of
             such rights which are used in, or are necessary for, the conduct of
             the BASF Pharmaceutical Business as currently conducted. Exhibit
             5.1 list all patents owned by Seller and its Affiliates relating to
             D2E7.

13.15.1      To the Best Knowledge of Seller, none of the Intellectual Property
             listed in Exhibit 13.14(a), Exhibit 13.14(b), Exhibit 5.1 and
             Exhibit 5.2 has lapsed, has been abandoned or is subject to any
             pending opposition or cancellation proceeding before any
             registration authority in any jurisdiction, and no party thereto is
             in breach of any of the license agreements listed in Exhibit
             13.14(b).

13.15.2      To the Best Knowledge of Seller no person is infringing on any of
             the intellectual property rights listed in any Exhibit to this
             Agreement or on any of the Transferred Patents.

13.15.3      (a) The Companies own, or, giving effect to the license of the
             patents contemplated by Section 13.14 will be licensed to use
             (in each case, free and clear of any liens or encumbrances
             whatsoever), all Intellectual Property used in or necessary for
             the conduct of the BASF Pharmaceutical Business as currently
             conducted; (b) to the Best Knowledge of Seller, no person is
             challenging, infringing on or otherwise violating any right of
             the Companies or Seller with respect to the BASF Pharmaceutical
             Business with respect to any Intellectual Property owned by or,
             to Seller's Actual Knowledge licensed to, the Companies or Seller
             with respect to the BASF Pharmaceutical Business and (c) neither
             the Companies nor Seller has received any written notice of any
             pending claim with respect to any Intellectual Property used by
             Seller or its Affiliates in connection with the BASF
             Pharmaceutical Business or the Companies and to the Best
             Knowledge of Seller no Intellectual Property owned or, to Seller's
             Actual Knowledge licensed by, Seller or its Affiliates in
             connection with the BASF Pharmaceutical Business or the
             Companies is



                                    Page 22

             being used or enforced in a manner that would result in the
             abandonment, cancellation or unenforceability of such Intellectual
             Property.

             For purposes of this Agreement, "Intellectual Property" shall mean
             trademarks, service marks, brand names, certification marks, trade
             dress and other indications of origin, the goodwill associated with
             the foregoing and registrations in any jurisdiction of, and
             applications in any jurisdiction to register, the foregoing,
             including any extension, modification or renewal of any such
             registration or application; inventions, discoveries and ideas,
             whether patentable or not, in any jurisdiction; patents,
             applications for patents (including, without limitation, divisions,
             continuations, continued prosecution applications, continuations in
             part and renewal applications), and any renewals, extensions or
             reissues thereof, in any jurisdiction; know-how, trade secrets and
             confidential information and rights in any jurisdiction to limit
             the use or disclosure thereof by any person; writings and other
             works, whether copyrightable or not, in any jurisdiction;
             registrations or applications for registration of copyrights in any
             jurisdiction, and any renewals or extensions thereof; and any
             similar intellectual property or proprietary rights.

13.15.4      Except for the Remaining Patents, all Intellectual Property used
             in the BASF Pharmaceutical Business and developed, owned or held,
             directly or indirectly, by any officer, director, employee or
             contractor of any of the Companies or, with respect to the BASF
             Pharmaceutical Business, Seller or any of its Affiliates, has
             been or prior to or as of the Closing will have been, duly and
             effectively transferred to the Companies or Purchaser. Except to
             the extent accrued on the balance sheet included as Exhibit
             9.1(a) or as will be accrued on the Closing Net Asset Value
             Statement, neither the Companies nor, with respect to the BASF
             Pharmaceutical Business, Seller or any of its Affiliates, has any
             liabilities or obligations outstanding at the Closing Date under
             any invention or similar agreement or otherwise to any officer,
             director, employee or contractor with respect to Intellectual
             Property.

13.16.1      With respect to products manufactured or distributed by the BASF
             Pharmaceutical Business which are already in the market as of the
             date of this Agreement, to the Best Knowledge of Seller, none of
             such products infringes on and, to the Best Knowledge of Seller,
             except as disclosed in Exhibit 13.16.1, no third party has asserted
             that any such products infringe on, any intellectual property
             rights of any other person .

13.16.2      With respect to the products listed in Exhibit 13.16.2 which are in
             development as of the date of this Agreement, to the Best Knowledge
             of Seller, no third party has asserted in writing that such
             products infringe on any intellectual property rights of such third
             party. Except for the opinions of counsel to Seller and/or its
             Affiliates (which shall be delivered to Purchaser prior to
             Closing), Seller has provided to Purchaser or its representatives
             all material information available to Seller relating to D2E7.

13.16.3      Except as expressly set forth in Sections 13.16.1, 13.16.2, 15.1
             (II) and 15.1 (III), Seller (a) does not make any representation
             with respect to infringement of third party rights, and (b) does
             not assume any responsibility and liability with respect to
             infringement of third party rights, with respect to any products or
             product ideas or product proposals which, in each case, are under
             consideration for the BASF Pharmaceutical Business.

13.17        As of the Closing Date, all renewal fees shall have been paid and
             all other "administrative steps" shall have been taken which are
             required for the registration or maintenance of the intellectual
             property rights listed in Exhibit 13.14(a) and 13.14(b) to the
             extent they



                                    Page 23

             are registered or eligible for registration and of the Transferred
             Patents and the Remaining Patents.

13.18.1      As of the Closing Date, and to Seller's Actual Knowledge as of the
             date of this Agreement, the Companies have obtained and hold all
             permits, licenses or approvals required by environmental laws and
             necessary to the conduct of the BASF Pharmaceutical Business in the
             manner in which it has routinely been conducted. The Companies are
             in compliance with such permits and other requirements of
             applicable environmental laws.

13.18.2      None of the Companies has received any written request for
             information, demand letter, administrative inquiry, or formal or
             informal complaint notices from any governmental authority or
             otherwise of violation of any environmental laws which has not been
             complied with or any condition that might require remediation.

13.18.3      To the Actual Knowledge of Seller, the Real Property referred to in
             Section 13.13 above does not contain any underground storage tanks,
             surface impoundments containing any hazardous substances,
             PCB-containing materials, or any exposed, friable
             asbestos-containing materials.

13.18.4      Except as disclosed in Exhibit 13.18.4, none of the Companies has
             received any written notice, claim, or request for information
             relating to any third-party waste disposal site alleging that any
             of them is or may be liable to any person or governmental authority
             as a result of a release or threatened release or any other form of
             disposal of hazardous materials generated by any of the Companies
             or any third party on behalf of any of the Companies.

13.18.5      The Companies and to Seller's Best Knowledge, any entity for
             which any of them may be responsible, are not subject to any
             Environmental Liabilities and, to the Best Knowledge of Seller,
             no facts, circumstances or conditions relating to, arising from,
             associated with or attributable to any real property currently
             or, to the Best Knowledge of Seller, formerly, owned, operated or
             leased by the Companies or any entity for which any of them may
             be responsible, or operations thereon would reasonably be
             expected to result in Environmental Liabilities. Seller has
             provided to Purchaser all Environmental Reports prepared or dated
             since January 1, 1995 and available to Seller and any of its
             Affiliates.

13.18.6      As used in this Agreement, "Environmental Liabilities" with
             respect to any person means any and all liabilities of or
             relating to such person or any of its subsidiaries (including any
             entity which is, in whole or in part, a predecessor of such
             person or any of such subsidiaries), whether vested or unvested,
             contingent or fixed, actual or potential, known or unknown, which
             arise under or relate to matters covered by environmental laws or
             with respect to hazardous materials. As used in this Agreement,
             "Environmental Report" means any report, study, assessment,
             audit, or other similar document that addresses any issue of
             noncompliance with, or liability under, any environmental law
             that may affect any of the Companies.

13.19        Except as set forth in Exhibit 13.19: (a) the Companies have
             obtained, and are in compliance with, all licenses, permits and
             other authorizations required by applicable law or government
             regulations in connection with their business as now conducted, (b)
             none of the Companies has received any written notice from any
             governmental authority of violation of any laws which has not been
             complied with, and (c) the BASF Pharmaceutical Business has been
             conducted and each of the Companies is currently in compliance with



                                    Page 24

             all applicable laws (including without limitation, all laws
             relating to drug and pharmaceutical regulation, reporting,
             pharmacovigilance, sales and marketing, civil rights, occupational
             health and safety, antitrust, consumer protection, currency
             exchange, equal opportunity, and the Worker Adjustment Retraining
             Notification Act and similar state, local and foreign "plant
             closing" or reduction in force laws).

13.20        (a)    Seller has delivered to Purchaser prior to the execution of
                    this Agreement the WEDIT Deloitte & Touche "Report on the
                    draft Pro forma Financial Statements for the Pharmaceutical
                    Business for the Periods ending December 31, 1999, June 30,
                    2000, and September 30, 2000" attached to this Agreement as
                    Exhibit 9.1(a) and hereinafter referred to as the "Report".
                    The Report has been prepared in accordance with the
                    provisions of the German Commercial Code taking into account
                    as far as permissible under the German Commercial Code, U.S.
                    GAAP as described in more detail in Exhibit 13.20(a) (the
                    "Report Principles").

             (b)    Each of the financial statements included in the Report
                    (including the related notes and schedules) presents fairly,
                    in all material respects, the consolidated financial
                    position of the BASF Pharmaceutical Business and the
                    Companies as of their respective dates or, as applicable,
                    the consolidated results of operations, retained earnings or
                    cash flows, as the case may be, of the BASF Pharmaceutical
                    Business and the Companies for the periods set forth
                    therein, in each case in accordance with the Report
                    Principles consistently applied during the periods involved,
                    except as may be noted therein. Except for inventories for
                    which a reserve has been taken in preparation of the balance
                    sheet included in Exhibit 9.1(a) or on the Closing Net Asset
                    Value Statement, the inventories of the BASF Pharmaceutical
                    Business and the Companies do not consist of, in any
                    material amount, items that are obsolete or damaged, or of
                    below standard quality. Such inventories are not (as of the
                    date hereof) and will not be (as of the Closing Date)
                    excessive, in any material respect, in kind or amount in
                    light of the ordinary and normal course of business and
                    reasonably anticipated needs of the BASF Pharmaceutical
                    Business.

             (c)    To Seller's Actual Knowledge, the companies have no
                    liabilities or obligations of any nature (whether accrued,
                    absolute, contingent or otherwise) that would be required to
                    be reflected on, or reserved against in, a consolidated
                    balance sheet of the Companies or described or referred to
                    in the notes thereto, prepared in accordance with the Report
                    Principles consistently applied, except for (i) liabilities
                    or obligations accrued on the September 30, 2000 balance
                    sheet contained in the Report, and (ii) liabilities or
                    obligations arising in the ordinary course of business
                    (including trade indebtedness) since September 30, 2000. To
                    Seller's Actual Knowledge, any liabilities for government or
                    customer paybacks or rebate programs, customs liability or
                    similar arrangements have either been paid or are accrued on
                    the September 30, 2000 balance sheet contained in the
                    Report.

             (d)    Prior to January 31, 2001 Seller shall deliver to Purchaser
                    Exhibit 13.20 (d), which shall be a listing of all of the
                    Companies' third party indebtedness for borrowed money
                    outstanding, setting forth in each case the principal amount
                    thereof. No payment defaults have occurred and are
                    continuing under the agreements and instruments governing
                    the terms of such indebtedness.



                                    Page 25

             (e)    Since September 30, 2000 (i) except for the sale or transfer
                    of the businesses described in clauses (a) through (d) in
                    the definition "Discontinued/Excluded Businesses" (as
                    defined above) the Companies have conducted their respective
                    businesses, and Seller has conducted the BASF Pharmaceutical
                    Business, only in, and have not engaged in any transaction
                    other than in accordance with, the ordinary and usual course
                    of such businesses, and (ii) there has not been any Material
                    Adverse Effect.

13.21        Exhibit 13.21 and Exhibit 13.10, taken together, set forth a true
             and complete list of

             (i) each contract pursuant to which any of the Companies is
             obligated to expend more than EUR 5,000,000 per annum and which is
             not terminable pursuant to its terms by the respective Company on
             not more than sixty (60) days' notice (without liability, premium
             or penalty), other than purchase orders in the ordinary course of
             business;

             (ii) each contract between any of the Companies and Seller or any
             of Seller's Affiliates, including the Intercompany Manufacturing
             Agreements;

             (iii) each loan or credit agreement, security agreement, guaranty,
             indenture, mortgage, pledge or other agreement or instrument
             evidencing indebtedness of any of the Companies in excess of EUR
             5,000,000 and that will continue in effect or with respect to which
             any of the Companies will have any liabilities following the
             Closing;

             (iv) any non-competition, restrictive covenant or other agreement
             that restricts any of the Companies from operating its business,
             including the BASF Pharmaceutical Business, or that would, after
             the Closing, to the Best Knowledge of Seller, limit or restrict
             Purchaser or any of its Affiliates (including the Companies) or any
             successor thereto, from engaging or competing in any line of
             business or in any geographic area anywhere in the world;

             (v) any material research and development agreement, sales and
             marketing agreement, or co-promotion agreement relating to the BASF
             Pharmaceutical Business not otherwise listed on Exhibit 13.14 (b);

             (vi) joint venture agreement,

             (vii) agreement for the sale, disposition, transfer or closure of
             any facilities, businesses or operation of Seller relating to the
             BASF Pharmaceutical Business or of the Companies, and

             (viii) any other contract, agreement, commitment or undertaking
             which is otherwise material to the BASF Pharmaceutical Business
             taken as a whole (clauses (i) through (viii) collectively, the
             "Material Agreements"). Exhibit 13.21 sets forth a correct and
             complete list of Material Agreements pursuant to which consents or
             waivers are or may be required prior to consummation of the
             transactions contemplated by this Agreement (the consents and
             waivers disclosed on Exhibit 13.21 being the "Material Agreement
             Consents"). The Intercompany Agreements are adequate and sufficient
             to permit the Companies to conduct the BASF Pharmaceutical Business
             as previously conducted, without any interruption of supply of
             materials or services thereunder, and have been negotiated on terms
             comparable to or better than those that could be obtained from
             third parties under similar circumstances. None of the Companies
             are a party to, or otherwise bound by, any con-



                                    Page 26

             tracts or agreements imposing off balance sheet commitments,
             including any foreign exchange or derivative contract.

13.22        Except as otherwise set forth in Exhibit 13.10, to the Best
             Knowledge of Seller, each of the Companies has performed all the
             obligations required to be performed by them under, and none of the
             Companies is in breach or default under, any Material Agreements.
             True and complete copies of all contracts listed in Exhibits 13.10,
             13.14(b) and 13.21 have been delivered to Purchaser, and there are
             no amendments to, modifications of or significant agreements of the
             parties relating to any thereof, which have not been disclosed to
             Purchaser. Neither Seller nor any of the Companies has received any
             written notice from any other party to any of the Material
             Agreements threatening the cancellation or termination thereof.

13.23        As of the date of this Agreement there is no labor strike or other
             work stoppage of employees of any of the Companies currently in
             effect, and to the Best Knowledge of Seller, none is threatened.
             None of the Companies is a party to any collective bargaining,
             works council, union contracts, or other agreements which create
             any obligation or restriction on the Companies or Purchaser in the
             USA with respect to the termination of any employee or employees,
             and, to the Best Knowledge of the Seller, there is no activity or
             proceeding by any union, works council or other labor organization
             to organize or seek to represent any Employees in the USA.

13.24        The Companies maintain insurance coverage with reputable insurers
             in such amounts and covering such risks as are in accordance with
             normal industry practice for companies engaged in businesses
             similar to that of the Companies (taking into account the cost and
             availability of such insurance).

13.25        No broker, investment banker, financial advisor or other person
             other than Wasserstein Perella & Co., Inc., the fees and expenses
             of which will be paid by Seller, is entitled to any broker's,
             finder's, financial advisor's or other similar fee or commission
             in connection with the transactions contemplated by this
             Agreement.

13.26        To the Best Knowledge of Seller neither any of the Companies, nor
             any of their respective Affiliates, officer, director, employee or
             agent (or any Person acting on behalf of any of the foregoing) has
             given or agreed to give (i) any gift or similar benefit of more
             than nominal value to any customer, supplier, governmental
             authority (including any governmental employee or official) or any
             other person who is or may be in a position to help, hinder or
             assist any of the Companies, the BASF Pharmaceutical Business or
             the person giving such gift or benefit in connection with any
             actual or proposed transaction relating to the BASF Pharmaceutical
             Business, which gifts or similar benefits would individually or in
             the aggregate subject the Companies, any of their respective
             Affiliates, officer, director, employee or agent to any fine,
             penalty, cost or expense or to any criminal sanctions, (ii)
             receipts from or payments to any governmental officials or
             employees, (iii) commercial bribes or kick-backs, (iv) political
             contributions, or (v) any receipts or disbursements in connection
             with any unlawful boycott and no such gift or benefit is required
             in connection with the operation of the Companies or the BASF
             Pharmaceutical Business to avoid any fine, penalty, cost, expense
             or Material Adverse Effect.

13.27        (a)      Seller shall deliver no later than 30 days after the
                      date of this Agreement Exhibit 13.27 (a) that shall list
                      all major Pharmaceutical Products currently marketed by
                      Seller and its Affiliates and the Active Ingredients used
                      therein.



                                    Page 27


             (b)      Exhibit 13.27(b) lists all compounds of Seller and any of
                      its Affiliates that are in clinical development;

             (c)      Exhibit 13.27(c) contains a true, accurate and correct
                      list, separated by type, of all material Exclusive Active
                      Ingredients and all Mutual Active Ingredients manufactured
                      by Seller.

            (d)      Exhibit 13.27 (d) lists all BASF Pharmaceutical Products
                     that are custom manufactured by Seller or any of its
                     Affiliates (except the Companies) for third parties.

             (e)      As of the date hereof, to the Best Knowledge of Seller,
                      there are no circumstances or facts concerning suppliers
                      (including Seller, and its Affiliates as suppliers) of
                      active ingredient, bulk product and finished product to
                      the Companies that would reasonably be expected to have a
                      Material Adverse Effect on the continued supply of such
                      materials.

13.28      To the Actual Knowledge of the Seller, none of the data room files
           and records or the writings referred to in Section 14.2 contain an
           untrue statement of a material fact or omit to state a material fact
           necessary to make the statements and facts contained herein and
           therein, in the light of the circumstances in which they were or are
           made, false and materially misleading or materially misleading.
           Purchaser acknowledges that the opinions of counsel referred to in
           Section 13.16.2 have not been delivered to it or provided in the
           writings referred to in Section 14.2.



                                   SECTION 14
                         LIMITATIONS OF REPRESENTATIONS

14.1       Except as expressly set forth in Section 13 above, Seller does not
           make any express or implied representations under this Agreement. Any
           statutory warranties are hereby excluded to the extent permissible
           under mandatory law.

14.2         Any inaccuracy in any Representation made by Seller shall not
             trigger any rights of Purchaser under this Agreement to seek
             indemnity under Section 15.1(a) to the extent that such inaccuracy
             was disclosed prior to the date of this Agreement in a clear and
             comprehensible manner in any Exhibits to Section 13 of this
             Agreement, in the data room files and records made available to
             Purchaser on November 8, 9, 10 and 13, 2000 (a full and complete
             copy of which has been provided to Purchaser prior to the date of
             this Agreement), or in a writing (provided such writing was
             delivered prior to the date, and in the context of this Agreement),
             in each case to one or more of the following individuals: Brian
             Smith, Honey Lynn Goldberg, Jeffrey Leiden, Steven Weger, James L.
             Tyree, Steve Lichter, Terrence Kearney, John Poulos, John Leonard,
             Daniel Norbeck, Arthur Higgins and William Dempsey; provided,
             however, that no Environmental Reports delivered to Purchaser after
             December 13, 2000, or information contained therein, shall be
             deemed delivered, disclosed or made available prior to the date of
             this Agreement.

14.3         Wherever referred to in Section 13 above, "Actual Knowledge of
             Seller" means actual knowledge of any of Thorlef Spickschen, Ulrich
             Grau, Robert Kamen, Chris Schroder, Carter Eckert, Jurg Ambuhl,
             Markus Kramer, Fried-Walter Munstermann, Robert Anderson, John
             Conway, Andreas Biberbach, Joachim Scholz and the individuals
             listed on Ex-



                                    Page 28


             hibit 24.3(d), and "Best Knowledge of Seller" means actual
             knowledge of the aforementioned individuals and such additional
             knowledge which any such person could reasonably have obtained
             upon due inquiry into the matter concerned.

                                   SECTION 15
                                 INDEMNIFICATION

15.1         (I) Seller shall indemnify and hold harmless the Purchaser and each
             of its Affiliates, (including the Companies) (each a member of the
             "Purchaser Group") from and against any and all Damages (including,
             without limitation, costs and expenses of litigation and reasonable
             attorneys' fees) arising out of or related to:

             a)       (i) The inaccuracy or breach of any of the
                      Representations; or (ii) any inaccuracy or breach of any
                      Representation that relates to any of the Companies in
                      which the Seller currently has less than a 100 % direct or
                      indirect ownership interest (each, a "Non-Wholly Owned
                      Company"); provided, however, that Seller's obligation to
                      indemnify the Purchaser pursuant to this subsection
                      (a)(ii) for each inaccuracy or breach shall be limited to
                      (x) the liability associated with such inaccuracy or
                      breach multiplied by (y) the percentage of the Seller's
                      ownership interest in the Non-Wholly Owned Company to
                      which the inaccuracy or breach relates.

             b)       The failure to perform or the breach of any of the
                      covenants, obligations or other agreements of Seller
                      contained in this Agreement; or

             c)       Any Discontinued/Excluded Businesses or any Discontinued/
                      Excluded Businesses Liabilities.

             (II) Seller shall reimburse each member of the Purchaser Group for
             *** of all Excess D2E7 Royalties ("Seller D2E7 Payments"). "Excess
             D2E7 Royalties" shall mean the aggregate of all royalties paid on a
             worldwide basis under D2E7 License Agreements and that are in
             excess of *** of the Annual Net Sales of D2E7. "Annual Net Sales
             of D2E7" shall mean the aggregate worldwide annual net sales of
             D2E7 up to a maximum of ***. "D2E7 License Agreements" shall mean
             license and sublicense agreements executed prior to or after the
             date of this Agreement covering patents or patent applications
             published on the date of this Agreement, including, without
             limitation, ***. Seller shall pay Seller D2E7 Payments to
             Purchaser within 30 days after the receipt by Seller of a statement
             from Purchaser that sets forth the amount of the Seller D2E7
             Payments and the basis upon which the Excess D2E7 Royalties were
             calculated, which statements shall be issued by Purchaser on a
             quarterly basis.

             (III) Seller shall reimburse each member of the Purchaser Group for
             *** of any and all expenses, including attorneys fees, incurred in
             connection with the defense of any claim, action, complaint, cause
             of action or proceeding commenced or threatened, based upon,
             arising out of, or related to the allegation that the manufacture,
             use or sale of D2E7 by any member of the Purchaser Group infringes
             patents or patent applications published on the date of this
             Agreement, including, without limitation, *** ("D2E7 Proceeding").
             Purchaser shall have the right to control the defense and
             settlement of any D2E7 Proceeding. Purchaser shall keep Seller
             reasonably informed of all material developments and events
             relating to such D2E7 Proceeding, and Seller shall be entitled,

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                                    Page 29

             at its expense, to employ its own counsel and to participate in,
             but not control, any D2E7 Proceeding. Expenses payable pursuant
             to this Section 15.1 (III) shall be paid within 30 days of
             Seller's receipt of Purchaser's quarterly invoice therefor.

             Seller shall be entitled to audit annually, at Seller's expense,
             the calculation of amounts payable pursuant to Section 15.1 (II)
             and (III).



15.2         Unless expressly provided for otherwise in this Section 15 or in
             Section 16.2, Purchaser and the other members of the Purchaser
             Group shall be entitled to indemnification pursuant to Section 15.1
             (a) above only if:

             a)     a claim for indemnification based on an individual breach or
                    inaccuracy of a Representation exceeds the amount of ***
                    (each, an "Individual Claim"); and

             b)     the total amount of all Individual Claims exceeds the amount
                    of ***.

             For purposes of calculating amounts pursuant to this Section 15,
             all acts, occurrences, conduct or sets of facts that relate to the
             same subject matter (or, in the case of a breach of the
             Representation made in Section 13.11.2, all acts, occurences,
             conduct or sets of facts that relate to all breaches of such
             Representation) shall be considered aggregated as a single
             Individual Claim.

15.3         If the aforementioned threshold of *** is exceeded, Seller shall
             be liable for the entire claim amount that exceeds *** up to a
             maximum amount equal to *** of the Aggregate Purchase Price as
             adjusted pursuant to this Agreement.

15.4         The limitation of the liability of Seller set forth in Sections
             15.2 and 15.3 above shall not apply in case of a violation of any
             Representation made in Sections 13.1 through 13.4, Section 13.9 and
             Section 13.15.3(a). In this case, the liability of the Seller shall
             be limited to the amount of the Aggregate Purchase Price as
             adjusted pursuant to Section 9.

15.5         Any amounts owing or paid by Seller to Purchaser pursuant to
             Section 15.1 shall be reduced or refunded if and to the extent
             Purchaser or any other member of the Purchaser Group has received
             or receives insurance proceeds under any policy of insurance.

15.6         If and to the extent to which specific provisions have been made
             in the Closing Net Asset Value Statement with respect to a matter
             which is the subject of a claim for indemnification pursuant to
             Section 15.1 above, such claim for indemnification shall be
             reduced by the amount of such provision.

15.7         Any payment made by Seller to Purchaser or any other member of the
             Purchaser Group with respect to a claim of Purchaser pursuant to
             Section 15.1 above or Section 19 below is an adjustment of the
             Aggregate Purchase Price as allocated pursuant to this agreement.

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                                    Page 30

15.8         Except as set forth in Section 16.2, any claims of Purchaser or any
             other member of the Purchaser Group pursuant to Section 15.1(a)
             above are subject to the following survival periods
             (Verjahrungsfristen), unless Purchaser has notified Seller of a
             specific claim in writing before the expiration of the applicable
             survival period and has initiated arbitration proceedings in the
             subject matter within six months of such notification in which case
             the survival period for such claim shall be interrupted
             (unterbrochen):

             a)       claims pursuant to Sections 13.1 through 13.4, 13.9 and
                      13.15.3(a) above, and claims pursuant to Sections 13.13
                      and 13.14 which are based on a defect of title, shall be
                      subject to a survival period of ***;

             b)       claims related to environmental issues pursuant to
                      Section 13.18.1 through 13.18.5 shall be subject to a
                      survival period of ***; and

             c)       claims not based on a defect in title and related to
                      intellectual property pursuant to Sections 13.14 through
                      13.17 shall be subject to a survival period of ***;
                      and

             d)       all other claims shall be subject to a survival period of
                      ***.

             All survival periods shall commence at the Closing.

15.9         The provisions of this Section 15 shall not apply to any indemnity
             under any provision of this Agreement other than pursuant to
             Section 15.1, including indemnification with respect to Taxes set
             forth in Section 18, which shall be governed solely by Section 18.

                                   SECTION 16
                            EXCLUSION OF OTHER CLAIMS

16.1         Following the Closing, except for (a) Purchaser's right to adjust
             the Aggregate Purchase Price pursuant to Section 9 above, (b)
             claims for indemnification pursuant to Section 15 above, (c) claims
             pursuant to Section 16.2, (d) claims under the Tax indemnity in
             Section 18, (e) claims under Sections 19, 21, 22, 23 and 26 below,
             and (f) claims for specific performance of covenants and
             obligations of Seller under this Agreement, Purchaser and the other
             members of the Purchaser Group shall not be entitled to bring any
             claims against the Seller under this Agreement in connection with
             the condition of the BASF Pharmaceutical Business whether for
             reduction of the purchase price, rescission, damages or any other
             legal remedies regardless of their legal basis including breach of
             duty prior to contract (culpa in contrahendo) and tort. For the
             avoidance of doubt, this Section 16 shall not limit a party's
             ability to bring other claims under any other agreement, including
             any Intercompany Agreement, executed by Seller or any Affiliate of
             Seller.

16.2         Claims based on fraud or intentional acts of Seller are not
             excluded from the immediately preceding paragraph, nor are any such
             claims subject to the limitations on indemnification contained in
             Section 15.

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                                   Page 31

                                       V.
                       COOPERATION, INDEMNITIES, CONTESTS

                                   SECTION 17
                                   COOPERATION

17.1         Each party hereto shall, and shall cause the Companies to, provide
             to the respective other party hereto such cooperation and
             information as any of them reasonably may request in filing any Tax
             return, mandatory Tax return or claim for refund or for the
             preparation of any audit and the Party requesting such cooperation
             shall reimburse the other Party for any reasonable out of pocket
             expenses incurred by such cooperating Party in complying with the
             request for cooperation. Such cooperation and information shall
             include providing copies of all relevant portions of relevant Tax
             returns and relevant records. Each party will retain and Purchaser
             will cause the Companies to retain all Tax returns and all material
             records and other documents relating to Tax matters of the
             Companies for any taxable period or a portion thereof ending on or
             before the Closing Date until the later of the expiration of the
             statute of limitations for the taxable periods to which the Tax
             returns and other documents relate or eight years following the due
             date for such Tax returns. Thereafter, the party holding such Tax
             returns or other documents may dispose of them, provided that such
             party shall give to the other party written notice and an
             opportunity to take custody thereof prior to disposing of them.

17.2         Seller or Purchaser, respectively, shall be responsible for the
             preparation and filing of all Tax returns related to the Companies
             for fiscal years, or other periods for which Tax returns are due,
             ending on or prior to the Closing Date, consistent with the past
             practice of Seller and its Affiliates in the normal course of
             business prior to Closing, as follows: Seller shall be responsible
             for those Companies for which Seller or any Seller Companies
             prepared and filed Tax returns prior to Closing, and Purchaser
             shall be responsible for those Companies for which such Company or
             any other Company prepared and filed Tax returns prior to Closing.
             Seller and Purchaser shall provide each other, for review and
             approval, with a copy of each such Tax return at least 3 weeks
             prior to the due date (including any extension thereof) for the
             filing of such return. Each party's approval may not be
             unreasonably withheld, and in no event shall this Section operate
             to cause any such return to be filed after the due date (including
             any extension thereof) for filing such return.

17.3         The Seller and its Affiliates, and the Purchaser and the Companies
             shall each have the duty to reasonably cooperate in the prosecution
             or defense of all lawsuits and claims involving the BASF
             Pharmaceutical Business for events occurring prior to Closing, and
             the party requesting such cooperation shall reimburse the other
             party for any reasonable expenses incurred by such cooperating
             party in complying with the request for cooperation.
             Notwithstanding the foregoing, neither party shall be obligated to
             take or omit to take any action in connection with a lawsuit or
             claim which the party, acting reasonably and in good faith does not
             believe to be in its best interest.

                                   SECTION 18
                                  TAX INDEMNITY

18.1         Seller shall indemnify Purchaser on an After-Tax Basis against any
             liability for Taxes including any reduction of any tax loss carry
             forward or tax credit carry forward included in the Closing Net
             Asset Value, relating to the Companies for any taxable period
             ending



                                    Page 32

             on or before the Closing Date and any Pre-Closing Straddle
             Period if and to the extent such liability exceeds the liabilities
             or accruals taken into account by the Closing Net Asset Value
             Statement in accordance with Section 10.1 for Taxes relating to
             said period provided, however, that such obligation to indemnify
             shall be limited to the percentage of such liability which
             corresponds to the percentage of the direct or indirect ownership
             interest of Seller in the Companies sold hereunder. The foregoing
             obligation of Seller shall not apply if and to the extent to which
             the liability results from an adjustment for depreciation or
             accruals or from a write-up after previous depreciation or any
             other reallocation of deductible expenses made as regards a taxable
             period ending on or prior to the Closing Date or any Pre-Closing
             Straddle Period into a taxable period beginning after the Closing
             Date or in a Post-Closing Straddle Period and is compensated for by
             a Tax reduction in a taxable period beginning after the Closing
             Date or a Post-Closing Straddle Period that arises solely as a
             result of such adjustment; provided, however, that the net present
             value of such future Tax reduction shall be discounted at an
             interest rate of 6 percent p.a. "After-Tax Basis" shall mean
             grossing up of an indemnification payment under this Agreement for
             a Tax cost, if any, to the person receiving such payment arising
             from the receipt or accrual thereof, and in the case of
             indemnification payments under this agreement, reduced by the Tax
             benefit, if any, to the person receiving such payment resulting
             from its or a Company's incurring the Damages, loss, liability,
             damage or expense giving rise to such payment or the payment of any
             Taxes indemnified under Section 18. "Straddle Period" shall mean
             any taxable period beginning on or before and ending after the
             Closing Date. "Post-Closing Straddle Period" shall mean the portion
             of the Straddle Period beginning after the Closing Date.
             "Pre-Closing Straddle Period" shall mean the portion of the
             Straddle Period ending on the Closing Date.

18.2         Provided there are no amounts due from Seller to Purchaser under
             Section 18.1 hereof, Purchaser shall pay to Seller any Tax refund
             or credit received which relates to the Companies and is
             attributable to any taxable period that ends on or before the
             Closing Date or any Pre-Closing Straddle Period provided that such
             refund or credit has not been booked in the Closing Net Asset Value
             Statementor is not attributable to the use in such period of a
             loss, credit or other Tax item attributable to a taxable period
             beginning after the Closing Date or a Post-Closing Straddle Period.

18.3         For the purpose of Section 18.1 and 18.2, Taxes relating to the
             BASF Pharmaceuticals Business for any Pre-Closing Straddle Period
             shall be computed as if this period were a separate business year
             and will not be affected by developments in the Post-Closing
             Straddle Period. Depreciations and similar items will be allocated
             to the Pre-Closing Straddle Period on the one hand and the rest of
             the Post-Closing Straddle Period on the other hand on a PRO RATA
             TEMPORIS basis. All other items of income, gain, loss, expense,
             deduction or credit of the Pre-Closing Straddle Period and the
             Post-Closing Straddle Period shall be determined based on an
             interim closing of the books as of the close of business on the
             Closing Date. In case of a loss incurred in the Pre-Closing
             Straddle Period, the Tax loss carry forward shall be treated as a
             Tax Asset.

18.4         Any claim under this Section 18 shall be subject to a survival
             period expiring *** after the Tax assessment for the relevant Tax
             and the relevant period has become final.

18.5         Any  payment made by Seller or by Purchaser pursuant to this
             Section 18 is an adjustment of the Aggregate Purchase Price.

- ------------------------
***  Confidential information omitted pursuant to a request for confidential
     treatment filed separately with the Securities and Exchange Commission.



                                    Page 33

                                   SECTION 19
             SETTLEMENT AND ELIMINATION OF INTERCOMPANY OBLIGATIONS

19.1         For purposes of this Agreement, the term (i) "BASF Intercompany
             Obligations" means all intercompany notes, cash advances,
             receivables and payables between any Seller Company, on the one
             hand, and any of the Companies, on the other hand, except for
             Intercompany Trade Accounts, (ii) "Intercompany Trade Accounts"
             shall mean trade payables and trade receivables arising from
             transactions between any of the Companies, on the one hand, and any
             of the Seller Companies, on the other hand, (iii) "Intracompany
             Trade Accounts" shall mean trade payables and trade receivables
             arising from transactions between any of the Companies, as shown on
             the books and records of the relevant Companies as of the Closing
             Date, and (iv) "Seller Company" means Seller or any of its
             Affiliates , other than any Companies.

19.2         Prior to the Closing, Seller shall cause all Intercompany Trade
             Accounts and Intracompany Trade Accounts, which are outstanding as
             of the month ending no more than 30 days prior to Closing to be
             settled and paid.

19.3         Effective as of the Closing, all BASF Intercompany Obligations due
             and payable as of the Closing Date or attributable to any period
             ending on or prior to the Closing Date shall, for all purposes of
             this Agreement, be netted as between the appropriate obligors and
             obligees and the resulting balances shall be settled as of the
             Closing in a manner reasonably satisfactory to Purchaser, with the
             result that as of and following the Closing, there shall be no
             further obligation or liability with respect to any BASF
             Intercompany Obligations as of the Closing Date.

19.4         Within 60 days following Closing, Purchaser and Seller shall
             determine and reconcile all remaining Intercompany Trade Accounts
             outstanding as of the Closing.

19.5         Effective as of the Closing, Seller shall not assert and hereby
             waives or agrees to cause to be waived, claims by Seller or any of
             its Affiliates against the Companies (a) relating to transfer
             pricing of supplies and/or services including but not limited to
             research and development activities provided prior to Closing or
             (b) arising out of German tax sharing agreements (Korperschaft- and
             Gewerbesteuerumlage) between the Seller and any of its Affiliates,
             on the one hand, and any of the Companies, on the other hand, in
             effect during the time prior to the Closing (clauses (a) and (b)
             collectively, "Non-Asserted Claims"). Purchaser shall cause the
             Companies to not assert, and to waive any Non-Asserted Claims of
             such Companies against the Seller or Affiliates of the Seller
             (other than the Companies) insofar as such claims relate to the
             time prior to the Closing. Nothing set forth in this Section 19.5
             shall affect, derogate, limit or otherwise prejudice Purchaser's
             rights under this Agreement, including, without limitation, Section
             18, or any other agreement entered into in connection with this
             Agreement, or any written agreement between Seller or its
             Affiliates, and any of the Companies, that survives the Closing
             with respect to periods after the Closing.



                                    Page 34

                                   SECTION 20
                           CERTAIN CONTEST PROVISIONS

20.1         After acquiring knowledge of any claim of a third party which may
             trigger a claim by Purchaser or any other member of the Purchaser's
             Group against Seller for indemnification pursuant to Section 15
             above or of any notice of administrative or judicial proceeding or
             proposed audit or Tax assessments relating to or affecting any of
             the Companies and with respect to which Purchaser or any other
             member of the Purchaser's Group intends to seek indemnification
             against Seller, Purchaser shall promptly give written notice
             thereof to Seller., provided, however, that any failure of
             Purchaser to so notify the Seller shall not relieve the Seller from
             any obligations hereunder to provide indemnification to the extent
             Seller is not materially prejudiced by such failure and in any
             event shall not relieve it from any liability which it may have
             otherwise than on account of Section 15. Such notice shall specify
             in reasonable detail the issue for such claim and shall include a
             copy of any relevant correspondence so far exchanged in this
             matter, if any. Within thirty (30) days of its receipt of such
             notice, Seller may elect to assume control over such administrative
             or judicial proceeding, audit or assessment or the defense of such
             claim, so long as Seller acknowledges in writing its obligation to
             indemnify Purchaser and/or any other member of the Purchaser's
             Group, as the case may be, in full with respect to such claims. If
             Seller so elects, Seller may so assume control and may employ
             counsel reasonably acceptable to the Purchaser, at the Seller's
             sole costs, expense and risk. As long as Seller is defending a
             claim in accordance with this Section 20.1, Purchaser shall provide
             or cause to be provided to Seller, any information reasonably
             requested by Seller relating to such claim, and Purchaser shall
             otherwise cooperate with and support Seller and its representatives
             in good faith in order to facilitate the effective contest of such
             claim, any reasonable out of pocket expenses expenses incurred by
             Purchaser in this regard to be paid by the Seller. Seller shall
             inform Purchaser of all developments and events relating to such
             claim and Purchaser shall be entitled, at its expense, to employ
             its own counsel and to attend and participate in , but not control,
             all conferences, meetings and proceedings relating to such claim.
             If Seller elects not to control such proceeding, audit or
             assessment or the defense of such claim, Seller shall be entitled,
             at its expense, to employ its own counsels, and to attend and
             participate in but not control all conferences, meetings and
             proceedings relating to such claim. After having given written
             notice to Purchaser of Seller's election to assume control of
             defense of any such claim, Seller shall, however, not be liable to
             Purchaser for any legal expenses subsequently incurred by Purchaser
             in connection with the defense as long as Seller assumes and
             conducts such defense in a timely and diligent manner.
             Notwithstanding the foregoing, this Section 20 shall not apply to
             Individual Claims unless and until all such claims exceed the
             amounts contained in Section 15.2. With respect to any third party
             claim for which indemnification is available ("Indemnified Claim")
             that is combined or joined with one or more claims which are not
             Indemnified Claims or with respect to an Indemnified Claim under
             which both the indemnified party and the indemnifying party may be
             liable, which either party desires to contest, control of such
             claim shall rest with the party having the larger amount in
             dispute, and the party in control may not settle or compromise any
             such claim without the prior written consent of the other party.

20.2         If Seller does not assume control of a defense of a specific claim
             in accordance with the provisions in Section 20.1, Purchaser shall
             have full control of such defense and such proceedings, including
             the right to settle, and Seller shall have no right to object to
             the results obtained by the Purchaser with respect to such claim.
             If requested by Purchaser,



                                    Page 35

             Seller shall cooperate in good faith with Purchaser in order to
             contest effectively such claim. Seller shall be entitled, at its
             expense, to employ its own counsel and to attend and participate
             in, but not control, all conferences, meetings and proceedings
             relating to such claim.

20.3         If Seller does assume control of a defense of a claim in
             accordance with the provisions in Section 20.1, it may, without
             the prior consent of Purchaser, settle or compromise or consent
             to the entry of any judgment with respect to any litigation, or
             any investigation or proceeding by any governmental agency or
             body, commenced or threatened, on any claim whatsoever in respect
             of which indemnification could be sought: (i) under Sections 15
             and 18, but only if such settlement, compromise or consent
             satisfies the conditions described in clauses (i), (ii) and (iii)
             of Section 26.4; or (ii) under Section 18, but only if such
             settlement, compromise or consent does not materially affect
             Taxes, (including by way establishing a precedent for Tax
             treatment of a Tax item of the Purchaser or any of the Companies
             in a taxable period beginning after the Closing Date or in a
             Post-Closing Straddle Period. If the Seller does not receive the
             written consent of the Purchaser which may not be unreasonably
             withheld Purchaser is deemed to have assumed control of the
             defense and the liability of Seller to indemnify the Purchaser is
             limited to the amount payable under the proposed settlement,
             compromise or consent. If any such proposed settlement compromise
             or consent does not satisfy all of the conditions in clause (i)
             of the preceding sentence or the condition in clause (ii) of the
             preceding sentence as applicable, the Seller must receive the
             written consent of the Purchaser prior to entering into same.

20.4         The provisions of this Section 20 shall not apply to
             Section 15.1(II) or 15.1(III).



                                       VI.
                                EMPLOYEE MATTERS

                                   SECTION 21
                            GENERAL EMPLOYEE MATTERS

21.1         Seller and its Affiliates shall be responsible for any and all
             payments, withholding and reporting obligations that arise on or
             after the Closing Date under terms of the Seller's stock option
             programs including payments, if any, which may be made by the
             Seller in its sole discretion, to settle option rights under the
             programs.

21.2         No employee or any other person (except the parties to this
             Agreement) shall be entitled to assert any claim against the
             Purchaser, its Affiliates or any of the Companies relating to the
             employment, compensation, employee benefits or benefit plans or
             programs based on or arising from any provisions of this Agreement.

21.3         Seller shall terminate, or cause to be terminated, prior to the
             Closing the participation of Employees in any stock purchase plan
             maintained by Seller or its Affiliates, and Seller and its
             Affiliates shall be responsible for any and all payments,
             withholding and reporting obligations that arise under the terms of
             any such stock purchase plan.

21.4        If the Pension Liabilities exceed the sum of (x) any cash, and the
            fair market value of the other assets as determined by mutual
            agreement of Purchaser and Seller, transferred to



                                    Page 36

             pension arrangements of Purchaser pursuant to Section 23.3 as
             part of the Group Pension Transfer Amount, (y) any cash, and the
             fair market value of other assets as determined by mutual
             agreement of Purchaser and Seller transferred to the Purchaser
             U.S. Defined Benefit Plan as part of the U.S. Pension Transfer
             Amount (excluding any accruals or interest credited after the
             Closing Date), and (z) the pension obligations as reflected in
             the Closing Net Asset Value Statement (the sum of (x), (y) and
             (z) hereinafter referred to as the "Transferred Amounts"), Seller
             agrees to indemnify Purchaser for such excess amount (such excess
             hereinafter referred to as "Purchaser Pension Indemnification
             Amount"). Seller agrees to pay Purchaser in cash the Purchaser
             Pension Indemnification Amount as soon as practicable but not
             later than 30 days after the date of the actuarial determination
             which fixes the Pension Liabilities. If the Transferred Amounts
             exceed the Pension Liabilities, Purchaser agrees to indemnify
             Seller for such excess amount (such excess amount hereinafter
             referred to as "Seller Pension Indemnification Amount").
             Purchaser agrees to pay Seller in cash the Seller Pension
             Indemnification Amount as soon as practicable but not later than
             30 days after the date of the actuarial determination which fixes
             the Pension Liabilities. Interest from the Closing Date to the
             date of payment, at a rate of 6% compounded annually, shall be
             paid along with the Purchaser Pension Indemnification Amount or
             Seller Pension Indemnification Amount, as applicable. Seller and
             Purchaser jointly shall provide Seller's and Purchaser's
             actuaries with all relevant plans and employee census information
             needed to calculate the Pension Liabilities within 45 days after
             Closing. The Pension Liabilities shall be determined by mutual
             agreement between Seller and Purchaser within 180 days after
             their actuaries' receipt of said information. If Seller and
             Purchaser cannot agree on the amount of the Pension Liabilities
             within said 180 period, the Seller and Purchaser shall appoint
             within five days a mutually acceptable actuary who shall review
             their calculations and within 45 days after appointment, render a
             final and binding decision on the amount of the Pension
             Liabilities and who shall, in making such decision, be limited on
             a plan by plan basis to either the position of Seller or
             Purchaser. The cost of the actuary shall be borne jointly by
             Seller and Purchaser. In connection with the procedures referred
             to herein, Seller and Purchaser shall provide each other and the
             actuaries referred to herein access to the relevant business
             records and other relevant documents, and shall permit the other
             party to consult with its employees and the employees of its
             Affiliates.

21.5         The indemnifications provided for in Section 21.4 above are
             separate and apart from any other indemnification provision of this
             Agreement. Any payment made by Seller or by Purchaser pursuant to
             Section 21.4 shall be treated as an adjustment of the Aggregate
             Purchase Price.

                                   SECTION 22
                           US EMPLOYEE BENEFIT MATTERS

22.1         Seller and Purchaser agree that the transactions contemplated by
             this Agreement shall not constitute a severance of employment of
             any of the U.S. Employees. Purchaser agrees to continue, without
             interruption, the employment of the U.S. Employees. The Purchaser
             may, however, terminate any U.S. Employee at any time for any
             reason provided, however, Purchaser shall be responsible for any
             severance obligations incurred with respect to the termination of
             any U.S. Employee after the Closing.

22.2         Subject to the provisions of this Section 22, U.S. Employees shall
             be eligible to participate in and be subject to the provisions of
             all employee benefit plans, programs and policies of Purchaser and
             its Affiliates, other than Purchaser's defined benefit plans,
             qualified



                                    Page 37

             or unqualified, on the same basis as similarly situated employees
             of the Purchaser and its Affiliates including any applicable
             severance pay plan or policy.

22.3         To the extent that service is relevant for purposes of determining
             participation, vesting or eligibility for benefits under any
             health, welfare, post-employment medical or life insurance plan, or
             any vacation or severance plan, program or policy established,
             maintained or contributed to by the Purchaser or any of its
             Affiliates, U.S. Employees shall receive credit under the terms of
             such employee benefit plan, program or arrangement for service with
             the Seller and its Affiliates prior to the Closing.

22.4         Effective as of the Closing, each U.S. Employee and their eligible
             dependents who was participating in the health and welfare benefit
             plans and programs of the Seller and its Affiliates shall become
             entitled to participate in the medical, dental, life insurance and
             other welfare benefit plans provided by Purchaser or its Affiliates
             to similarly situated employees. To the extent that any welfare
             benefit plan in which any U.S. Employee participates after the
             Closing Date (i) imposes any pre-existing condition limitation,
             such condition shall be waived, or (ii) has a deductible or
             requires a co-payment that is subject to maximum out-of-pocket
             limitation, each U.S. Employee will receive credit toward any such
             co-payments and deductibles under such welfare benefit plan of
             Purchaser or its Affiliates for any costs paid by the U.S. Employee
             under the applicable Seller welfare benefit plan or program during
             the portion of the relevant plan year or other period preceding the
             Closing under such welfare plan of Purchaser or its Affiliates.

22.5.1       Effective as of the Closing, U.S. Employees shall cease active
             participation in all qualified and non-qualified defined benefit
             pension arrangements maintained by the Sellers' BASF Corporation
             Affiliate (the "Seller U.S. Defined Benefit Plans"), and Seller
             shall take, or cause to be taken, all such action as may be
             necessary to effect such cessation of their participation under
             Seller U.S. Defined Benefit Plans as of the Closing. Purchaser
             will take, or cause to be taken, all action as may be necessary
             to cause such U.S. Employees who are participants in the BASF
             Corporation Salaried Employees' Pension Plan (the "Seller U.S.
             Qualified Defined Benefit Plan") to become participants in a
             defined benefit pension plan which meets the requirements for
             qualification under Section 401 (a) of the Code to be established
             by Purchaser or one of its Affiliates (the "Purchaser U.S.
             Defined Benefit Plan") as of the Closing and which provides each
             such U.S. Employee benefits which are substantially similar to
             those provided under the Seller U.S. Qualified Defined Benefit
             Plan as of the Closing. Each U.S. Employee who was a participant
             in the Seller U.S. Qualified Defined Benefit Plan on the Closing
             shall be granted credit for service with Seller and its
             Affiliates which was recognized under the terms of the Seller
             U.S. Qualified Defined Benefit Plan as of the Closing for
             purposes of participation, eligibility, vesting, retirement
             eligibility and, subject to the transfer of assets and
             liabilities contemplated by Section 22.5.2 below, benefit accrual
             under the Purchaser U.S. Defined Benefit Plan.

             Purchaser will take, or cause to be taken, all action necessary to
             cause (i) U.S. Employees and (ii) retirees who were employees of
             the Companies immediately prior to retirement (the "Retirees"),
             participating in the BASF Corporation Supplemental Executive
             Retirement Plan, the BASF Corporation Policy No. BCR 008 Retirement
             Supplement Plan, the Excess Retirement Plan of BASF Corporation or
             the Boots Company Supplemental Executive Retirement Plan
             (collectively, the "Seller U.S. Non-Qualified Defined Benefit
             Plan") to become participants in a non-qualified defined benefit
             plan to be established by Purchaser or one of its Affiliates
             (the "Purchaser U.S. Non-Qualified Defined Benefit



                                    Page 38

             Plans") which shall (i) accept the Pension Liabilities with
             respect to such U.S. Employees or Retirees and (ii) provide such
             U.S. Employees and Retirees benefits which are substantially
             similar to the Pension Liabilities associated with such U.S.
             Employees and Retirees under the Seller U.S. Non-Qualified
             Defined Benefit Plans as of the Closing. Each U.S. Employee or
             Retiree who was a participant in the Seller U.S. Non-Qualified
             Defined Benefit Plans on the Closing shall be granted credit for
             service with Seller and its Affiliates which was recognized under
             the terms of the Seller U.S. Non-Qualified Defined Benefit Plans
             as of the Closing for purposes of participation, eligibility,
             vesting, retirement eligibility and, to the extent included in
             the Pension Liabilities, benefit accrual under the Purchaser U.S.
             Non-Qualified Defined Benefit Plan.

22.5.2       As soon as practicable after Closing, Seller shall cause the
             Seller U.S. Qualified Defined Benefit Plan to transfer to the
             Purchaser U.S. Defined Benefit Plan an amount (hereinafter
             referred to as the "U.S. Pension Transfer Amount") in cash, or in
             securities to be mutually agreed on by Seller and Purchaser, in
             respect of the Pension Liabilities determined with respect to the
             Seller U.S. Qualified Defined Benefit Plan. The U.S. Pension
             Transfer Amount will be a total amount of assets equal to the
             amount required to make the transfer compliant in all respects
             with requirements under Section 414(l) of the Code. Interest on
             the U.S. Pension Transfer Amount from the date the U.S. Pension
             Transfer Amount is determined to the date of transfer at a rate
             of 6% compounded annually shall be transferred along with the
             U.S. Pension Transfer Amount. The amount necessary to comply with
             Section 414(l) of the Code shall be determined using the
             actuarial assumptions provided in the attached Exhibit 22.5.2.

22.5.3       Prior to any transfer of assets and liabilities, Seller shall
             present an opinion of counsel reasonably satisfactory to Purchaser
             to the effect that the terms of the Seller U.S. Qualified Defined
             Benefit Plan meet in all material respects the requirements of
             Section 401(a) of the Code (or can be timely amended to meet such
             requirements) and other applicable laws, and Purchaser shall
             present an opinion of counsel reasonably satisfactory to Seller to
             the effect that the terms of Purchaser U.S. Defined Benefit Plan
             meets in all material respects the requirements of Section 401(a)
             of the Code (or can be timely amended to meet such requirements).

22.5.4       Seller and Purchaser jointly shall provide Seller's and
             Purchaser's actuaries all relevant documents and employee census
             information needed to calculate the U.S. Pension Transfer Amount
             within 45 days after Closing. The U.S. Pension Transfer Amount
             shall be determined by mutual agreement between Seller and
             Purchaser within 60 days after receipt of said information. If
             Seller and Purchaser cannot agree on the amount of the U.S.
             Pension Transfer Amount within said 60 day period, the Seller and
             Purchaser shall appoint within five days a mutually acceptable
             actuary who shall review their determinations and within 45 days
             after appointment, render a final binding decision on the amount
             of the U.S. Pension Transfer Amount and who shall, in making such
             decision, be limited to either the position of Seller or
             Purchaser. The cost of the actuary shall be borne by Seller and
             Purchaser. In connection with the procedures referred to herein,
             Seller and Purchaser shall provide each other and the actuaries
             referred to herein access to the relevant business records and
             other relevant documents and shall permit the other party to
             consult with its employees and the employees of its Affiliates.

22.5.5       In transferring the assets and liabilities from the Seller U.S.
             Qualified Defined Benefit Plan to Purchaser U.S. Defined Benefit
             Plan, Purchaser and its Affiliates and Seller and its Affiliates
             shall comply with all applicable requirements of Sections 411(d)
             (6), 414(l)


                                    Page 39

             and 401(a)(12) of the Code. Purchaser and its Affiliates shall,
             in the administration of Purchaser U.S. Defined Benefit Plan,
             comply with Sections 411(d)(6), 414(l) and 401(a)(12) of the Code
             and regulations thereunder with regard to accrued benefits
             transferred from the Seller U.S. Qualified Defined Benefit Plan.
             Further, the Purchaser U.S. Defined Benefit Plan shall honor the
             provisions of the domestic relations orders that are contained in
             the personnel and pension files of the U.S. Employees which are
             delivered to Purchaser and which previously have been determined
             qualified by Seller pursuant to Section 206(d)(3) of ERISA and
             Section 414(p) of the Code, and shall administer such orders in
             accordance with the terms thereof. Notwithstanding anything to
             the contrary in this Section 22.5, Purchaser reserves the right
             to amend, modify or suspend the Purchaser U.S. Defined Benefit
             Plan at any time or from time to time or terminate such plan at
             any time.

22.5.6       In connection with the implementation of this Section 22.5,
             Purchaser and its Affiliates and Seller and its Affiliates shall
             cooperate in the exchange of information, the notification of
             affected employees and in the preparation of any documentation
             required to be filed with the IRS, DOL (U.S. Department of Labor),
             PBGC (U.S. Pension Benefit Guaranty Corporation) or any other
             applicable governmental agency.

22.5.7       Except with respect to the liabilities that have been actually
             transferred to the Purchaser pursuant to Section 22.5, on and after
             the date of this Agreement, Seller shall retain all liability for
             the administration, management and funding of Seller's U.S. Defined
             Benefit Plans, qualified and non-qualified, and Purchaser shall
             have no such liability with respect to those Plans.

22.6         As of the Closing Date, the U.S. Employees shall cease active
             participation in the Seller Employee Savings Plan (the "Seller U.S.
             Defined Contribution Plan") and Purchaser will take, or cause to be
             taken, all action as may be necessary to cause such U.S. Employees
             to become eligible to participate in a U.S. Qualified Defined
             Contribution Plan of Purchaser or one of its Affiliates (the
             "Purchaser U.S. Defined Contribution Plan") as of such Date, or as
             soon thereafter as is administratively practical, on the same basis
             as similarly situated employees of the Purchaser. Service of each
             U.S. Employee recognized under terms of the Seller's U.S. Defined
             Contribution Plan for periods prior to the Closing Date shall be
             credited to the U.S. Employee for all purposes (including
             eligibility and vesting) under the Purchaser U.S. Defined
             Contribution Plan.

             Seller shall advise participants in the Seller U.S. Defined
             Contribution Plan who are U.S. Employees of their right to elect to
             receive a rollover distribution of their individual nonforfeitable
             account balances and nonforfeitable accrued benefits, respectively,
             in accordance with the terms of such plan by reason of the
             transactions contemplated by this Agreement. Any U.S. Employees who
             are participants in the Seller U.S. Defined Contribution Plan shall
             be 100% vested in their accrued benefits and individual account
             balances under such Seller U.S. Defined Contribution Plan as of the
             Closing Date. Purchaser and Seller may agree to allow U.S.
             Employees who are participants in the Seller U.S. Defined
             Contribution Plan to elect direct rollover distributions from such
             Seller U.S. Defined Contribution Plan to the Purchaser U.S. Defined
             Contribution Plan in a directed rollover. Effective as of the
             Closing Date, Purchaser shall amend the Purchaser U.S. Defined
             Contribution Plan to the extent necessary to enable U.S. Employees
             who were participants in the Seller U.S. Defined Contribution Plan
             to elect rollover distributions, which may include any outstanding
             loan notes from such Seller U.S. Defined Contribution Plan in
             accordance with Section 402 of the Code. In order to rollover an
             out-



                                    Page 40

             standing loan note, a U.S. Employee shall be required to execute
             (i) an acknowledgement that the Purchaser U.S. Defined Contribution
             Plan will be substituted for the applicable Seller U.S. Defined
             Contribution Plan as the obligee of the loan note, (ii) a payroll
             authorization form and (iii) any other forms deemed necessary by
             the plan administrator for the Purchaser U.S. Defined Contribution
             Plan. No other assets shall be transferred from any Seller U.S.
             Defined Contribution Plan to the Purchaser U.S. Defined
             Contribution Plan other than as specified herein. All directed
             rollovers between any Seller U.S. Defined Contribution Plan and any
             Purchaser U.S. Defined Contribution Plan will be in the form of
             cash and loan notes, as described herein.

                                   SECTION 23
                     NON-US EMPLOYEE PENSION BENEFIT MATTERS

23.1         Seller and Purchaser agree that the transaction contemplated by
             this Agreement shall not constitute a severance of employment of
             any of the Employees participating in a Group Pension Arrangement
             regardless of whether or not a transfer of Pension Liabilities will
             be made from a Group Pension Arrangement to a pension arrangement
             of the Purchaser.

23.2         To the extent that service is relevant for purposes of determining
             participation, vesting or eligibility for benefits under a
             Purchaser's pension arrangement in which an Employee may
             participate, the Employees shall receive credit under the terms of
             such pension arrangement for pensionable service they had under the
             Group Pension Arrangement. Seller shall use its best endeavours to
             allow Purchaser to continue the membership of the Employees in the
             Group Pension Arrangement for one year after Closing or, if
             shorter, such period which is admissible under the respective local
             law or plan rules. During the temporary period of participation the
             Purchaser shall make contributions or premiums to the Group Pension
             Arrangement at an equivalent rate as Seller makes for its similarly
             situated employees.

             In Germany, Purchaser may ask for approval to continue the
             membership of the relevant Employees in the BASF Pensionskasse VVaG
             for life, and in such event Seller shall use its best endeavours to
             assist Purchaser in securing such approval and assure that it will
             be granted. Purchaser shall then be required to accept the statutes
             and general policy conditions of the BASF Pensionskasse VVaG
             provided that the statutes and policy conditions are applied on a
             uniform and non-discriminatory basis as to the Seller's employees
             and employees of the Companies. In particular, Purchaser shall be
             required to pay as and when required the necessary contributions,
             at an equivalent rate as Seller contributes for its similarly
             situated employees, to fund the pension liabilities accruing after
             Closing, including any reasonable administration fee to which
             Seller and Purchaser shall mutually agree.

23.3         If a transfer of Pension Liabilities shall be made from a Group
             Pension Arrangement to a pension arrangement of the Purchaser,
             Seller and Purchaser agree to use their best endeavours to procure
             that any necessary approval of the appropriate regulatory authority
             is obtained as soon as reasonably practicable after the expiry of
             the Seller's participation period in the Group Pension Arrangement.
             If the Purchaser becomes responsible for meeting any Pension
             Liabilities accrued prior to Closing under a Group Pension
             Arrangement following transfer of such liabilities, Seller shall
             use its best endeavours to ensure that assets held in trust funds
             or insurance contracts in respect of such liabilities are
             transferred to suitable pension arrangements of the Purchaser.
             Seller will endeavour to ensure that such asset transfers shall be
             equivalent to such amount required under locally applicable



                                    Page 41

             transfer law and regulations (the "Group Pension Transfer Amount").
             Interest on the Group Pension Transfer Amount from the Closing Date
             to the date of transfer at a rate of 6% compounded annually shall
             be transferred along with the Group Pension Transfer Amount.

             In the event that, during the period of temporary participation in
             a Group Pension Arrangement, a contribution or premium is paid in
             respect of Pension Liabilities that is subsequently assumed by the
             Purchaser, then Seller shall use its best endeavours to ensure that
             the amount of these premiums or contributions, including
             appropriate interest, is transferred to the Purchaser's pension
             arrangements, less reasonable deduction for administrative costs,
             as determined by mutual agreement of Seller and Purchaser. In the
             event any such transfer for post-Closing contributions or premiums,
             or interest thereon, cannot be made for any reason, Seller shall
             make a direct cash payment to Purchaser to reimburse Purchaser for
             any such amounts. Such payment will be within 30 days after
             Purchaser's notification to Seller.

23.4         Seller will permit no transfer of the Pension Liabilities and the
             assets related thereto from a Group Pension Arrangement unless
             Seller is satisfied as to the nature of the pension benefits which
             will be provided by Purchaser for the respective Employees.

23.5         In transferring Pension Liabilities from the Group Pension
             Arrangement to the pension arrangement of Purchaser, Seller and
             Purchaser shall comply with all applicable legal requirements.

23.6         If under local requirements the consent of an employee is required
             to a transfer of Pension Liabilities, such consent shall be sought
             by Seller and Purchaser.

                                      VII.
                   ADDITIONAL OBLIGATIONS PRIOR TO THE CLOSING

                                   SECTION 24
                      CONDUCT OF BUSINESS PRIOR TO CLOSING

24.1.1       Seller covenants that it will, or, subject to the restrictions
             established by applicable mandatory law, will cause the Companies
             to, conduct the BASF Pharmaceutical Business in the ordinary
             course of business and consistent with past practices for the
             period between the execution of this Agreement and the Closing
             and, to the extent consistent therewith, use their best efforts
             to preserve intact their assets, including Intellectual Property
             and Patents and current business organizations (except as
             provided in Section 4), use their best efforts to keep available
             the services of their key employees (without, however, any
             obligation to improve their employment terms) and preserve their
             relationships with those persons having business dealings with
             them.

24.1.2       Except as required by law, Seller shall not, and will not permit
             any of the Companies to, voluntarily take any action that would, or
             that could reasonably be expected to, result in any of the Closing
             Conditions not being satisfied.

24.1.3       (a) Upon the terms and subject to the conditions set forth in
             this Agreement, including Section 32.6 hereof, each of the
             parties will use their best efforts to take, or cause to be
             taken, all actions, and to do, or cause to be done, and to assist
             and cooperate with the other parties in doing, all things,
             necessary, proper or advisable to consummate and make



                                    Page 42

             effective, in the most expeditious manner practicable and, if
             practicable, before March 31, 2001, the transactions contemplated
             hereby, including best efforts to (i) obtain all necessary
             actions or non-actions, waivers, consents and approvals from
             governmental entities and make all necessary registrations and
             filings (including filings with governmental entities) and take
             all reasonable steps as may be necessary to obtain an approval or
             waiver from, or to avoid an action or proceeding by, any
             governmental entity, (ii) obtain all necessary material consents,
             approvals or waivers from third parties, (iii) execute and
             deliver any additional instruments necessary to consummate the
             transactions contemplated by, and to fully carry out the purposes
             of, this Agreement, (iv) when the Structure Option is exercised
             by Seller, have the Demerger registered in the Commercial
             Register of both Knoll AG and the Partnership, and (v) with
             respect to the India Shares and the Pakistan Shares, use best
             efforts to effect their transfer to Purchaser by taking such
             actions as may be necessary under applicable law.

24.1.4       Seller and the Companies shall continue their course of action and
             strategies, as outlined to Purchaser in the presentations made on
             November 13, 2000, with respect to state and federal regulatory
             submissions affecting Synthroid.

24.1.5       Unless the Structure Option is exercised by Seller, Seller shall
             cause Knoll Deutschland GmbH to be merged into Knoll AG pursuant to
             Section 4.

24.2         During the period between the execution of this Agreement and the
             Closing, Seller shall not, and, subject to the restrictions
             established by applicable mandatory law, will procure that each of
             the Companies shall not, without the prior written consent of
             Purchaser such consent not to be unreasonably withheld, do any of
             the following unless expressly provided for in Section 24.3 or
             elsewhere in this Agreement:

             a)       sell, dispose of, pledge, license, assign or otherwise
                      encumber any of (i) the assets of the BASF Pharmaceutical
                      Business other than in the ordinary course of business
                      consistent with past practice or any of the Shares or (ii)
                      its Intellectual Property including without limitation the
                      patents and patent applications described in Section 15.1
                      (II);

             b)       authorize for issuance or issue any capital stock of the
                      Companies or securities or rights convertible into or
                      exchangeable for shares or securities or rights
                      convertible into or exchangeable for such shares or amend
                      their articles of association;

             c)       purchase or otherwise acquire or offer to purchase or
                      otherwise acquire any (i) shares or other participation in
                      a corporation, partnership or other entity by any of the
                      Companies, or (ii) other assets with the purchase price in
                      excess of EUR 500,000 other than in accordance with the
                      Companies' capital plan, a copy of which has been provided
                      to Purchaser;

             d)       enter into any collective bargaining or shop agreements
                      with respect to any of the Companies or, except for
                      increases required by applicable collective bargaining
                      agreements or shop agreements, grant any increase in the
                      rates of pay or benefits to, or enter into any new
                      Employee Benefit Plan or make any other change in the
                      employment terms for, any of their directors, officers and
                      employees in the BASF Pharmaceutical Business;



                                    Page 43

             e)       enter into any contract or other arrangement which (i) may
                      result in a material change in the nature or scope of the
                      BASF Pharmaceutical Business, or (ii) if it existed on the
                      date hereof, would be required to be listed on Exhibit
                      13.13, 13.14 or 13.21, or amend or terminate any of the
                      agreements listed on Exhibit 13.13, 13.14 or 13.21;

             f)       abandon, or take or omit to take any action that may limit
                      the scope or value of, any of its assets, including
                      without limitation, any patent or patent application filed
                      by it or any of its Affiliates (including the Companies)
                      unless such abandonment, action or omission, individually
                      or in the aggregate would not reasonably be expected to
                      have a Material Adverse Effect;

             g)       except as otherwise expressly permitted by this Agreement
                      (i) initiate any action, suit, proceeding or submission
                      before any court or governmental authority; and (ii) enter
                      into any compromise or settlement of any litigation,
                      proceeding or governmental investigation relating to it or
                      its properties, operations or business, except for
                      settlements within applicable insurance coverage limits,
                      and settlements complying with the conditions of Section
                      20.3 or 26.4 and against which Seller shall indemnify
                      Purchaser;

             h)       lend any money or otherwise pledge its credit except in
                      the ordinary course of business consistent with past
                      practices;

             i)       materially increase the number of individuals employed by
                      the Companies;

             j)       take, and shall use its best efforts not to suffer or
                      permit, any action which would render untrue any of the
                      Representations of Seller contained herein;

             k)       accelerate orders or sales or offer any special terms,
                      discounts or purchase programs (including by providing
                      credit terms outside of ordinary and normal course);

             l)       materially change or diminish the nature, scope and level
                      of effort associated with research and development
                      activities (including protocols, clinical programs,
                      funding and expenditure levels), including, without
                      limitation, any of the foregoing associated with D2E7; or

             m)       enter into any nontrade, intercompany financing or loan
                      arrangement with any Company that is a non-wholly-owned
                      subsidiary or Affiliate of Seller.

24.3         During the period between the execution of this Agreement and the
             Closing, Seller shall have the right, but shall not be obligated,
             to take, or cause to be taken by the Companies, the following
             action:

             a)       pay off Financial Debt,

             b)       except as otherwise provided in Section 24.2(m) distribute
                      cash dividends or withdraw cash from Companies that are
                      wholly owned by Seller in other forms permissible under
                      applicable law e.g. by repurchase of shares or reduction
                      of capital,


                                    Page 44


             c)       eliminate debt of the BASF Pharmaceutical Business in
                      forms other than payment of debt, e.g. waive debt owed to
                      Seller, or cause the BASF Pharmaceuticals Business to be
                      released  from debt owed to third party creditors,

             d)       cause the employees listed in Exhibit 24.3(f) to cease to
                      be employed by the  BASF Pharmaceutical Business,

             e)       transfer the Shares to any other wholly-owned Affiliate
                      of BASF.

24.4         Seller shall ensure that each of the Companies shall have adequate
             insurance coverage in line with past practice and custom with
             regard to coverage, terms and costs from the date of this Agreement
             until the Closing.

24.5         During the period between the execution of this Agreement and the
             Closing, Seller covenants that it will, and will cause the
             Companies to:

             a)       except with respect to competitively sensitive information
                      restricted by applicable merger control and antitrust
                      laws, permit Purchaser and its representatives to have
                      reasonable access, upon reasonable advance notice, to the
                      assets, employees, books and records of Seller and its
                      Affiliates, with respect to the BASF Pharmaceutical
                      Business and the Companies, and shall furnish, or cause to
                      be furnished, to Purchaser, such financial, tax,
                      regulatory, R&D, and operating data and other available
                      information with respect to the BASF Pharmaceutical
                      Business as Purchaser may from time to time reasonably
                      request or that may otherwise be reasonably required by
                      Purchaser, including such data and information as may be
                      necessary for Purchaser, Deloitte & Touche GmbH and
                      Purchaser's representatives to prepare the U.S. Financial
                      Statements and any pension calculations required to be
                      included therein;

             b)       permit Purchaser and its representatives to conduct
                      Phase I environmental  reviews at the Real Property.
                      Purchaser shall conduct any such reviews in a manner that
                      minimizes the disruption conduct of the ongoing business
                      at the site; and

             c)       make available to Purchaser for its inspection and copying
                      such documents and instruments for the purpose of
                      establishing that Seller owns the Companies in the manner
                      and in the percentages as set forth on the Exhibits
                      identified in Sections 13.1-13.4.

24.6         Seller will promptly advise Purchaser in writing if it obtains
             knowledge of (i) any Representation set forth in this Agreement
             becoming untrue or inaccurate in any respect, or (ii) a failure by
             it to comply with or satisfy any material covenant or agreement to
             be complied with or satisfied under this Agreement which, in either
             case would result in the failure of the condition described in
             Section 11.1.2.

24.7.        Purchaser shall as promptly as practicable after the date hereof,
             with such assistance from Seller as Purchaser may reasonably
             request, file for and use its best efforts to obtain all
             applicable (including Drug Enforcement Agency "DEA") governmental
             registrations and/or licenses regarding controlled substances
             that are required for Purchaser to conduct the BASF
             Pharmaceutical Business as currently conducted. In the event that
             all applicable DEA and other registrations and/or licenses
             regarding controlled substances required for Purchaser to conduct
             the BASF Pharmaceutical Business as currently conducted are



                                    Page 45

             not in effect at the time of the Closing, Purchaser and Seller
             agree to cooperate and use all commercially reasonable efforts to
             obtain all DEA and other required registrations and/or licenses
             regarding controlled substances that Purchaser may require to
             conduct the BASF Pharmaceutical Business as currently conducted
             and to own and operate the Companies. Upon Purchaser's request,
             Seller shall apply to the DEA and other relevant government
             entities and regulatory agencies for permission for Purchaser to
             operate the BASF Pharmaceutical Business under Sellers' existing
             DEA and comparable controlled substance registrations and/or
             licenses from the Closing Date until Purchaser receives all
             required DEA and controlled substance registrations and/or
             licenses for the BASF Pharmaceutical Business.

24.8         After the Closing, Seller will exercise its ownership rights to
             cause Hokuriku (and such other Companies, if any, the Shares of
             which are not transferred at Closing pursuant to Section 12.5) to
             conduct their business only in the ordinary course consistent with
             past practice, and otherwise will exercise its ownership rights
             with respect to Hokuriku in a manner consistent with Section 24.
             Without limiting the generality of the foregoing, the business of
             such Companies shall be operated after the Closing for the account
             of Purchaser, and no dividends or distribution or other payments
             with respect to shares held in such Companies may be made or
             declared following the Closing.



24.9         Prior to Closing, the parties to this Agreement will negotiate in
             good faith any amendments to the Intercompany Agreements or new
             Intercompany Agreements (including a transition and support
             services agreement) as may be necessary to meet the reasonable
             needs of Purchaser, and otherwise to ensure that the BASF
             Pharmaceutical Business continues to be operated after the Closing
             in a manner consistent with the manner it was operated prior to the
             Closing including, without limitation, any amendments to the lease
             (the "Wyandotte Lease") of the real property located in Wyandotte,
             Michigan ("Wyandotte Property"). Without limiting the foregoing,
             the Wyandotte Lease will contain as of the Closing or will be
             amended to contain appropriate cross-indemnity provisions relating
             to Environmental Liabilities arising from the operations at the
             Wyandotte Property by Purchaser and Seller, respectively.
             Notwithstanding any provision in a given Intercompany Agreement,
             Purchaser may elect at any time for a period of five years from the
             Closing Date and upon 30 days prior written notice to Seller, to
             terminate any of the Intercompany Agreements in whole or in part.

24.10        At Closing, as far as practicable, or after the Closing, Seller
             shall, without further consideration, promptly execute and deliver,
             or cause to be executed and delivered, to Purchaser such deeds,
             assignments, bills of sale, Consents and other instruments in
             addition to those required by this Agreement, in form and substance
             satisfactory to Purchaser, and take all such other action, as
             Purchaser may reasonably deem necessary or desirable to implement
             any provision of this Agreement or to more effectively transfer,
             convey and assign to Purchaser good and marketable title to, and to
             put Purchaser in actual possession and operating control of the
             Shares, the Transferred Patents and the BASF Pharmaceutical
             Business, free and clear of all liens and encumbrances. Without
             limiting the generality of the foregoing, if any assets or rights,
             including any and all rights in Intellectual Property, that are to
             be held by or transferred to the Companies or licensed for the
             benefit of Purchaser in accordance with the terms of this
             Agreement, have not been so held, transferred or licensed as of the
             Closing, Seller shall, and shall cause its Affiliates to, as
             applicable, take such actions as are necessary to ensure that the
             title to such assets



                                    Page 46

             and/or licenses to use such rights are so held, transferred or
             licensed without undue delay as soon as commercially practicable
             or lawfully possible.

             Within 60 days after the date of this Agreement, Seller will
             provide or make available to Purchaser true, correct and complete
             copies of all policies of insurance to which any of the Companies
             is a party or is a beneficiary or named insured.

             After the Closing, Seller will cooperate with Purchaser in ensuring
             the effective transfer to Purchaser of any trade names, corporate
             logos, the content of all websites of Seller that relate to the
             BASF Pharmaceutical Business and any registered domain names that
             relate to the BASF Pharmaceutical Business.

24.11        No later than the following dates Seller shall identify and
             represent inventory levels, in sufficient detail to enable
             Purchaser to understand inventory levels of the BASF Pharmaceutical
             Business as of the listed dates:





- -----------------------------------------------------------------------------------------------------------
                            DELIVERY DATE                     INVENTORY DATE
- -----------------------------------------------------------------------------------------------------------
                                                          
             January 15, 2001                                November 30, 2000
- -----------------------------------------------------------------------------------------------------------
             January 31, 2001                                December 31, 2000
- -----------------------------------------------------------------------------------------------------------
             Each month end thereafter through Closing       Previous month
- -----------------------------------------------------------------------------------------------------------



             Purchaser and Seller shall work cooperatively and Seller shall use
             and shall cause the Companies to use, their best efforts to reduce
             inventory levels below *** for periods after December 31, 2000
             through the Closing.

24.12        Prior to Closing Seller shall repay the intercompany loan payable
             to Hokuriku.

24.13        Seller shall cooperate with Purchaser prior to closing to allow to
             take such steps as are necessary to convert Knoll AG into a GmbH,
             effective no earlier than one day after the Closing Date.

                                      VIII.
                      ADDITIONAL OBLIGATIONS OF THE PARTIES

                                   SECTION 25
                  SHARED SUBSTANCES LIBRARY, PATENTS, LICENSES

25.1         With respect to the Remaining Patents, Seller hereby grants to
             Purchaser an irrevocable, exclusive, paid-up license for the life
             of the respective patent, with the right to grant sublicenses, in
             the Pharmaceutical Field and a corresponding exclusive license to
             make, use and sell the Exclusive Active Ingredients and a
             corresponding non exclusive license with respect to the Mutual
             Active Ingredients, which licenses shall be subject to the terms
             and conditions of a separate license agreement.

25.2         With respect to Shared Substances located on the premises of Seller
             or Seller's Affiliates, Seller upon request of Purchaser shall
             permit Purchaser or the Companies to screen such

- ------------------------
***  Confidential information omitted pursuant to a request for confidential
     treatment filed separately with the Securities and Exchange Commission.



                                    Page 47

             Shared Substances free of charge subject to the provisions of
             Section 25.4 below, and Seller hereby grants to Purchaser with
             respect to Seller's Shared Substance Patents an irrevocable,
             exclusive, paid-up license for the life of the respective patent
             with the right to grant sublicenses in the Pharmaceutical Field
             and the Pharmachemical Field. However, to the extent that
             physical inventories of Shared Substances which are located on
             the premises of Seller have been depleted, Seller shall not be
             obligated to reproduce any Shared Substances for the Purchaser
             which in its turn shall have the right to reproduce such Shared
             Substances.

25.3         With respect to Shared Substances located on the premises of the
             Partnership, Purchaser on request of Seller hereby permits Seller
             or Affiliates of Seller to screen such Shared Substances free of
             charge subject to the provisions of Section 25.4 below, solely for
             use outside both the Pharmaceutical Field and the Pharmachemical
             Field and hereby grants to Seller with respect to such Shared
             Substance Patents an irrevocable, paid-up, exclusive license for
             the life of the respective patent with the right to grant
             sublicenses outside the Pharmaceutical Field and the Pharmachemical
             Field. However, as far as Shared Substances which were located on
             the premises of the Partnership have been depleted, Purchaser shall
             not be obligated to reproduce any Shared Substances for the Seller
             which in its turn shall have the right to reproduce Shared
             Substances.

25.4         The right to screen Shared Substances shall not apply to (i) Shared
             Substances which are available in less than 100 mg quantity, (ii)
             Shared Substances being developed or sold commercially and closely
             related structures thereto, or (iii) Shared Substances which have
             been licensed to one or more third parties or are still subject to
             active evaluation and/or development by a party and/or a
             prospective or actual licensee of such party.

                                   SECTION 26
                             CONDUCT AND LITIGATION

26.1         Indemnification. Seller agrees to indemnify and hold harmless
             Purchaser and each of Purchaser's Affiliates and Subsidiaries,
             including the Companies, from and against:

                      (i)     any and all loss, liability, damage and expense
             whatsoever arising from any pending and/or future claim, actions,
             complaints, causes of action, and/or governmental investigation or
             proceeding (collectively "action"), commenced or threatened, based
             upon, arising out of, or related to the Section 26 Conduct;

                      (ii)    any and all loss, liability, damage and expense
             whatsoever arising from or related to the Section 26 Litigation;

                      (iii)   any and all loss, liabilities, damage and expense
             whatsoever arising from or relating to the Insurance Litigation;
             and

                      (iv)    any and all expense whatsoever (including the fees
             and disbursements of counsel and other professional advisors and
             experts chosen by Purchaser), reasonably incurred in responding to
             requests of Seller to assist or cooperate in the Section 26
             Litigation and/or the Insurance Litigation and/or any action under
             Section 26(a)(i) above, including costs and expenses of discovery,
             witness preparation or court testimony.

26.2         Actions against Parties; Notification. Purchaser shall give notice
             as promptly as reasonably practicable to Seller of any action
             commenced against it in respect of which indem-



                                    Page 48

             nity may be sought under this Section 26, but failure to so
             notify Seller shall not relieve Seller from any liability
             hereunder to the extent Seller is not materially prejudiced as a
             result thereof and in any event shall not relieve it from any
             liability which it may have otherwise than on account of this
             Section 26. Subject to Section 26.3 below, Purchaser may, at its
             own option, participate in or assume control of the defense of
             any such action; provided, however, that counsel to the Purchaser
             shall not (except with the consent of Seller) also be counsel to
             the Seller. Seller shall indemnify Purchaser for all fees and
             costs incurred if Purchaser decides to assume control of the
             defense of any such action.

26.3         Control of Section 26 Litigation. Subject to Section 26.4 below and
             provided that Seller shall have first agreed in writing to assume
             responsibility for the action and acknowledged its indemnity
             obligation hereunder, Seller shall retain control over and continue
             the defense of the Section 26 Litigation, provided, however, that
             (i) Purchaser shall retain control over all dealings,
             communications and negotiations with and/or submissions to any
             regulatory body, including but not limited to the United States
             Food and Drug Administration and the Canadian Health Protection
             Bureau; and (ii) Purchaser shall retain control over all dealings,
             communications and negotiations with and/or submissions to any
             state department of public health or advisory committees, or to any
             state formulary, such as the Illinois formulary or equivalent.
             Seller and the Purchaser shall cooperate and take such measures as
             may be necessary to preserve the attorney-client and other
             privileges arising from any Section 26 Litigation.

26.4         Compromise or Settlement. Seller may, without the prior written
             consent of Purchaser, settle or compromise or consent to the entry
             of any judgment with respect to the Section 26 Litigation, the
             Insurance Litigation or any other action commenced against it in
             respect of which indemnification is sought under this Section 26,
             if such settlement, compromise or consent (i) includes an
             unconditional release of Purchaser and its Affiliates and
             Subsidiaries (including the Companies) from all liability arising
             out of such action, (ii) includes no express or implied statement
             as to or any admission of fault, culpability or a failure to act by
             or on behalf of Purchaser, its Affiliates, or its Subsidiaries, and
             (iii) provides for relief solely in the form of a liquidated
             monetary payment (which in the case of the Section 26 Litigation
             shall be paid fully by Seller). Seller may not, without the prior
             written consent of Purchaser (which may be withheld for any
             reason), settle or compromise or consent to the entry of any
             judgment with respect to the Section 26 Litigation or the Insurance
             Litigation, any other action, which provides for remedies other
             than the payment of a liquidated monetary sum, including, without
             limitation, any injunctive or declaratory relief, consent decree,
             assurance of voluntary compliance and/or any other directive, order
             or agreement issued by or entered with any other person or
             governmental authority.

26.5         Access. To the extent that Seller shall direct or control the
             defense or settlement of the Section 26 Litigation or any other
             action in respect of which indemnification is sought hereunder,
             Purchaser will give Seller and its counsel, during normal business
             hours, access to the relevant business records and other documents
             relating to the claim, and shall permit them to consult with
             employees and counsel of Purchaser; provided, however, that any
             expenses incurred by Purchaser, including reasonable disbursements
             and fees and disbursements of counsel incurred in connection such
             access and consultation, shall be at Seller's sole cost and expense
             and reimbursed by Seller as incurred. In connection with any claim
             hereunder which has been assumed by Seller, Seller shall keep
             Purchaser reasonably informed of the status thereof at all stages,
             including providing to Purchaser



                                    Page 49

             copies of all pleadings and other material papers and
             correspondence in connection with any such claim.

26.6         Insurance Proceeds and Settlement Amounts. If and to the extent
             that Seller has agreed to prosecute, at its own expense and with
             its own counsel, the Insurance Litigation, and has performed its
             obligations under this Section 26, Seller shall be entitled to (i)
             any proceeds or recovery arising from or out of the Insurance
             Litigation, and (ii) IN RE SYNTHROID-Registered Trademark-
             MARKETING LITIGATION Settlement Amounts.

26.7         Certain Definitions. For purposes of this Agreement:

                      (i)     "Section 26 Litigation" shall mean (1) , IN RE
             SYNTHROID-Registered Trademark-MARKETING LITIGATION Lead Case
             No. 97 C 6017, MDL No. 1182, United States District Court for
             the Northern District of Illinois, including all consumer and/or
             third party payor opt-out claims and any claims by state
             Attorneys General, and any and all appeals therefrom; (2)
             Uwimana v. Boots, et al. (Quebec, Canada); Annibale v. Boots, et
             al. (Ontario, Canada); Tesluk v. Boots, et al. (Ontario,
             Canada); Malc-Barmherzig v. Boots, et al. (Ontario, Canada); and
             Aruliah v. Boots, et al. (British Columbia, Canada)
             (collectively "Canadian Litigation") and such other actions as
             are described in the Stipulation of Settlement and Compromise
             for MDL No. 1182 Master File Number 97 C 6017, and any and all
             appeals from the Canadian Litigation; and (3) IN RE BRAND NAME
             PRESCRIPTION DRUGS ANTITRUST LITIGATION, Lead Case No. 94 C 987,
             MDL No. 997, United States District Court for the Northern
             District of Illinois, and any and all appeals therefrom

                      (ii)    "Section 26 Conduct" shall mean the conduct
             alleged, or conduct substantially similar to that alleged, in the
             Section 26 Litigation;

                      (iii)   "Insurance Litigation" shall mean Knoll
             Pharmaceutical Co. v. Automobile Insurance Co. of Hartford, et
             al., Case No. 00 C 6733, pending in the United States District
             Court for the Northern District of Illinois, Eastern Division,
             involving defendants Automobile Insurance Co. of Hartford
             ("Automobile"), National Union Fire Insurance Co. of Pittsburgh,
             PA ("National Union"), and Royal Insurance Co. of America
             ("Royal"), or any insurance policy disputed in Case No. 00 C
             6733, including but not limited to (i) Automobile issued to Boots
             Pharmaceuticals, Inc. ("Boots") commercial general liability
             policy no. 048 ACM 5269323; (ii) Automobile issued to Boots
             commercial general liability policy no. 048 ACM 5602370; (iii)
             Automobile issued to Boots commercial general liability policy
             no. 048 ACM 5604447; (iv) Royal issued to Boots commercial
             general liability policy no. PST 13 45 30; (v) National Union
             issued to Boots commercial general liability policy no. GL
             381-00-97; (vi) National Union issued to Boots commercial general
             liability policy no. GL 381-10-54; and

                      (iv)    "IN RE SYNTHROID-Registered Trademark-
             MARKETING LITIGATION Settlement Amounts" shall mean alL
             settlement amounts and funds described in Judge Bucklo's August
             4, 2000, Memorandum Order and Opinion, in MDL 1182, including
             but not limited to the consumer class fund, the third party
             payor class fund, and funds relating to plaintiff's payment of
             amounts to states' attorneys general and in cy pres remedies to
             the pharmacy industry



                                    Page 50

                                   SECTION 27
                              NON-COMPETE COVENANT

27.1         For a period of *** effective from the Closing, or with
             respect to the restrictions contained in clause (b) in countries
             other than EU member countries the later of *** following the
             Closing, neither Seller nor any of its Affiliates shall, anywhere
             in the world, directly or indirectly (a) engage in the
             Pharmaceutical Field, (b) agree to develop, import, register,
             manufacture, distribute, supply or sell any BASF Pharmaceutical
             Products or any Active Ingredient used in any BASF Pharmaceutical
             Product for any third party, (c) otherwise assist any third party
             to compete with Purchaser, in the BASF Pharmaceutical Business or
             otherwise with respect to business or activities related to
             Exclusive Active Ingredients, or (d) acquire a participation in a
             company or other entity that competes in the BASF Pharmaceutical
             Field, or business or activities related to Exclusive Active
             Ingredients, except ownership of a less than *** equity interest in
             a publicly traded company solely for investment purposes. For a
             period of *** from the Closing, neither Seller nor its
             Affiliates shall directly or indirectly solicit any employees of
             the Companies to terminate his or her employment with any of the
             Companies or Purchaser.

27.2         However, the preceding paragraph shall not prevent Seller from (I)
             activities in the BASF Pharmachemical Field and (II) taking over by
             purchase of shares or assets or by way of a merger another business
             even if such business includes activities competing with Purchaser
             in the BASF Pharmaceutical Field, provided that (a) the gross sales
             with respect to competitive activity of such business in the year
             preceding the acquisition constitute less than *** of the total
             gross sales of such business, and (b) Seller, within 90 days from
             the completion of such acquisition, offers to Purchaser the right
             to purchase the activities taken over and which are competing with
             Purchaser or the Companies specifying the price (which shall be
             fair market value) and other reasonable terms and conditions of
             such offer (the "Seller Terms"). If Purchaser has not accepted the
             offer on Seller Terms or if Purchaser and Seller have not agreed
             to different terms, in each case within 90 days from the receipt
             of the offer, Seller shall use its best efforts to divest (by sale
             or IPO or otherwise) the activities in question within a period of
             *** from the date on which Seller had offered them for purchase to
             the Purchaser at a price equal to, or higher than, the price and
             at terms not more favorable to an acquiror than the ones previously
             offered to Purchaser. Seller may only sell the activities in
             question at a price lower than the price contained in the previous
             offer to Purchaser if Seller has again offered the activities in
             question to Purchaser at such lower price and Purchaser has not
             accepted such offer within 15 working days from receipt of the
             offer.

                                   SECTION 28
                               USE OF TRADE NAMES

28.1         Seller (a) may change the corporate names of the Companies insofar
             as this is necessary in order to eliminate from such corporate
             names references to "BASF" and shall use its best efforts to give
             Purchaser an opportunity to make proposals for the new corporate
             name to be chosen in connection with the elimination of such
             references, and (b) shall change the corporate names of all
             Affiliates of Seller (other than the Companies) to eliminate from
             such corporate names references to "Knoll." Seller shall use its
             best efforts to complete such changes prior to the Closing or as
             soon as possible thereafter. Purchaser shall assist Seller in
             making or completing the changes after the Closing to the extent
             they not have been completed by the time of the Closing.

- ------------------------
***  Confidential information omitted pursuant to a request for confidential
     treatment filed separately with the Securities and Exchange Commission.



                                    Page 51

28.2         As soon as commercially possible upon the consummation of the
             Closing but in no event longer than the later to occur of (x) 12
             months after the Closing, or (y) Purchaser's exhaustion and
             depletion of all inventories and stores of materials described
             below, Purchaser agrees to cause all of the Companies to cease
             making use of the trade names and product or service marks of
             Seller or any of its Affiliates containing "BASF" and to remove any
             reference to any such names or marks from all products, products
             promotions or advertising materials, business cards or any other
             items. Seller hereby grants Purchaser a non exclusive, worldwide,
             royalty free license to use such names for the period described in
             this Section 28.2.

28.3         As soon as commercially possible upon the consummation of the
             Closing but in no event longer than the later of (x) 12 months
             after the Closing, or (y) Seller's exhaustion and depletion of all
             inventories and stores of materials described below, Seller will
             and will cause its Affiliates, including, without limitation, Knoll
             AG, to cease making use of the trade names, trademarks and product
             or service marks of the BASF Pharmaceutical Business or any of the
             Companies, including "Knoll" and to remove any reference to any
             such names or marks from all products, product promotions or
             advertising materials, business cards or any other items. Purchaser
             hereby grants Seller a non-exclusive, worldwide, royalty free
             license to use such names for the period described in this Section
             28.3.

                                   SECTION 29
                 INDEMNITY AGAINST LIABILITIES OF KNOLL BUSINESS

29.1         Purchaser shall indemnify Seller and its Affiliates against any
             responsibility under Section 133 Conversion Act (Umwandlungsgesetz)
             for liabilities exclusively relating to the Knoll Business, other
             than liabilities against which Purchaser is indemnified by Seller
             pursuant to this Agreement, including Section 15 hereof. Seller
             shall indemnify Purchaser and its Affiliates against any
             responsibility under Section 133 Conversion Act (Umwandlungsgesetz)
             for all liabilities of Knoll AG except for those exclusively
             relating to the Knoll Business.

29.2         Seller shall ensure that no creditor of Knoll AG will request from
             the Partnership a security interest pursuant to Sections 133, 125
             and 22 Conversion Act.

29.3         Seller shall ensure that only those current employees of Knoll AG
             and Knoll Deutschland GmbH who work exclusively or mainly for the
             Knoll Business (the "Knoll Business Employees") will be transferred
             to the Partnership, and should any employee of the Seller Group or
             Knoll AG other than the Knoll Business Employees, be transferred to
             the Partnership by operation of law or as a result of an act or
             omission of a member of the Seller Group, Seller shall indemnify
             and hold the Partnership, Purchaser and its Affiliates harmless
             from any obligations or liabilities relating to such employees,
             including such employees' remuneration or severance claims.

29.4         Seller shall ensure that, at the Closing, the Partnership will,
             whether as a result of the Demerger or otherwise, not be liable for
             any Pension Liabilities other than those of the Knoll Business
             Employees.



                                    Page 52

                                   SECTION 30
                      MAINTENANCE OF PARTNERSHIP STRUCTURE

30.1         Purchaser shall be obligated to continue the operation of the
             Partnership substantially as conducted as of the Closing Date by
             the Partnership in the Federal Republic of Germany in the legal
             form of the Partnership ***.

30.2         It is understood that the provision in Section 30.1 above does not
             prevent the Purchaser from (a) transferring any activities,
             personnel or assets of the Knoll Business or the Partnership to
             locations or entities domiciled outside the Federal Republic of
             Germany, or (b) transferring personnel of the Knoll Business or the
             Partnership to other locations within the Federal Republic of
             Germany.

30.3         If the laws in the Federal Republic of Germany concerning the Tax
             treatment of a partnership are changed in a way that maintenance of
             the legal form would have a Material Adverse Effect on the
             Partnership, Purchaser shall have the right to change the legal
             form of the Partnership as far as necessary to avoid that effect
             subject to prior written approval by Seller which approval shall
             not be unreasonably withheld.

30.4         In case of a sale of the Partnership or its business operation,
             Purchaser shall impose the obligations under this Section 30 on the
             acquirer.

                                   SECTION 31
                          CONFIDENTIALITY, PUBLICATION

31.1         The Parties hereto shall keep the content of this Agreement
             confidential except for reporting and disclosure requirements under
             statutory law, including reporting and disclosure requirements
             under the United States securities laws.

31.2         None of the Parties hereto will issue a press release on the
             transaction without the prior written consent of the other Party
             except as may be required by the reporting and disclosure
             requirements under the United States securities laws.

31.3         From and after the Closing, neither Seller nor any of its
             Affiliates or representatives shall use or disclose any non-public
             or proprietary information including any such information included
             in the Intellectual Property, exclusively relating to the BASF
             Pharmaceutical Business except to perform their obligations
             pursuant to this Agreement or the Intercompany Agreements. This
             Section 25.11 shall not apply to any such information that (i)
             through no fault of Seller becomes generally known in the relevant
             industry, or (ii) is received after the Closing from a third party
             free of any limitations on its use or disclosure. Seller may make
             any legally required disclosure of the such information, but Seller
             shall use its best efforts to notify Purchaser before making any
             such disclosure, and at Purchaser's expense to limit the amount of
             such information so disclosed and to protect its confidentiality to
             the extent reasonably practicable. Upon request by Purchaser,
             Seller shall permit Purchaser to have access to, with an
             opportunity to make copies of, such information and to deliver all
             of such information to Purchaser.

- ------------------------
***  Confidential information omitted pursuant to a request for confidential
     treatment filed separately with the Securities and Exchange Commission.



                                    Page 53

                                       IX.
                       MERGER CONTROL, RIGHT OF WITHDRAWAL

                                   SECTION 32
                                 MERGER CONTROL

32.1         Purchaser will promptly notify the European Commission of the
             merger provided for in this Agreement pursuant to the Merger
             Control Regulation.

32.2         Purchaser will promptly file, and Seller will promptly cause any of
             the Companies legally required to do so to file, for approval of
             the transaction contemplated by this Agreement in accordance with
             the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as
             amended.

32.3         Seller and Purchaser shall promptly make all other filings legally
             required with any other antitrust authorities or other governmental
             authorities with respect to the transaction contemplated by this
             Agreement, including, without limitation, the filings described in
             Section 11.1.1(a).

32.4         No filing by a party hereunder shall be made without first having
             provided a draft of the notification to the respective other party.

32.5         In the event that meetings with officials of the European
             Commission, or the US Antitrust Authorities, or of any other
             antitrust governmental authorities become necessary,
             representatives of both Seller and Purchaser shall be entitled to
             attend such meetings. Seller and Purchaser shall, without undue
             delay (insofar as possible, in advance), exchange all information
             about their contacts with authorities referred to in the preceding
             sentence.

32.6         Seller and Purchaser shall, if necessary, provide such additional
             information, as may be required to respond to a second request for
             information, and shall take such action as may be reasonably
             necessary to obtain the approvals required by this Agreement as
             soon as possible.

                                   SECTION 33
                                   TERMINATION

33.1         This Agreement may be terminated at any time prior to the Closing.

             a)       by mutual written consent of Seller and Purchaser;

             b)       by either the Seller or Purchaser if:

                      (i)    the transactions contemplated by this Agreement
             are  prohibited by any of the antitrust authorities mentioned in
             Section 11.1 (a) above; or

                      (ii) the Closing Conditions have not been fulfilled on or
             prior to ***, provided, however, that such party shall not
             be entitled to the right to terminate which has caused the failure
             of the Closing Condition by breaching any of its obligations under
             this Agreement; provided further however that such date shall be
             extended to *** if by *** the approvals described in Section
             11.1(a) shall not have been obtained; or

- ------------------------
***  Confidential information omitted pursuant to a request for confidential
     treatment filed separately with the Securities and Exchange Commission.



                                    Page 54

             c)       by Purchaser if prior to the Closing Date there shall have
                      been a breach of any Representation, covenant or agreement
                      on the part of Seller contained in this Agreement, which
                      breach is (x)(i) incapable of being cured by Seller or is
                      not cured within 30 days of notice of such breach and (ii)
                      would cause a failure of a condition specified in Section
                      11.1.2. (a) or (b), or (y) constitutes an intentional and
                      material breach by Seller of any material covenant or
                      agreement of Seller contained in this Agreement that is
                      not cured within 30 days of notice of such breach; or

             d)       by Seller if prior to the Closing Date there shall have
                      been a breach of any Representation, covenant or agreement
                      on the part of Purchaser contained in this Agreement,
                      which breach constitutes an intentional and material
                      breach by Purchaser of any material covenant or agreement
                      of Purchaser contained in this Agreement that is not cured
                      within 30 days of notice of such breach.



33.2         Claims for breach of contract, if any, under this Agreement, of
             either party shall not be affected by a termination. In case of a
             termination, the parties are obligated to return all documents
             received from the respective other party, to keep secret all
             confidential information they have received in connection with the
             transaction and shall not use any such information for their own
             purposes. Seller's and Purchaser's legal counsel shall be exempt
             from the obligation to return such documents to the extent they are
             part of their files.

                                       X.
                                  MISCELLANEOUS

                                   SECTION 34
                                     NOTICES

All notices, statements and other communications to be given with respect to
this Agreement shall be in the English language and sent by registered mail, by
facsimile transmission or by messenger to the parties at the following addresses
or at such other addresses as shall be specified by the parties:

If to Seller:              BASF Aktiengesellschaft
                           Central Legal Department
                           67056 Ludwigshafen, Germany
                           Telefax: 49.621.60.20410

If to Purchaser:           Abbott Laboratories
                           One Abbott Park Road
                           Abbott Park, Illinois 60053-3500
                           Telephone: 847-937-6100
                           Attn:  General Counsel

                                   SECTION 35
                         ENTIRE AGREEMENT, WRITTEN FORM

35.1         This Agreement (including the attached Exhibits) constitutes the
             entire agreement and supersedes all other prior agreements and
             undertakings both written and oral among the



                                    Page 55

             parties. In the event of any translation of this Agreement, the
             English version shall govern.

35.2         In case any provision of the Separate Sale and Transfer Contracts
             is inconsistent with the provisions of this Agreement, the latter
             shall prevail and the parties hereto shall treat each other
             accordingly.

35.3         Any changes in this Agreement including, but not limited to, this
             clause shall only be valid if made in writing and executed by both
             Purchaser and Seller or, if necessary, in a stricter form.

                                   SECTION 36
                               ASSIGNMENT, SET-OFF

36.1         Neither Seller nor Purchaser may assign any rights or obligations
             under this Agreement to any third party without the consent of the
             respective other party except for Purchaser's right to have any of
             the Shares and Transferred Patents acquired by a designee.

36.2         Purchaser shall not be entitled to offset any claim it may have
             against Seller (whether under this Agreement or otherwise) against
             the claim of Seller for payment of the Aggregate Purchase Price
             pursuant to Section 8 above unless Purchaser's claim has become
             final (rechtskraftig) or is undisputed.

                                   SECTION 37
                           GOVERNING LAW, JURISDICTION

37.1         This Agreement shall be governed by and construed in accordance
             with the laws of the Federal Republic of Germany, other than
             Section 26 which shall be governed by the law of the State of
             Illinois, USA without regard to its choice of law rules.

37.2         Except as otherwise expressly stated elsewhere in this Agreement,
             all disputes arising out of or in connection with this Agreement,
             including any question regarding its existence, validity or
             termination, shall be referred to and finally resolved by
             arbitration in accordance with the Rules of the German Institute of
             Arbitration e.V. (DIS) without recourse to the ordinary courts of
             law, provided that the Chairman of the Arbitral Tribunal shall not
             be of the same nationality as that of any of the parties to a given
             dispute. The place of arbitration shall be Frankfurt; the language
             of the arbitration shall be English.

37.3         All disputes arising out of or in connection with Section 26 shall
             be referred to and finally resolved by the court having
             jurisdiction over the Section 26 Litigation or Insurance Litigation
             to which the dispute relates.

                                   SECTION 38
                                    EXPENSES

38.1         Except as specifically provided otherwise in this Agreement, each
             party shall bear its own expenses and fees (including attorneys',
             accountants', consultants' and advisors' fees) in connection with
             this Agreement or any of the transactions contemplated herein,
             including any merger control filing and filings with other
             governmental authorities made by such party.



                                    Page 56


38.2         Fees and costs triggered by the implementation of this Agreement
             (other than the Merger and the Demerger), including but not limited
             to any notarial fees, any transfer or sales Tax (including value
             added Tax and stamp duties and property transfer Tax according to
             Section 5 para 3 Grunderwerbssteuergesetz), any registration or
             publication fees shall be borne by Purchaser.

                                   SECTION 39
                                  SEVERABILITY

Should any of the provisions of this Agreement be or become fully or partly
invalid or unenforceable, the remainder of the Agreement shall be valid or
enforceable. The invalid or unenforceable provision shall be replaced by a
provision which shall come as close as possible to the economic purpose of the
invalid provision. Any gaps in this Agreement shall be filled by a provision
which the parties as prudent businessmen would in good faith have agreed to, had
they considered the matter not covered by this Agreement.



                                    Page 57


TABLE OF CROSS-REFERENCES FOR ADDITIONAL DEFINITIONS

"FINAL BASF TENDER AMOUNT" shall have the meaning as described in
Section 7.4;

"BASF INTERCOMPANY OBLIGATIONS" shall have the meaning described in
Section 19.1;

"CLOSING" shall have the meaning as described in Section 11.1;

"CLOSING DATE" shall have the meaning as described in Section 11.1;

"CLOSING FINANCIAL STATEMENTS" shall have the meaning as described in
Section 10.1;

"CODE" shall have the meaning described in Section 13.11.1(a);

"CONSENTS" shall have the meaning described in Section 13.2;

"DEA" shall have the meaning as described in Section 24.7;

"DEMERGER" shall have the meaning as described in Section 4.2;

"EMPLOYEE BENEFIT PLAN" shall have the meaning described in
Section 13.11.1(b);

"ENVIRONMENTAL LIABILITIES" shall have the meaning described in
Section 13.18.5;

"ENVIRONMENTAL REPORT" shall have the meaning described in Section 13.18.5;

"ERISA" shall have the meaning described in Section 13.11.1(a);

"ERISA AFFILIATE" shall have the meaning described in Section 13.11.1(a);

"GENERAL CLOSING CONDITIONS" shall have the meaning as described in
Section 11.1.1;

"HOKURIKU OVERPAYMENT" shall have the meaning as described in Section 8.3;

"HOKURIKU UNDERPAYMENT" shall have the meaning as described in Section 8.3;

"HOKURIKU TENDER OFFER" shall have the meaning as described in Section 7.4;

"HSR ACT" shall have the meaning as described in Section 11.1.1;

"INDEMNIFIED CLAIM" shall have the meaning as described in Section 20.1;

"INDIVIDUAL CLAIM" shall have the meaning described in Section 15.2(a);

"PROVISIONAL HOKURIKU TENDER AMOUNT" shall have the meaning described in
Section 8.3;

"INSURANCE LITIGATION" shall have the meaning as described in Section 26.7(iii);

"INTELLECTUAL PROPERTY" shall have the meaning as described in Section 13.15.3;

"INTERCOMPANY MANUFACTURING AGREEMENTS" shall have the meaning described in
Section 13.2;



                                    Page 58


"INTERCOMPANY TRADE ACCOUNTS" shall have the meaning described in Section 19.1'

"INTRACOMPANY TRADE ACCOUNTS" shall have the meaning described in Section 19.1'

"MATERIAL AGREEMENTS" shall have the meaning described in Section 13.21;

"MATERIAL AGREEMENT CONSENT" shall have the meaning described in Section 13.21;

"MERGER" shall have the meaning as described in Section 4.2;

"MERGER/DEMERGER AGREEMENTS" shall have the meaning described in Section 4.2;

"NON-HOKURIKU PURCHASE PRICE" shall have the meaning described in Section 8.3;

"PER SHARE TENDER PRICE" shall have the meaning described in Section 7.4;

"PURCHASER CONDITIONS" shall have the meaning as described in Section 11.1.2;

"PURCHASER GROUP" shall have the meaning described in Section 15.1;

"PURCHASER U.S. DEFINED BENEFIT PLAN" shall have the meaning as described in
Section 22.5.1;

"PURCHASER U.S. DEFINED CONTRIBUTION PLAN" shall have the meaning as described
in Section 22.6.;

"REAL PROPERTY" shall have the meaning described in Section 13.13;

"REPORT" shall have the meaning described in Section 13.20(a);

"REPORT PRINCIPLES" shall have the meaning described in Section 13.20(a);

"REPRESENTATIONS" shall have the meaning as described in the introductory
paragraph of Section 13;

"SECTION 26 CONDUCT" shall have the meaning as described in Section 26.7(ii);

"SECTION 26 LITIGATION" shall have the meaning as described in Section 26.7(i);

"SELLER'S AUDITORS" shall have the meaning as described in Section 10.1;

"SELLER COMPANY" shall have the meaning described in Section 19.1;

"SELLER U.S. DEFINED BENEFIT PLANS" shall have the meaning as described in
Section 22.5.1;

"SELLER U.S. QUALIFIED DEFINED BENEFIT PLAN" shall have the meaning as described
in Section 22.5.1;

"SELLER U.S. DEFINED CONTRIBUTION PLAN" shall have the meaning as described in
Section 22.6;

"SHARED SUBSTANCES" shall have the meaning as described in Section 5.3;

"U.S. FINANCIAL STATEMENTS" shall have the meaning described in Section 10.9;



                                    Page 59


"U.S. PENSION TRANSFER AMOUNT" shall have the meaning described in
Section 22.5.2;

"U.S. SECURITIES LAWS" shall have the meaning described in Section 10.9.




                 LIST OF EXHIBITS TO THE PURCHASE AGREEMENT






    EXHIBIT NUMBER                 EXHIBIT DESCRIPTION

                               
    Exhibit A                      Description of Generics Business
    Exhibit 1.1                    Description of BASF Pharmaceutical Corporation
    Exhibit 1.2                    Description of BASF Pharmaceutical Corporation subsidiaries
    Exhibit 2                      Description of Other Foreign Subsidiaries
    Exhibit 4.2(b)                 List of Transferred Patents
    Exhibit 5.1                    List of Nottingham site compounds and substances
    Exhibit 5.2                    List of Remaining Patents
    Exhibit 7.4                    Description of Hokuriku Tender Offer
    Exhibit 8.1                    Allocation of Aggregate Purchase Price
    Exhibit 9.1(a)                 Unaudited Proforma Balance Sheet
    Exhibit 9.1(b)                 Reference Net Asset Value account adjustments
    Exhibit 10.1                   Closing Net Asset Value Statement adjustment principles
    Exhibit 13.2(d)                List of third party rights in the Shares
    Exhibit 13.5                   List if conflicts with the Purchase Agreement
    Exhibit 13.7.3                 List of ongoing tax audits with respect to the Companies
    Exhibit 13.8                   Tax rulings with respect to the Companies
    Exhibit 13.10                  List of Intercompany Agreements
    Exhibit 13.11.2                List of certain Employee Benefit Plans
    Exhibit 13.12(a)               List of certain proceedings
    Exhibit 13.14(a)               List of certain patents and patent applications
    Exhibit 13.14(b)               List of certain license contracts
    Exhibit 13.16.1                List of alleged infringement by certain products
    Exhibit 13.16.2                List of alleged infringement by products in development
    Exhibit 13.18.4                List of written notices alleging hazardous material releases
    Exhibit 13.19                  Compliance with laws
    Exhibit 13.20(a)               Report Principles
    Exhibit 13.21                  List of certain agreements
    Exhibit 13.27(a)               List of certain Pharmaceutical Products and Active Ingredients
    Exhibit 13.27(b)               List of certain compounds
    Exhibit 13.27(c)               List of Exclusive and Mutual Active Ingredients
    Exhibit 13.27(d)               List of certain BASF Pharmaceutical Products
    Exhibit 22.5.2                 Actuarial assumptions
    Exhibit 24.3(f)                List of certain employees


These exhibits are omitted as permitted under Item 601(b)(2) of Regulation
S-K. Abbott agrees to furnish supplementally a copy of any omitted exhibit to
the Purchase Agreement.

                                                                    Exhibit 3.2

                                     BY-LAWS

                                       OF

                               ABBOTT LABORATORIES






















                        Adopted by the Board of Directors
                          of Abbott Laboratories at the
                         Annual Meeting, April 11, 1963
               as amended and restated, effective February 9, 2001




                         BY-LAWS OF ABBOTT LABORATORIES


                                    ARTICLE I

                                     OFFICES

     The principal office of the Corporation in the State of Illinois shall be
located at the intersection of State Routes 43 and 137 in the County of Lake.
The Corporation may have such other offices either within or without the State
of Illinois as the business of the Corporation may require from time to time.

     The registered office of the Corporation may be, but need not be, identical
with the principal office in the State of Illinois. The address of the
registered office may be changed from time to time by the Board of
Directors.


                                   ARTICLE II

                                  SHAREHOLDERS

     SECTION 1. ANNUAL MEETING; TRANSACTION OF BUSINESS, NOMINATION OF
DIRECTORS. The annual meeting of the shareholders shall be held in the month of
April in each year on such date and at such time as the Board of Directors shall
provide. The meeting shall be held for the purpose of electing Directors and for
the transaction of such other business as is properly brought before the meeting
in accordance with these By-Laws. If the election of Directors shall not be held
on the day designated for any annual meeting, or at any adjournment thereof, the
Board of Directors shall cause the election to be held at a meeting of the
shareholders as soon thereafter as conveniently may be.

     To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors or (c) otherwise
properly brought before the meeting by a shareholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal office of the Corporation,
not earlier than October 1 nor later than the first business day of January
immediately prior to the date of the meeting; PROVIDED, HOWEVER, that in the
event that the date of such meeting is not in the month of April and less than
sixty-five days' notice or prior public disclosure of the date of the meeting is
given or made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the fifteenth day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made, whichever first occurs. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (i) a brief



BY-LAWS                                                                  Page 2


description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the shareholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
shareholder and (iv) any material interest of the shareholder in such business.

     Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 1, PROVIDED, HOWEVER, that nothing in this
Section 1 shall be deemed to preclude discussion by any shareholder of any
business properly brought before the annual meeting.

     The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 1, and if he should so
determine, he shall so declare to the meeting and such business not properly
brought before the meeting shall not be transacted.

     Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors. Nominations of persons for election
to the Board of Directors of the Corporation at the annual meeting may be made
at such annual meeting of shareholders by or at the direction of the Board of
Directors, by any nominating committee or person appointed by the Board of
Directors, or by any shareholder of the Corporation entitled to vote for the
election of directors at such meeting who complies with the notice procedures
set forth in this Section 1. Such nominations, other than those made by or at
the direction of the Board of Directors or by a committee or person appointed by
the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal office of the Corporation not earlier than
October 1 nor later than the first business day of January immediately prior to
the date of the meeting; PROVIDED, HOWEVER, that in the event that the date of
such meeting is not in the month of April and less than sixty-five days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the fifteenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs. Such shareholder's notice to the Secretary shall
set forth: (a) as to each person whom the shareholder proposes to nominate for
election or re-election as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the person and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (b) as to the
shareholder giving the notice, (i) the name and record address of such
shareholder and (ii) the class and number of shares of the Corporation which are
beneficially owned by such shareholder. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as



BY-LAWS                                                                  Page 3


director of the Corporation. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the procedures
set forth herein.

     The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.

     SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the Chairman of the Board, the Chief Executive Officer, the President,
the Board of Directors or by the holders of not less than one-fifth of all the
outstanding shares entitled to vote on the matter for which the meeting is
called.

     SECTION 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Illinois, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal office of the Corporation in
the State of Illinois.

     SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, day and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, or in the cases of a
merger, consolidation, share exchange, dissolution or sale, lease or exchange of
assets not less than twenty nor more than sixty days before the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board, the
Chief Executive Officer, the President, or the Secretary or the persons calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at his or her address as it appears on
the records of the Corporation, with postage thereon prepaid.

     SECTION 5. FIXING RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the Board of Directors of the
Corporation may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
days and, for a meeting of shareholders, not less than ten days, or in the case
of a merger, consolidation, share exchange, dissolution or sale, lease or
exchange of assets not less than twenty days, immediately preceding such
meeting.

     SECTION 6. VOTING LISTS. The Secretary shall make, or cause to have made,
within twenty days after the record date for a meeting of shareholders or ten
days before such meeting, whichever is earlier, a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order,
with the address of and the number of shares held by each, which list, for a
period of ten days prior to such meeting, shall be kept on file at the
registered office of the



BY-LAWS                                                                  Page 4


Corporation and shall be subject to inspection by any shareholder and to copying
at the shareholder's expense, at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time of
the meeting. The original share ledger or transfer book, or a duplicate thereof
kept in this State, shall be prima facie evidence as to who are the shareholders
entitled to examine such list or share ledger or transfer book or to vote at any
meeting of shareholders.

     SECTION 7. QUORUM. A majority of the outstanding shares of the Corporation
entitled to vote on a matter, represented in person or by proxy, shall
constitute a quorum for consideration of such matter at a meeting of
shareholders. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on a matter shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by The Business Corporation Act of 1983 or the Articles of
Incorporation, as in effect on the date of such determination. If a quorum is
not present, a majority of the shares of the Corporation entitled to vote on a
matter and represented in person or by proxy at such meeting may adjourn the
meeting from time to time without further notice.

     SECTION 8. PROXIES. A shareholder may appoint a proxy to vote or otherwise
act for the shareholder by delivering a valid appointment to the person so
appointed or such person's agent; PROVIDED, HOWEVER, no shareholder may name
more than three persons as proxies to attend and to vote the shareholder's
shares at any meeting of shareholders. Without limiting the manner in which a
shareholder may appoint such a proxy pursuant to these By-Laws, the following
shall constitute valid means by which a shareholder may make such an
appointment:

     (a)  A shareholder may sign a proxy appointment form. The shareholder's
          signature may be affixed by any reasonable means, including, but not
          limited to, by facsimile signature.

     (b)  A shareholder may transmit or authorize the transmission of a
          telegram, cablegram, or other means of electronic transmission;
          provided that any such transmission must either set forth or be
          submitted with information from which it can be determined that the
          telegram, cablegram, or other electronic transmission was authorized
          by the shareholder. If it is determined that the telegram, cablegram,
          or other electronic transmission is valid, the inspectors or, if there
          are no inspectors, such other persons making that determination shall
          specify the information upon which they relied.

No proxy shall be valid after the expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Each proxy continues in full
force and effect until revoked by the person appointing the proxy prior to
the vote pursuant thereto, except as otherwise provided by law. Such
revocation may be effected by a writing delivered to the secretary of the
Corporation stating that the proxy is revoked or by a subsequent delivery of
a valid proxy by, or



BY-LAWS                                                                  Page 5


by the attendance at the meeting and voting in person by the person appointing
the proxy. The dates of the proxy shall presumptively determine the order of
appointment.

     SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of class,
shall be entitled to one vote in each matter submitted to a vote at a meeting of
shareholders and, in all elections for Directors, every shareholder shall have
the right to vote the number of shares owned by such shareholder for as many
persons as there are Directors to be elected, or to cumulate such votes and give
one candidate as many votes as shall equal the number of Directors multiplied by
the number of such shares or to distribute such cumulative votes in any
proportion among any number of candidates; provided that, vacancies on the Board
of Directors may be filled as provided in Section 9, Article III of these
By-Laws. A shareholder may vote either in person or by proxy.

     SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of this Corporation
held by the Corporation in a fiduciary capacity may be voted and shall be
counted in determining the total number of outstanding shares entitled to vote
at any given time.

     Shares registered in the name of another corporation, domestic or foreign,
may be voted by any officer, agent, proxy or other legal representative
authorized to vote such shares under the law of incorporation of such
corporation.

     Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his or her administrator,
executor, or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor, or court
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by proxy.

     Shares registered in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority so to do
is contained in an appropriate order of the court by which such receiver was
appointed.

     A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.

     SECTION 11. VOTING BY BALLOT. Voting on any question or in any election may
be viva voce unless the presiding officer shall order that voting be by ballot.

     SECTION 12. INSPECTORS OF ELECTION. The Board of Directors in advance of
any meeting of shareholders may appoint inspectors to act at such meeting or any
adjournment thereof. If inspectors of election are not so appointed, the officer
or person acting as chairman at any such meeting may, and on the request of any
shareholder or his proxy, shall make such appointment. In case any person
appointed as inspector shall fail to appear or to act, the vacancy





BY-LAWS                                                                  Page 6


may be filled by appointment made by the Board of Directors in advance of the
meeting or at the meeting by the officer or person acting as chairman.

     Such inspectors shall ascertain and report the number of shares represented
at the meeting, based upon their determination of the validity and effect of
proxies; count all votes and report the results; and do such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders.

     Each report of an inspector shall be in writing and signed by him or her or
by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.

                                   ARTICLE III

                                    DIRECTORS

     SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors.

     SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of
the Corporation shall be thirteen. The terms of all Directors shall expire at
the next annual meeting of shareholders following their election. Despite the
expiration of a Director's term, he or she shall continue to serve until the
next meeting of shareholders at which Directors are elected. Directors need not
be residents of Illinois or shareholders of the Corporation.

     SECTION 3. REGULAR MEETINGS. A regular annual meeting of the Board of
Directors shall be held without other notice than this By-Law, immediately
after, and at the same place as, the annual meeting of shareholders. Other
regular meetings of the Board of Directors shall be held at the principal office
of the Corporation on the second Friday of every month at 9:00 a.m. without
other notice than this By-Law. The Board of Directors may provide, by
resolution, for the holding of the regular monthly meetings at a different time
and place, either within or without the State of Illinois, or for the omission
of the regular monthly meeting altogether. Where the Board of Directors has, by
resolution, changed or omitted regular meetings, no other notice than such
resolution shall be given.

     SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by or at the request of the Chairman of the Board, the Chairman of the
Executive Committee, the Chief Executive Officer, the President, or of any four
Directors. The persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the State of Illinois, as
the place for holding any special meeting of the Board of Directors.




BY-LAWS                                                                  Page 7


     SECTION 5. NOTICE. Notice of any special meeting shall be given: (i) at
least one day prior thereto if the notice is given personally or by an
electronic transmission, (ii) at least two business days prior thereto if the
notice is given by having it delivered by a third party entity that provides
delivery services in the ordinary course of business and guarantees delivery of
the notice to the Director no later than the following business day, and (iii)
at least seven days prior thereto if the notice is given by mail. For this
purpose, the term "electronic transmission" may include, but shall not be
limited to, a telex, facsimile, or other electronic means. Notice shall be
delivered to the Director's business address and/or telephone number and shall
be deemed given upon electronic transmission, upon delivery to the third party
delivery service, or upon being deposited in the United States mail with postage
thereon prepaid. Any Director may waive notice of any meeting by signing a
written waiver of notice either before or after the meeting. Attendance of a
Director at any meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need to be specified in the
notice or waiver of notice of such meeting.

     SECTION 6. QUORUM. A majority of the number of Directors fixed by these
By-Laws shall constitute a quorum for transaction of business at any meeting of
the Board of Directors; provided, that if less than a majority of such number of
Directors are present at said meeting, a majority of the Directors present may
adjourn the meeting from time to time without further notice.

     SECTION 7. MANNER OF VOTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.

     SECTION 8. INFORMAL ACTION BY DIRECTORS. Any action required to be taken at
a meeting of the Board of Directors, or any other action which may be taken at a
meeting of the Board of Directors or a committee thereof, may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the Directors entitled to vote with respect to the subject
matter thereof, or by all the members of such committee, as the case may be.

     The consent shall be evidenced by one or more written approvals, each of
which sets forth the action taken and bears the signature of one or more
Directors. All the approvals evidencing the consent shall be delivered to the
Secretary of the Corporation to be filed in the corporate records. The action
taken shall be effective when all the Directors have approved the consent unless
the consent specifies a different effective date.

     Any such consent signed by all the Directors or all the members of a
committee shall have the same effect as a unanimous vote.

     SECTION 9. VACANCIES. Any vacancy occurring in the Board of Directors and
any directorship to be filled by reason of an increase in the number of
Directors, may be filled by



BY-LAWS                                                                  Page 8


election at an annual meeting or at a special meeting of shareholders called for
that purpose. A Director elected to fill a vacancy shall serve until the next
annual meeting of shareholders. A majority of Directors then in office may also
fill one or more vacancies arising between meetings of shareholders by reason of
an increase in the number of Directors or otherwise, and any Director so
selected shall serve until the next annual meeting of shareholders, provided
that at no time may the number of Directors selected to fill vacancies in this
manner during any interim period between meetings of shareholders exceed 33-1/3
per cent of the total membership of the Board of Directors.

     SECTION 10. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors or any committee thereof at which
action on any corporate matter is taken is conclusively presumed to have
assented to the action taken unless his or her dissent is entered in the minutes
of the meeting or unless he or she files his or her written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or forwards such dissent by registered or certified mail to
the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in favor
of such action.

     SECTION 11. APPOINTMENT OF AUDITORS. Upon the recommendation of the Audit
Committee, the Board of Directors shall appoint annually a firm of independent
public accountants as auditors of the Corporation. Such appointment shall be
submitted to the shareholders for ratification at the Annual Meeting next
following such appointment. Should the holders of a majority of the shares
represented at the meeting fail to ratify the appointment of any firm as
auditors of the Corporation, or should the Board of Directors for any reason
determine that such appointment be terminated, the Board of Directors shall
appoint another firm of independent public accountants to act as auditors of the
Corporation and such appointment shall be submitted to the shareholders for
ratification at the Annual or Special Shareholders Meeting next following such
appointment.

                                   ARTICLE IV

                                   COMMITTEES

     SECTION 1. APPOINTMENT. A majority of the Board of Directors may create one
or more committees and appoint members of the Board to serve on the committee or
committees. Each committee shall have three or more members, who serve at the
pleasure of the Board. The Board shall designate one member of each committee to
be chairman of the committee. The Board shall designate a secretary of each
committee who may be, but need not be, a member of the committee or the Board.

     SECTION 2. COMMITTEE MEETINGS. A majority of any committee shall constitute
a quorum and a majority of the committee is necessary for committee action. A
committee may act by unanimous consent in writing without a meeting. Committee
meetings may be called by the Chairman of the Board, the chairman of the
committee, or any two of the committee's



BY-LAWS                                                                  Page 9


members. The time and place of committee meetings shall be designated in the
notice of such meeting. Notice of each committee meeting shall be given to each
committee member. Each Committee shall keep minutes of its proceedings and such
minutes shall be distributed to the Board of Directors.

     SECTION 3. EXECUTIVE COMMITTEE. The Board shall appoint an Executive
Committee. A majority of the members of the Committee shall be selected from
those Directors who are not then serving as full-time employees of the
Corporation or any of its subsidiaries.

     SECTION 4. DUTIES OF THE EXECUTIVE COMMITTEE. The Executive Committee may,
when the Board of Directors is not in session, exercise the authority of the
Board in the management of the business and affairs of the Corporation;
provided, however, the Committee may not:

          (1)  authorize distributions;

          (2)  approve or recommend to shareholders any act the Business
               Corporation Act of 1983 requires to be approved by shareholders.

          (3)  fill vacancies on the Board or on any of its committees;

          (4)  elect or remove Officers or fix the compensation of any member of
               the Committee;

          (5)  adopt, amend or repeal the By-Laws;

          (6)  approve a plan of merger not requiring shareholder approval;

          (7)  authorize or approve reacquisition of shares, except according to
               a general formula or method prescribed by the Board;

          (8)  authorize or approve the issuance or sale, or contract for sale,
               of shares or determine the designation and relative rights,
               preferences, and limitations of a series of shares, except that
               the Board may direct the Committee to fix the specific terms of
               the issuance or sale or contract for sale or the number of shares
               to be allocated to particular employees under an employee benefit
               plan; or

          (9)  amend, alter, repeal, or take action inconsistent with any
               resolution or action of the Board of Directors when the
               resolution or action of the Board of Directors provides by its
               terms that it shall not be amended, altered or repealed by action
               of the Committee.



BY-LAWS                                                                  Page 10


     SECTION 5. AUDIT COMMITTEE. The Board of Directors shall appoint an Audit
Committee. All of the members of the Committee shall be selected from those
Directors who are not then serving as full-time employees of the Corporation or
any of its subsidiaries.

     SECTION 6. DUTIES OF THE AUDIT COMMITTEE. The Audit Committee shall:

          (1)  recommend to the Board of Directors annually a firm of
               independent public accountants to act as auditors of the
               Corporation;

          (2)  review with the auditors in advance the scope of and fees for
               their annual audit;

          (3)  review with the auditors and the management, from time to time,
               the Corporation's accounting principles, policies, and practices
               and its reporting policies and practices;

          (4)  review with the auditors annually the results of their audit; and

          (5)  review from time to time with the auditors and the Corporation's
               financial personnel the adequacy of the Corporation's accounting,
               financial and operating controls.

     SECTION 7. COMPENSATION COMMITTEE. The Board of Directors shall appoint a
Compensation Committee. The members of the Committee shall be selected from
those Directors who are not then serving as full-time employees of the
Corporation or any of its subsidiaries and who are "non-employee directors"
under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, or any
similar successor rule.

     SECTION 8. DUTIES OF THE COMPENSATION COMMITTEE. The Compensation Committee
shall:

          (1)  administer the stock option plans of the Corporation;

          (2)  review, at least annually, the compensation of Directors who are
               not then serving as full-time employees of the Corporation or any
               of its subsidiaries and recommend for approval by the Board any
               change in the compensation of such Directors;

          (3)  review, at least annually, the compensation of all Officers of
               the Corporation. The committee shall have the authority to
               approve changes in the base compensation, and any proposed
               special separation arrangements of Officers, except the Chairman
               of the Board of Directors, the Chief Executive Officer, and the
               President, whose base compensation,



BY-LAWS                                                                  Page 11


               and any special separation arrangements, shall be subject to
               approval by the Board of Directors.

     SECTION 9. NOMINATIONS AND BOARD AFFAIRS COMMITTEE. The Board of Directors
shall appoint a Nominations and Board Affairs Committee. A majority of the
members of the Committee shall be selected from those Directors who are not then
serving as full-time employees of the Corporation or any of its subsidiaries.

     SECTION 10. DUTIES OF THE NOMINATIONS AND BOARD AFFAIRS COMMITTEE. The
Nominations and Board Affairs Committee shall:

          (1)  develop general criteria for selection of and qualifications
               desirable in members of the Board of Directors and Officers of
               the Corporation and aid the Board in identifying and attracting
               qualified candidates to stand for election to such positions;

          (2)  recommend to the Board annually a slate of nominees to be
               proposed by the Board to the shareholders as nominees for
               election as Directors, and, from time to time, recommend persons
               to fill any vacancy on the Board;

          (3)  review annually, or more often if appropriate, the performance of
               individual members of the management of the Corporation and the
               membership and performance of committees of the Board and make
               recommendations deemed necessary or appropriate to the Board;

          (4)  recommend to the Board persons to be elected as Officers of the
               Corporation; and

          (5)  serve in an advisory capacity to the Board of Directors and
               Chairman of the Board on matters of organization, management
               succession plans, major changes in the organizational structure
               of the Corporation, and the conduct of Board activities,
               including assisting in the evaluation of the Board's own
               performance.

     SECTION 11. PUBLIC POLICY COMMITTEE. The Board of Directors shall appoint a
Public Policy Committee. A majority of the members of the Committee shall be
selected from those Directors who are not then serving as full time employees of
the Corporation or any of its subsidiaries.

     SECTION 12. DUTIES OF THE PUBLIC POLICY COMMITTEE. The Public Policy
Committee shall have an advisory role with respect to public policy, regulatory
and government affairs issues that affect the Corporation.



BY-LAWS                                                                  Page 12


                                    ARTICLE V

                                    OFFICERS

     SECTION 1. NUMBER. The Officers of the Corporation shall be the Chairman of
the Board, the Chief Executive Officer, the President, one or more Executive,
Group or Senior Vice Presidents, one or more Vice Presidents, a Treasurer, a
Secretary, a Controller, a General Counsel and such Assistant Treasurers and
Assistant Secretaries as the Board of Directors may elect or the Chairman of the
Board may appoint. Any two or more offices may be held by the same person.

     SECTION 2. ELECTION AND TERM OF OFFICE. The Board of Directors may elect
any Officer. The Chairman of the Board may appoint any Vice President, a
Controller, a Treasurer, a Secretary and any Assistant Treasurers and
Assistant Secretaries.

     The Officers of the Corporation shall be elected or appointed annually.
Each year, the Board of Directors shall elect Officers at the first meeting of
the Board of Directors held after the annual meeting of shareholders. If the
Board of Directors does not elect Officers at such meeting, such election shall
be held as soon thereafter as conveniently may be. Each year, immediately
following the election of Officers by the Board of Directors or as soon
thereafter as conveniently may be, the Chairman of the Board shall appoint such
additional Officers within the scope of the Chairman's authority as the Chairman
deems necessary or appropriate.

     Vacancies or new offices may be filled at any time as set forth in Section
4 of this Article V.

     Each Officer shall hold office until his or her successor shall have been
duly elected or appointed and shall have qualified or until his or her death or
until he or she shall resign or shall have been removed in the manner
hereinafter provided.

     SECTION 3. REMOVAL OF OFFICERS. Any Officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will be
served thereby. Any Officer appointed by the Chairman of the Board may be
removed by the Chairman whenever, in the Chairman's judgment, the best interests
of the Corporation will be served thereby.

     SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term. A vacancy in any office
appointed by the Chairman of the Board may be filled by the Chairman of the
Board for the unexpired portion of the term.

     SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER.
The Chairman shall preside at all meetings of the Board of Directors



BY-LAWS                                                                  Page 13


and the shareholders. The Chief Executive Officer shall be responsible for the
overall management of the Corporation subject to the direction of the Board of
Directors.

     SECTION 6. PRESIDENT. The President shall be the Chief Operating Officer.
The President shall perform such duties as may be prescribed by the Board of
Directors or by the Chief Executive Officer.

     SECTION 7. EXECUTIVE, GROUP AND SENIOR VICE PRESIDENTS. Each Executive,
Group, or Senior Vice President shall be responsible for supervising and
coordinating a major area of the Corporation's activities subject to the
direction of the Chief Executive Officer or the President.

     SECTION 8. VICE PRESIDENTS. Each of the Vice Presidents shall be
responsible for those activities designated by an Executive, Group, or Senior
Vice President, the President, the Chief Executive Officer or by the Board of
Directors.

     SECTION 9. TREASURER. The Treasurer shall administer the investment,
financing, insurance and credit activities of the Corporation.

     SECTION 10. SECRETARY. The Secretary will be the custodian of the corporate
records and of the seal of the Corporation, will countersign certificates for
shares of the Corporation, and in general will perform all duties incident to
the office of the Secretary. The Secretary shall have the authority to certify
the By-Laws, resolutions of the shareholders and the Board of Directors and
committees thereof, and other documents of the Corporation as true and correct
copies hereof.

     SECTION 11. CONTROLLER. The Controller will conduct the accounting
activities of the Corporation, including the maintenance of the Corporation's
general and supporting ledgers and books of account, operating budgets, and the
preparation and consolidation of financial statements.

     SECTION 12. GENERAL COUNSEL. The General Counsel will be the chief
consultant of the Corporation on legal matters. He or she will supervise all
matters of legal import concerning the interests of the Corporation.

     SECTION 13. ASSISTANT TREASURER. The Assistant Treasurer shall, in the
absence or incapacity of the Treasurer, perform the duties and exercise the
powers of the Treasurer, and shall perform such other duties as shall from time
to time be given to him or her by the Treasurer.

     SECTION 14. ASSISTANT SECRETARY. The Assistant Secretary shall, in the
absence or incapacity of the Secretary, perform the duties and exercise the
powers of the Secretary, and shall perform such other duties as shall from time
to time be given to him or her by the Secretary. The Assistant Secretary shall
be, with the Secretary, keeper of the books,



BY-LAWS                                                                  Page 14


records, and the seal of the Corporation, and shall have the authority to
certify the By-Laws, resolutions and other documents of the Corporation.

     SECTION 15. GENERAL POWERS OF OFFICERS. The Chairman of the Board, the
Chief Executive Officer, the President, and any Executive, Group or Senior Vice
President, may sign without countersignature any deeds, mortgages, bonds,
contracts, reports to public agencies, or other instruments whether or not the
Board of Directors has expressly authorized execution of such instruments,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these By-Laws solely to some other
Officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed. Any other Officer of this Corporation may sign contracts,
reports to public agencies, or other instruments which are in the regular course
of business and within the scope of his or her authority, except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other Officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed.

                                   ARTICLE VI

                   CERTIFICATES FOR SHARES AND THEIR TRANSFER

     SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in such form as may be determined by the Board of
Directors. Such certificates shall be signed by any one of the Chairman of the
Board, the Chief Executive Officer, the President or an Executive Vice
President, and shall be countersigned by the Secretary or an Assistant Secretary
and shall be sealed with the seal, or a facsimile of the seal, of the
Corporation. If a certificate is countersigned by a Transfer Agent or Registrar,
other than the Corporation itself or its employee, any other signatures or
countersignature on the certificate may be facsimiles. In case any Officer of
the Corporation, or any officer or employee of the Transfer Agent or Registrar
who has signed or whose facsimile signature has been placed upon such
certificate ceases to be an Officer of the Corporation, or an officer or
employee of the Transfer Agent or Registrar before such certificate is issued,
the certificate may be issued by the Corporation with the same effect as if the
Officer of the Corporation, or the officer or employee of the Transfer Agent or
Registrar had not ceased to be such at the date of its issue. Each certificate
representing shares shall state: that the Corporation is organized under the
laws of the State of Illinois; the name of the person to whom issued; the number
and class of shares; and the designation of the series, if any, which such
certificate represents. Each certificate shall be consecutively numbered or
otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be canceled, and no new certificate shall be
issued in replacement until the former certificate for a like number of shares
shall have been surrendered and canceled, except in the case of lost, destroyed
or mutilated certificates.




BY-LAWS                                                                  Page 15


     SECTION 2. TRANSFER AGENT AND REGISTRAR. The Board of Directors may from
time to time appoint such Transfer Agents and Registrars in such locations as it
shall determine, and may, in its discretion, appoint a single entity to act in
the capacity of both Transfer Agent and Registrar in any one location.

     SECTION 3. TRANSFER OF SHARES. Transfers of shares of the Corporation shall
be made only on the books of the Corporation at the request of the holder of
record thereof or of his attorney, lawfully constituted in writing, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.

     SECTION 4. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case of lost,
destroyed or mutilated certificates, duplicate certificates shall be issued to
the person claiming the loss, destruction or mutilation, provided:

     (a)  That the claimant furnishes an affidavit stating the facts of such
          loss, destruction or mutilation so far as known to him or her and
          further stating that the affidavit is made to induce the Corporation
          to issue a duplicate certificate or certificates; and that issuance
          of the duplicate certificate or certificates is approved:

          (i)    in a case involving a certificate or certificates for more than
                 1,000 shares, by the Chairman of the Board, the Chief Executive
                 Officer, the President, an Executive Vice President, or the
                 Secretary; or

          (ii)   in a case involving a certificate or certificates for 1,000
                 shares or less, by the Transfer Agent appointed by the Board of
                 Directors for the transfer of the shares represented by such
                 certificate or certificates;

          upon receipt of a bond, with one or more sureties, in the amount to be
          determined by the party giving such approval; or

     (b)  that issuance of the said duplicate certificate or certificates is
          approved by the Board of Directors upon such terms and conditions as
          it shall determine.

                                   ARTICLE VII

                                   FISCAL YEAR

     The fiscal year of the Corporation shall begin on the first day of January
in each year and end on the last day of December in each year.



BY-LAWS                                                                  Page 16


                                  ARTICLE VIII

                VOTING SHARES OR INTERESTS IN OTHER CORPORATIONS

     The Chairman of the Board, the Chief Executive Officer, the President, an
Executive, Group, or Senior Vice President and each of them, shall have the
authority to act for the Corporation by voting any shares or exercising any
other interest owned by the Corporation in any other corporation or other
business association, including wholly or partially owned subsidiaries of the
Corporation, such authority to include, but not be limited to, power to attend
any meeting of any such corporation or other business association, to vote
shares in the election of directors and upon any other matter coming before any
such meeting, to waive notice of any such meeting and to consent to the holding
thereof without notice, and to appoint a proxy or proxies to represent the
Corporation at any such meeting with all the powers that the said Officer would
have under this section if personally present.

                                   ARTICLE IX

                          DISTRIBUTIONS TO SHAREHOLDERS

     The Board of Directors may authorize, and the Corporation may make,
distributions to its shareholders, subject to any restriction in the Articles of
Incorporation and subject also to the limitations prescribed by law.

                                    ARTICLE X

                                      SEAL

     The Corporate Seal of the Corporation shall be in the form of a circle
in the center of which is the insignia "[CORPORATE SEAL]" and shall have
inscribed thereon the name of the Corporation and the words "an Illinois
Corporation."

                                   ARTICLE XI

                                WAIVER OF NOTICE

     Whenever any notice whatever is required to be given under the provisions
of these By-Laws or under the provisions of the Articles of Incorporation or
under the provisions of The Business Corporation Act of 1983, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance at any meeting shall constitute waiver of
notice thereof unless the person at the meeting objects to the holding of the
meeting because proper notice was not given.




BY-LAWS                                                                  Page 17


                                   ARTICLE XII

                                   AMENDMENTS

     These By-Laws may be made, altered, amended or repealed by the shareholders
or the Board of Directors.

                               AGREEMENT REGARDING
                                CHANGE IN CONTROL

         THIS AGREEMENT ("Agreement"), is made and entered into as of the 8th
day of December, 2000, by and between Abbott Laboratories (the "Company") and
_____________(the "Executive") and amends and restates, in its entirety, an
Agreement regarding Change in Control dated as of the 1st day of January,
2000 (the "Effective Date") also by and between the Company and the Executive
(the "Original Agreement");

                                WITNESSETH THAT:


         WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel, and the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, a change in control
might occur and that such possibility, and the uncertainty and questions which
it may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its shareholders; and

         WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a change in control of the Company;

         NOW, THEREFORE, to induce the Executive to remain in the employ of the
Company and in consideration of the premises and mutual covenants set forth
herein, IT IS HEREBY AGREED by and between the parties as follows:

         1. AGREEMENT TERM. The initial "Agreement Term" shall begin on the
Effective Date and shall continue through December 31, 2002. As of December 31,
2000, and as of each December 31 thereafter, the Agreement Term shall extend
automatically to the third anniversary thereof unless the Company gives notice
to the Executive prior to the date of such extension that the Agreement Term
will not be extended. Notwithstanding the foregoing, if a Change in Control (as
defined in Section 7 below), occurs during the Agreement Term, the Agreement
Term shall continue through and terminate on the second anniversary of the date
on which the Change in Control occurs.

         2. ENTITLEMENT TO CHANGE IN CONTROL BENEFITS. The Executive shall be
entitled to the Change in Control Benefits described in Section 3 hereof if the
Executive's employment by the Company is terminated during the Agreement Term
but after a Change in Control (i) by the






Company for any reason other than Permanent Disability or Cause, or (ii) by the
Executive for Good Reason. For purposes of this Agreement:

(a)      A termination of the Executive's employment shall be treated as a
         termination by reason of "Permanent Disability" only if, due to a
         mental or physical disability, the Executive is absent from the full
         time performance of duties with the Company for a period of at least
         twelve consecutive months and fails to return to the full time
         performance of duties within 30 days after receipt of a demand by the
         Company to do so.

(b)      The term "Cause" shall mean the willful engaging by the Executive in
         illegal conduct or gross misconduct which is demonstrably and
         materially injurious to the Company. For purposes of this Agreement, no
         act, or failure to act, on the Executive's part shall be deemed
         "willful" unless done, or omitted to be done, by the Executive not in
         good faith and without reasonable belief that the Executive's action or
         omission was in the best interest of the Company. Notwithstanding the
         foregoing, the Executive shall not be deemed to have been terminated
         for Cause unless and until the Company delivers to the Executive a copy
         of a resolution duly adopted by the affirmative vote of not less than
         three-quarters of the entire membership of the Board at a meeting of
         the Board called and held for such purpose (after reasonable notice to
         the Executive and an opportunity for the Executive, together with
         counsel, to be heard before the Board) finding that, in the good faith
         opinion of the Board, the Executive was guilty of conduct set forth
         above and specifying the particulars thereof in detail.

(c)      The term "Good Reason" shall mean the occurrence of any of the
         following circumstances without the Executive's express written
         consent:

         (i)      a significant adverse change in the nature, scope or status of
                  the Executive's position, authorities or duties from those in
                  effect immediately prior to the Change in Control;

         (ii)     the failure by the Company to pay the Executive any portion of
                  the Executive's current compensation, or to pay the Executive
                  any portion of any installment of deferred compensation under
                  any deferred compensation program of the Company, within seven
                  days of the date such compensation is due;

         (iii)    a reduction in the Executive's annual base salary (or a
                  material change in the frequency of payment) as in effect
                  immediately prior to the Change in Control as the same may be
                  increased from time to time;

         (iv)     the failure by the Company to award the Executive an annual
                  bonus in any year which is at least equal to the annual bonus,
                  awarded to the Executive under the



                                        2





                  annual bonus plan of the Company for the year immediately
                  preceding the year of the Change in Control;





                                        3





         (v)      the failure by the Company to award the Executive equity-based
                  incentive compensation (such as stock options, shares of
                  restricted stock, or other equity-based compensation) on a
                  periodic basis consistent with the Company's practices with
                  respect to timing, value and terms prior to the Change in
                  Control;

         (vi)     the failure by the Company to continue to provide the
                  Executive with the welfare benefits, fringe benefits and
                  perquisites enjoyed by the Executive immediately prior to the
                  Change in Control under any of the Company's plans or
                  policies, including, but not limited to, those plans and
                  policies providing pension, life insurance, medical, health
                  and accident, disability, vacation, executive automobile,
                  executive tax or financial advice benefits or club dues;

         (vii)    the relocation of the Company's principal executive offices to
                  a location more than thirty-five miles from the location of
                  such offices immediately prior to the Change in Control or the
                  Company requiring the Executive to be based anywhere other
                  than the Company's principal executive offices except for
                  required travel to the Company's business to an extent
                  substantially consistent with the Executive's business travel
                  obligations immediately prior to the Change in Control; or

         (viii)   the failure of the Company to obtain a satisfactory agreement
                  from any successor to the Company to assume and agree to
                  perform this Agreement as contemplated by Section 16.

         3. CHANGE IN CONTROL BENEFITS. In the event of a termination of
employment entitling the Executive to benefits in accordance with Section 2, the
Executive shall receive the following:

(a)      The Executive shall be entitled to receive the following employee
         welfare benefits: medical, accident, dental, prescription, and life
         insurance coverage for the Executive (and, where applicable under the
         Company's welfare benefit plans, the Executive's family) through the
         third anniversary of the Executive's date of termination of employment,
         or, if earlier, the date on which the Executive becomes employed by
         another employer. The benefits provided by the Company shall be no less
         favorable in terms of coverage and cost to the Executive than those
         provided under the Company's welfare benefit plans applicable to the
         Executive (and, where applicable, the Executive's family) prior to the
         Change in Control, determined as if the Executive remained in the
         employ of the Company through such third anniversary. For purposes of
         determining eligibility of the Executive for retiree welfare benefits,
         the Executive shall be considered to have remained in the employ of the
         Company through such third anniversary.

(b)      If the Executive's date of termination occurs after the end of a
         performance period applicable to an annual incentive (bonus) award, and
         prior to the payment of the award for the period, the Executive shall
         be entitled to a lump sum payment in cash no later than



                                        4





         twenty (20) business days after the date of termination equal to the
         greatest of (i) the Executive's annual incentive (bonus) award for that
         period, as determined under the terms of that incentive award
         arrangement, (ii) the Executive's annual incentive (bonus) award for
         that period, with the determination of the amount of such award based
         on an assumption that the target level of performance had been achieved
         or (iii) the Participant's average annual incentive (bonus) award for
         the three annual performance periods preceding that period (provided
         that if the Participant was not a participant in the incentive award
         arrangement for any of those three prior years, the averaging period
         shall be reduced from three years to the number of years during the
         three year period in which the Participant was a participant; and
         further provided that if the Participant's award for any such year was
         reduced because the Participant was not a participant for the full
         year, such amount shall be annualized for purposes of the computation
         in this clause (iii)).

(c)      For any annual incentive (bonus) plan or arrangement in which the
         Executive participates for the performance period in which the
         Executive's termination of employment occurs, the Executive shall be
         entitled to a lump sum payment in cash no later than twenty (20)
         business days after the date of termination equal to the greater of (i)
         the Executive's annual incentive (bonus) award for the performance
         period that includes the date of termination, with the determination of
         the amount of such award based on an assumption that the target level
         of performance has been achieved or (ii) the Executive's average annual
         incentive (bonus) award for the three annual performance periods
         preceding the performance period that includes the date of termination
         (provided that if the Executive was not a participant in the incentive
         award arrangement for any of those three prior years, the averaging
         period shall be reduced from three years to the number of years during
         the three year period in which the Executive was a participant; and
         further provided that if the Executive's award for any such year was
         reduced because the Executive was not a participant for the full year,
         such amount shall be annualized for purposes of the computation in this
         clause (ii)); provided that such payment shall be subject to a pro-rata
         reduction to reflect the number of days in the performance period
         following the date of termination. The amount payable under this
         paragraph (c) shall be in lieu of any amounts that may otherwise be due
         to the Executive with respect to any annual incentive (bonus) plan or
         arrangement in which the Executive participates for the performance
         period in which the Executive's date of termination occurs.

(d)      The Executive shall be entitled to a lump sum payment in cash no later
         than twenty business days after the Executive's date of termination
         equal to the sum of:

         (i)      an amount equal to three times the Executive's annual salary
                  rate in effect on the date of the Change in Control or, or if
                  greater, as in effect immediately prior to the date of
                  termination; plus




                                        5





         (ii)     an amount equal to three times the greater of (x) the
                  Executive's annual incentive (bonus) award for the performance
                  period that includes the date of the Executive's termination
                  of employment, with the determination of the amount of such
                  award based on an assumption that the target level of
                  performance has been achieved or (y) the Executive's average
                  annual incentive (bonus) award for the three annual
                  performance periods preceding the performance period that
                  includes the date of termination (provided that if the
                  Executive was not a participant in the incentive award
                  arrangement for any of those three prior years, the averaging
                  period shall be reduced from three years to the number of
                  years during the three year period in which the Executive was
                  a participant; and further provided that if the Executive's
                  award for any such year was reduced because the Executive was
                  not a participant for the full year, such amount shall be
                  annualized for purposes of the computation in this
                  subparagraph (ii)).

         The amount payable under this paragraph (d) shall be inclusive of the
         amounts, if any, to which the Executive would otherwise be entitled as
         severance pay under any severance pay plan, or by law and shall be in
         addition to (and not inclusive of) any amount payable under any written
         agreement(s) directly between the Executive and the Company or any of
         its subsidiaries.

(e)      The Executive shall be entitled to benefits under the Abbott
         Laboratories Supplemental Pension Plan (the "Supplemental Plan") which
         shall be determined as if the Executive had been credited for benefit
         accrual purposes with three additional years of service and three
         additional years of eligible earnings at the higher of the Executive's
         eligible earnings on the date of termination or the Executive's
         eligible earnings on the date of the Change in Control and, for
         purposes of determining the Executive's eligibility for subsidized
         early retirement benefits, determined as if the Executive were three
         years older than the Executive's actual age on the date of termination.
         For purposes of this paragraph (e), "eligible earnings" shall include
         salary, annual incentive (bonus) awards and all other forms of
         compensation used to calculate benefits under the Supplemental Plan.
         The amounts of the annual incentive (bonus) awards shall be calculated
         in accordance with this paragraph (e) and, to the extent applicable,
         paragraphs (b) and (c) above. The Executive's benefits under the
         Supplemental Plan shall be determined, paid and administered without
         regard to any termination or amendment (including any amendment
         affecting actuarial factors) of such plan or of any other plan, which
         is adopted on or after a Change in Control or in contemplation of a
         Change in Control and, subject to paragraph (f) below, shall be paid in
         accordance with the terms of that plan and the Executive's elections
         under that plan. Within twenty (20) days of Executive's date of
         termination, the Company shall provide the Executive with all forms,
         elections and materials required in connection with the funding or
         payment of the Executive's benefits under that plan. Within twenty (20)
         days of the Company's receipt of properly executed and completed



                                        6





         forms, elections and other required materials from the Executive, the
         Company shall fund the additional benefits to the extent provided by
         the terms of such plan.





                                        7





(f)      The Executive shall be entitled to elect that all or any portion of the
         amounts payable under paragraphs 3(b) and 3(c) and subparagraph
         3(d)(ii) above (less applicable tax withholding) be paid directly to a
         grantor trust established by the Executive to the same extent as
         bonuses payable under the 1986 Abbott Laboratories Management Incentive
         Plan, the 1998 Abbott Laboratories Performance Incentive Plan, or any
         successor plans thereto with all of the rights and entitlements
         attendant thereto.

If the Executive is a participant in the 1998 Abbott Laboratories Performance
Incentive Plan or any successor thereto, the Executive's annual incentive
(bonus) award for the performance period which includes the date of termination
under paragraphs (c) and (d)(ii) above and, if applicable, for the period
preceding the date of termination under paragraph (b) shall, be determined under
the bonus levels communicated in writing to the Executive by the Company for
such year and shall not be the Executive's individual base award allocation as
defined in Section 4.2 of the 1998 Abbott Laboratories Performance Incentive
Plan (or any corresponding provision of any successor plan).

         4. MITIGATION. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise. Except as set forth in paragraph 3(a) with respect to benefits,
the Company shall not be entitled to set off against the amounts payable to the
Executive under this Agreement any amounts owed to the Company by the Executive,
any amounts earned by the Executive in other employment after the Executive's
termination of employment with the Company, or any amounts which might have been
earned by the Executive in other employment had the Executive sought such other
employment.

         5. MAKE-WHOLE PAYMENTS. If any payment or benefit to which the
Executive (or any person on account of the Executive) is entitled, whether under
this Agreement or otherwise, in connection with a Change in Control or the
Executive's termination of employment (a "Payment") constitutes a "parachute
payment" within the meaning of section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and as a result thereof the Executive is subject
to a tax under section 4999 of the Code, or any successor thereto, (an "Excise
Tax"), the Company shall pay to the Executive an additional amount (the
"Make-Whole Amount") which is intended to make the Executive whole for such
Excise Tax, other than the portion thereof that is attributable solely to
equity-based compensation. The Make-Whole Amount shall be equal to (x) minus (y)
where (x) is equal to (i) the amount of the Excise Tax, plus (ii) the aggregate
amount of any interest, penalties, fines or additions to any tax which are
imposed in connection with the imposition of such Excise Tax, plus (iii) all
income, excise and other applicable taxes imposed on the Executive under the
laws of any Federal, state or local government or taxing authority by reason of
the payments required under clauses (i) and (ii) and this clause (iii), and (y)
is the amount that would be determined under such clauses (i), (ii), and (iii)
if the only parachute payments received by the Executive were equity-based
Payments, including but not limited to

                                       8





the accelerated vesting of stock options, shares of restricted stock, or any
other equity based award.


(a)      For purposes of determining the Make-Whole Amount, the Executive shall
         be deemed to be taxed at the highest marginal rate under all applicable
         local, state, federal and foreign income tax laws for the year in which
         the Make-Whole Amount is paid. The Make-Whole Amount payable with
         respect to an Excise Tax shall be paid by the Company coincident with
         the Payment with respect to which such Excise Tax relates.

(b)      All calculations under this Section 5 shall be made initially by the
         Company and the Company shall provide prompt written notice thereof to
         the Executive to enable the Executive to timely file all applicable tax
         returns. Upon request of the Executive, the Company shall provide the
         Executive with sufficient tax and compensation data to enable the
         Executive or the Executive's tax advisor to independently make the
         calculations described in subparagraph (a) above and the Company shall
         reimburse the Executive for reasonable fees and expenses incurred for
         any such verification.

(c)      If the Executive gives written notice to the Company of any objection
         to the results of the Company's calculations within 60 days of the
         Executive's receipt of written notice thereof, the dispute shall be
         referred for determination to independent tax counsel selected by the
         Company and reasonably acceptable to the Executive ("Tax Counsel"). The
         Company shall pay all fees and expenses of such Tax Counsel. Pending
         such determination by Tax Counsel, the Company shall pay the Executive
         the Make-Whole Amount as determined by it in good faith. The Company
         shall pay the Executive any additional amount determined by Tax Counsel
         to be due under this Section 5 (together with interest thereon at a
         rate equal to 120% of the Federal short-term rate determined under
         section 1274(d) of the Code) promptly after such determination.

(d)      The determination by Tax Counsel shall be conclusive and binding upon
         all parties unless the Internal Revenue Service, a court of competent
         jurisdiction, or such other duly empowered governmental body or agency
         (a "Tax Authority") determines that the Executive owes a greater or
         lesser amount of Excise Tax with respect to any Payment than the amount
         determined by Tax Counsel.

(e)      If a Taxing Authority makes a claim against the Executive which, if
         successful, would require the Company to make a payment under this
         Section 5, the Executive agrees to contest the claim with counsel
         reasonably satisfactory to the Company, on request of the Company
         subject to the following conditions:

         (i)      The Executive shall notify the Company of any such claim
                  within 10 days of becoming aware thereof. In the event that
                  the Company desires the claim to be contested, it shall
                  promptly (but in no event more than 30 days after the notice



                                       9



                  from the Executive or such shorter time as the Taxing
                  Authority may specify for responding to such claim) request
                  the Executive to contest the claim. The Executive shall not
                  make any payment of any tax which is the subject of the claim
                  before the Executive has given the notice or during the 30-day
                  period thereafter unless the Executive receives written
                  instructions from the Company to make such payment together
                  with an advance of funds sufficient to make the requested
                  payment plus any amounts payable under this Section 5
                  determined as if such advance were an Excise Tax, in which
                  case the Executive will act promptly in accordance with such
                  instructions.

         (ii)     If the Company so requests, the Executive will contest the
                  claim by either paying the tax claimed and suing for a refund
                  in the appropriate court or contesting the claim in the United
                  States Tax Court or other appropriate court, as directed by
                  the Company; PROVIDED, HOWEVER, that any request by the
                  Company for the Executive to pay the tax shall be accompanied
                  by an advance from the Company to the Executive of funds
                  sufficient to make the requested payment plus any amounts
                  payable under this Section 5 determined as if such advance
                  were an Excise Tax. If directed by the Company in writing the
                  Executive will take all action necessary to compromise or
                  settle the claim, but in no event will the Executive
                  compromise or settle the claim or cease to contest the claim
                  without the written consent of the Company; PROVIDED, HOWEVER,
                  that the Executive may take any such action if the Executive
                  waives in writing the Executive's right to a payment under
                  this Section 5 for any amounts payable in connection with such
                  claim. The Executive agrees to cooperate in good faith with
                  the Company in contesting the claim and to comply with any
                  reasonable request from the Company concerning the contest of
                  the claim, including the pursuit of administrative remedies,
                  the appropriate forum for any judicial proceedings, and the
                  legal basis for contesting the claim. Upon request of the
                  Company, the Executive shall take appropriate appeals of any
                  judgment or decision that would require the Company to make
                  a payment under this Section 5. Provided that the Executive
                  is in compliance with the provisions of this section, the
                  Company shall be liable for and indemnify the Executive
                  against any loss in connection with, and all costs and
                  expenses, including attorneys' fees, which may be incurred
                  as a result of, contesting the claim, and shall provide to
                  the Executive within 30 days after each written request
                  therefor by the Executive cash advances or reimbursement for
                  all such costs and expenses actually incurred or reasonably
                  expected to be incurred by the Executive as a result of
                  contesting the claim.

(f)      Should a Tax Authority finally determine that an additional Excise Tax
         is owed, then the Company shall pay an additional Make-Whole Amount to
         the Executive in a manner consistent with this Section 5 with respect
         to any additional Excise Tax and any assessed interest, fines, or
         penalties. If any Excise Tax as calculated by the Company or Tax


                                       10



         Counsel, as the case may be, is finally determined by a Tax Authority
         to exceed the amount required to be paid under applicable law, then the
         Executive shall repay such excess to the Company within 30 days of such
         determination; provided that such repayment shall be reduced by the
         amount of any taxes paid by the Executive on such excess which is not
         offset by the tax benefit attributable to the repayment.

         6. TERMINATION DURING POTENTIAL CHANGE IN CONTROL. If a Potential
Change in Control (as defined in Section 8) occurs during the Agreement Term,
and the Company terminates the Executive's employment for reasons other than
Permanent Disability or Cause during such Potential Change in Control, the
Executive shall be entitled to receive the benefits that the Executive would
have received under Section 3, such benefits to be calculated based upon the
Executive's compensation prior to the actual termination of employment but paid
within 20 business days of the date of such termination.

         7. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred on the earliest of the following
dates:

(a)      the date any entity or person (including a "group" as defined in
         Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
         Act")) shall have become the beneficial owner of, or shall have
         obtained voting control over, twenty percent (20%) or more of the
         outstanding common shares of the Company;

(b)      the date on which the Company (i) merges or consolidates with or into
         another corporation, or merges another corporation into the Company, in
         which the Company is not the continuing or surviving corporation or
         pursuant to which any common shares of the Company are converted into
         cash, securities of another corporation, or other property, other than
         a merger or consolidation of the Company in which holders of common
         shares immediately prior to the merger have the same proportionate
         ownership of common stock of the surviving corporation or its parent
         corporation immediately after the merger as immediately before, or (ii)
         sells or otherwise disposes of substantially all of the assets of the
         Company; or

(c)      the date there shall have been a change in a majority of the Board of
         Directors of the Company within a twelve (12) month period unless the
         nomination for election by the Company's shareholders of each new
         director was approved by the vote of two-thirds of the directors then
         still in office who were in office at the beginning of the twelve (12)
         month period.

         8. 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):



                                       11




(a)      The Company 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 (including the Company) 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 reasonable determination by the
         Board that there is no reasonable chance that such actions would be
         consummated.

(c)      The acquisition by any person (within the meaning of Section 13(d)(3)
         or 14(d)(2) of the Securities Exchange Act of 1934) of beneficial
         ownership of 10 percent or more of the then outstanding shares of
         common stock of the Company; but excluding, for this purpose, any such
         acquisition by:

         (i)      the Company, any subsidiary, any employee benefit plan (or
                  related trust, or a fiduciary of the plan or trust) maintained
                  by the Company or any Subsidiary, or any person who satisfies
                  the requirements set forth in Rule 13d-1(b)(1)(i) and (ii)
                  promulgated under the Securities Exchange Act of 1934; or

         (ii)     any corporation with respect to which, following such
                  acquisition, more than 50 percent of the then outstanding
                  shares of common stock of such corporation is then
                  beneficially owned by all or substantially all of the
                  individuals and entities who were the beneficial owners of
                  common stock of the Company immediately prior to such
                  acquisition, and in substantially the same proportion as their
                  ownership, immediately prior to such acquisition, of the then
                  outstanding shares of common stock of the Company.

(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 reasonable 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.

         9. STOCK AND OPTION AWARDS. With respect to any award granted to the
Executive under the Company's 1996 Incentive Stock Program (the "Program"), any
Prior Program (as defined in the Program) or any successor program, the
following shall apply:

(a)      if the award (other than incentive stock options granted pursuant to
         Section 422 of the Internal Revenue Code [each an "Incentive Stock
         Option"] prior to the date on which the Original Agreement was
         executed) includes a provision substantially similar to the


                                       12




         provision contained on Appendix A, then after a Change in Control no
         forfeiture shall be effected pursuant to such provision unless the
         Executive shall have been terminated for "Cause" within the meaning of
         paragraph 2(b) above; and

(b)      if the Executive becomes entitled to Change in Control Benefits under
         Section 2 above, then in determining the Executive's rights with
         respect to that award, other than Incentive Stock Options granted prior
         to the later of:

         (i)      December 8, 2000, or

         (ii)     the date on which the Original Agreement was executed,

         the Executive shall be treated as having incurred a termination of
         employment due to retirement.

         10. WITHHOLDING. All payments to the Executive under this Agreement
will be subject to withholding of applicable taxes. The Company shall withhold
the applicable taxes in an amount calculated at the minimum statutory rate and
shall pay the amount so withheld to the appropriate tax authority.

         11. NONALIENATION. The interests of the Executive under this Agreement
are not subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors of the
Executive or the Executive's beneficiary.

         12. AMENDMENT. This Agreement may be amended or canceled only by mutual
agreement of the parties in writing without the consent of any other person. So
long as the Executive lives, no person, other than the parties hereto, shall
have any rights under or interest in this Agreement or the subject matter
hereof.

         13. APPLICABLE LAW. The provisions of this Agreement shall be construed
in accordance with the laws of the State of Illinois, without regard to the
conflict of law provisions of any state.

         14. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement will be construed as if such
invalid or unenforceable provision were omitted (but only to the extent that
such provision cannot be appropriately reformed or modified).

         15. WAIVER OF BREACH. No waiver by any party hereto of a breach of any
provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such other
party of any similar or dissimilar provisions and conditions at the same or any
prior or subsequent time. The failure of any party hereto to take any action by



                                       13



reason of such breach will not deprive such party of the right to take action at
any time while such breach continues.



                                       14




         16. SUCCESSORS, ASSUMPTION OF CONTRACT. This Agreement shall be binding
upon and inure to the benefit of the Company and any successor of the Company.
The Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no succession had taken place. This Agreement is
personal to the Executive and may not be assigned by the Executive without the
written consent of the Company. However, to the extent that rights or benefits
under this Agreement otherwise survive the Executive's death, the Executive's
heirs and estate shall succeed to such rights and benefits pursuant to the
Executive's will or the laws of descent and distribution; provided that the
Executive shall have the right at any time and from time to time, by notice
delivered to the Company, to designate or to change the beneficiary or
beneficiaries with respect to such benefits.

         17. NOTICES. Notices and all other communications provided for in this
Agreement shall be in writing and shall be delivered personally or sent by
registered or certified mail, return receipt requested, postage prepaid
(provided that international mail shall be sent via overnight or two-day
delivery), or sent by facsimile or prepaid overnight courier to the parties at
the addresses set forth below. Such notices, demands, claims and other
communications shall be deemed given:

(a)      in the case of delivery by overnight service with guaranteed next day
         delivery, the next day or the day designated for delivery;

(b)      in the case of certified or registered U.S. mail, five days after
         deposit in the U.S. mail; or

(c)      in the case of facsimile, the date upon which the transmitting party
         received confirmation of receipt by facsimile, telephone or otherwise;

provided, however, that in no event shall any such communications be deemed to
be given later than the date they are actually received. Communications that are
to be delivered by the U.S. mail or by overnight service or two-day delivery
service are to be delivered to the addresses set forth below:

to the Company:

         Senior Vice President, Human Resources
         Abbott Laboratories
         100 Abbott Park Road
         Abbott Park, Illinois  60064


                                       15



with a copy (which shall not constitute notice) to:

         General Counsel and Secretary
         Abbott Laboratories
         100 Abbott Park Road
         Abbott Park, Illinois  60064

or to the Executive:

         Name
         Address
         City, State  Zip

Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.

         18. RESOLUTION OF ALL DISPUTES. Any controversy or claim arising out of
or relating to this Agreement (or the breach thereof) shall be settled by
alternative dispute resolution procedures in accordance with Appendix B hereto.

         19. LEGAL AND ENFORCEMENT COSTS. The provisions of this Section 19
shall apply if it becomes necessary or desirable for the Executive to retain
legal counsel or incur other costs and expenses in connection with enforcing any
and all rights under this Agreement:

(a)      The Executive shall be entitled to recover from the Company reasonable
         attorneys' fees, costs and expenses incurred in connection with such
         enforcement or defense.

(b)      Payments required under this Section 19 shall be made by the Company to
         the Executive (or directly to the Executive's attorney) promptly
         following submission to the Company of appropriate documentation
         evidencing the incurrence of such attorneys' fees, costs, and expenses.

(c)      The Executive shall be entitled to select legal counsel; provided,
         however, that such right of selection shall not affect the requirement
         that any costs and expenses reimbursable under this Section 19 be
         reasonable.

(d)      The Executive's rights to payments under this Section 19 shall not be
         affected by the final outcome of any dispute with the Company.

         20. SURVIVAL OF AGREEMENT. Except as otherwise expressly provided in
this Agreement, the rights and obligations of the parties to this Agreement
shall survive the termination of the Executive's employment with the Company.



                                       16




         21. ENTIRE AGREEMENT. Except as otherwise provided herein, this
Agreement constitutes the entire agreement between the parties concerning the
subject matter hereof and supersedes all prior or contemporaneous agreements,
between the parties relating to the subject matter hereof including but not
limited to the Original Agreement; provided, however, that nothing in this
Agreement shall be construed to limit any policy or agreement that is otherwise
applicable relating to confidentiality, rights to inventions, copyrightable
material, business and/or technical information, trade secrets, solicitation of
employees, interference with relationships with other businesses, competition,
and other similar policies or agreement for the protection of the business and
operations of the Company and the subsidiaries.

         22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which shall be deemed the original without reference to
the others.

         IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed on this _____ day of ___________,
2001, all as of the Effective Date.



                                   --------------------------------------
                                                  EXECUTIVE


                                            ABBOTT LABORATORIES


                                   By
                                      ------------------------------------------
                                   Its
                                      ------------------------------------------

ATTEST:


- ------------------------------
           (Seal)



                                       17



                                                                      APPENDIX A


                      AGREEMENT REGARDING CHANGE IN CONTROL
                  FORFEITURE PROVISION REFERENCED IN SECTION 9


Notwithstanding paragraphs (x*), (y*) and (z*), these options (this restricted
stock award, etc.) shall immediately terminate (be forfeited), if in the sole
opinion and discretion of the Compensation Committee or its delegate, the
employee (a) engages in a material breach of the company's Code of Business
Conduct; (b) commits an act of fraud, embezzlement or theft in connection with
the employee's duties or in the course of employment; or (c) wrongfully
discloses secret processes or confidential information of the company or its
subsidiaries.



* Provisions contained in the agreements pertaining to nonforfeiture for death,
disability, etc.



                                       18



                                                                      APPENDIX B


                      AGREEMENT REGARDING CHANGE IN CONTROL
                    ALTERNATIVE DISPUTE RESOLUTION PROCEDURES


The parties to the Agreement Regarding Change in Control dated as of the 1st day
of January, 2000 (the "Agreement") recognize that a bona fide dispute as to
certain matters may arise from time to time during the term of the Agreement
which relates to either party's rights and/or obligations. To have such a
dispute resolved by this Alternative Dispute Resolution ("ADR") provision, a
party first must send written notice of the dispute to the other party for
attempted resolution by good faith negotiations between the Executive and the
Company within twenty-eight (28) days after such notice is received (all
references to "days" in the ADR provision are to calendar days).

If the matter has not been resolved within twenty-eight (28) days of the notice
of dispute, or if the parties fail to meet within such twenty-eight (28) days,
either party may initiate an ADR proceeding as provided herein. The parties
shall have the right to be represented by counsel in such a proceeding.

1.       To begin an ADR proceeding, a party shall provide written notice to the
         other party of the issues to be resolved by ADR. Within fourteen (14)
         days after its receipt of such notice, the other party may, by written
         notice to the party initiating the ADR, add additional issues to be
         resolved within the same ADR.

2.       Within twenty-one (21) days following receipt of the original ADR
         notice, the parties shall select a mutually acceptable neutral to
         preside in the resolution of any disputes in this ADR proceeding. If
         the parties are unable to agree on a mutually acceptable neutral within
         such period, either party may request the President of the CPR
         Institute for Dispute Resolution ("CPR"), 366 Madison Avenue, 14th
         Floor, New York, New York 10017, to select a neutral pursuant to the
         following procedures:

         (a)      The CPR shall submit to the parties a list of not less than
                  five (5) candidates within fourteen (14) days after receipt of
                  the request, along with a CURRICULUM VITAE for each candidate.
                  No candidate shall be an employee, director or shareholder of
                  either party or any of their subsidiaries or affiliates.

         (b)      Such list shall include a statement of disclosure by each
                  candidate of any circumstances likely to affect his or her
                  impartiality.


                                       19





         (c)      Each party shall number the candidates in order of preference
                  (with the number one (1) signifying the greatest preference)
                  and shall deliver the list to the CPR within seven (7) days
                  following receipt of the list of candidates. If a party
                  believes a conflict of interest exists regarding any of the
                  candidates, that party shall provide a written explanation of
                  the conflict to the CPR along with its list showing its order
                  of preference for the candidates. Any party failing to return
                  a list of preferences on time shall be deemed to have no order
                  of preference.

         (d)      If the parties collectively have identified fewer than three
                  (3) candidates deemed to have conflicts, the CPR immediately
                  shall designate as the neutral the candidate for whom the
                  parties collectively have indicated the greatest preference.
                  If a tie should result between two candidates, the CPR may
                  designate either candidate. If the parties collectively have
                  identified three (3) or more candidates deemed to have
                  conflicts, the CPR shall review the explanations regarding
                  conflicts and, in its sole discretion, may either (i)
                  immediately designate as the neutral the candidate for whom
                  the parties collectively have indicated the greatest
                  preference, or (ii) issue a new list of not less than five (5)
                  candidates, in which case the procedures set forth in
                  subparagraphs 2(a)-2(d) shall be repeated.

3.       No earlier than twenty-eight (28) days or later than fifty-six (56)
         days after selection, the neutral shall hold a hearing to resolve each
         of the issues identified by the parties. The ADR proceeding shall take
         place at a location agreed upon by the parties. If the parties cannot
         agree, the neutral shall designate a location other than the principal
         place of business of either party or any of the subsidiaries or
         affiliates.

4.       At least seven (7) days prior to the hearing, each party shall submit
         the following to the other party and the neutral:

         (a)      a copy of all exhibits on which such party intends to rely in
                  any oral or written presentation to the neutral;

         (b)      a list of any witnesses such party intends to call at the
                  hearing, and a short summary of the anticipated testimony of
                  each witness;

         (c)      a proposed ruling on each issue to be resolved, together with
                  a request for a specific damage award or other remedy for each
                  issue. The proposed rulings and remedies shall not contain any
                  recitation of the facts or any legal arguments and shall not
                  exceed one (1) page per issue.

         (d)      a brief in support of such party's proposed rulings and
                  remedies, provided that the brief shall not exceed twenty (20)
                  pages. This page limitation shall apply regardless of the
                  number of issues raised in the ADR proceeding.



                                       20




         Except as expressly set forth in subparagraphs 4(a) - 4(d), no
         discovery shall be required or permitted by any means, including
         deposition, interrogatories, requests for admissions or production of
         documents.

5.       The hearing shall be conducted on two (2) consecutive days and shall be
         governed by the following rules:

         (a)      Each party shall be entitled to five (5) hours of hearing time
                  to present its case. The neutral shall determine whether each
                  party has had the five (5) hours to which it is entitled.

         (b)      Each party shall be entitled, but not required, to make an
                  opening statement, to present regular or rebuttal testimony,
                  documents or other evidence, to cross-examine witnesses and
                  to make a closing argument. Cross-examination of witnesses
                  shall occur immediately after their direct testimony, and
                  cross-examination time shall be charged against the party
                  conducting the cross-examination.

         (c)      The party initiating the ADR shall begin the hearing and, if
                  it chooses to make an opening statement, shall address not
                  only issues it raised, but also any issues raised by the
                  responding party. The responding party, if it chooses to make
                  an opening statement, also shall address all issues raised in
                  the ADR. Thereafter, the presentation of regular and rebuttal
                  testimony and documents, other evidence and closing arguments
                  shall proceed in the same sequence.

         (d)      Except when testifying, witnesses shall be excluded from the
                  hearing until closing arguments.

         (e)      Settlement negotiations, including any statements made
                  therein, shall not be admissible under any circumstances.
                  Affidavits prepared for purposes of the ADR hearing also shall
                  not be admissible. As to all other matters, the neutral shall
                  have sole discretion regarding the admissibility of any
                  evidence.

6.       Within seven (7) days following completion of the hearing, each party
         may submit to the other party and the neutral a post-hearing brief in
         support of its proposed rulings and remedies, provided that such brief
         shall not contain or discuss any new evidence and shall not exceed ten
         (10) pages. This page limitation shall apply regardless of the number
         of issues raised in the ADR proceeding.

7.       The neutral shall rule on each disputed issue within fourteen (14) days
         following completion of the hearing. Such ruling shall adopt in its
         entirety the proposed ruling and remedy of one of the parties on each
         disputed issue but may adopt one party's proposed

                                       21



         rulings and remedies on some issues and the other party's proposed
         rulings and remedies on other issues. The neutral shall not issue any
         written opinion or otherwise explain the basis of the ruling.

8.       The neutral shall be paid a reasonable fee plus expenses by the
         Company. The Company shall bear its own fees and expenses. The
         Executive's fees and expenses shall be paid or reimbursed by the
         Company to the extent provided by the Agreement.

9.       The rulings of the neutral and the allocation of fees and expenses
         shall be binding, non-reviewable, and non-appealable, and may be
         entered as a final judgment in any court having jurisdiction.

10.      Except as provided in Section 9 or as required by law, the existence of
         the dispute, any settlement negotiations, the ADR hearing, any
         submissions (including exhibits, testimony, proposed rulings, and
         briefs), and the rulings shall be deemed Confidential Information. The
         neutral shall have the authority to impose sanctions for unauthorized
         disclosure of Confidential Information.



                                       22

                                                                      EXHIBIT 12

                      Abbott Laboratories and Subsidiaries

                CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
                                   (Unaudited)

                       (dollars in millions except ratios)



                                                                              Year Ended December 31
                                                            -----------------------------------------------------
                                                             2000        1999        1998       1997        1996
                                                            ------      ------      ------     ------      ------
                                                                                            
Net Earnings                                                $2,786      $2,446      $2,334     $2,079      $1,874



Add (deduct):

Income taxes                                                 1,030         951         908        856         788

Capitalized interest cost, net of amortization                  (3)         (1)          1         (1)         (4)

Minority interest                                                8           8           7         11          16
                                                            ------      ------      ------     ------      ------

Net earnings as adjusted                                    $3,821      $3,404      $3,250     $2,945      $2,674
                                                            ------      ------      ------     ------      ------



Fixed Charges:

Interest on long-term and short-term debt                   $  114      $  145      $  160     $  135      $   96

Capitalized interest cost                                       18          13          14         14          16

Rental expense representative of an interest factor             48          44          40         29          26
                                                            ------      ------      ------     ------      ------



Total Fixed Charges                                            180         202         214        178         138
                                                            ------      ------      ------     ------      ------



Total adjusted earnings available for
payment of fixed charges                                    $4,001      $3,606      $3,464     $3,123      $2,812
                                                            ======      ======      ======     ======      ======


Ratio of earnings to fixed charges                            22.2        17.9        16.2       17.5        20.4
                                                            ======      ======      ======     ======      ======


     NOTE: For the purpose of calculating this ratio, (i) earnings have been
     calculated by adjusting net earnings for taxes on earnings; interest
     expense; capitalized interest cost, net of amortization; minority interest;
     and the portion of rentals representative of the interest factor, (ii) the
     Company considers one-third of rental expense to be the amount representing
     return on capital, and (iii) fixed charges comprise total interest expense,
     including capitalized interest and such portion of rentals.

                                   Exhibit 21

                       SUBSIDIARIES OF ABBOTT LABORATORIES

     The following is a list of subsidiaries of Abbott Laboratories. Abbott
Laboratories is not a subsidiary of any other corporation. Where ownership of a
subsidiary is less than 100% by Abbott Laboratories or an Abbott Laboratories'
subsidiary, such has been noted by designating the percentage of ownership.




Domestic Subsidiaries                                    Incorporation
- ---------------------                                    -------------
                                                     

Abbott Chemicals Plant, Inc.                              Puerto Rico


Abbott Equity Investments LLC                             Delaware


Abbott Exchange Inc.                                      Delaware


Abbott Fermentation Products                              Puerto Rico
 de Puerto Rico, Inc.


Abbott Health Products, Inc.                              Delaware


Abbott Home Infusion Services of                          New York
New York, Inc.


Abbott International Ltd.                                 Delaware


Abbott International Ltd.
 of Puerto Rico                                           Puerto Rico


Abbott Laboratories Inc.                                  Delaware


Abbott Laboratories                                       Illinois
 International Co.







                                                      
Abbott Laboratories Pacific Ltd.                          Illinois


Abbott Laboratories (Puerto Rico)
  Incorporated                                            Puerto Rico


Abbott Laboratories                                       Delaware
 Purchasing Company LLC

Abbott Laboratories Residential
  Development Fund, Inc.                                  Illinois


Abbott Laboratories Services Corp.                        Illinois


Abbott Trading Company, Inc.                              Virgin Islands


Abbott Universal Ltd.                                     Delaware


CMM Transportation, Inc.                                  Delaware


Corporate Alliance, Inc.                                  Delaware


IMTC Technologies, Inc.                                   Delaware


Murex Diagnostics, Inc.                                   Delaware


North Shore Properties, Inc.                              Delaware


Oximetrix de Puerto Rico, Inc.                            Delaware


Perclose, Inc.                                            Delaware


Solartek Products, Inc.                                   Delaware

Sorenson Research Co., Inc.                               Utah



                                        2





                                                      
Swan-Myers, Incorporated                                  Indiana


TAP Finance Inc.                                          Delaware


TAP Pharmaceuticals Inc.                                  Delaware         50%(1)


TAP Pharmaceutical Products Inc.                          Delaware         50%


Tobal Products Incorporated                               Illinois




- -------------------------
(1)  TAP Pharmaceuticals Inc. is a wholly-owned subsidiary of TAP Holdings,
Inc.

                                       3




                                                          Country
                                                          in Which
Foreign Subsidiaries                                      Organized
- --------------------                                      ---------

                                                                     
Abbott Laboratories Argentina, S.A.                       Argentina


Abbott Australasia Pty. Limited                           Australia


Abbott Laboratories Executive                             Australia
 Superannuation Pty. Limited


Abbott Laboratories                                       Australia
 Superannuation Pty. Limited


MediSense Australia Pty. Ltd.                             Australia


Abbott Gesellschaft m.b.H.                                Austria


Abbott Hospitals Limited                                  Bahamas


Abbott Laboratories de Costa Rica Ltd.                    Bahamas


Abbott Laboratories (Bangladesh) Ltd.                     Bangladesh        85%


Murex Diagnostics International, Inc.                     Barbados


Abbott, S.A.                                              Belgium


Abbott Ireland                                            Bermuda


Abbott Laboratorios do Brasil Ltda.                       Brazil


Abbott Laboratories Limited                               Canada

International Murex                                       Canada
 Technologies Corporation



                                       4




                                                                   
Abbott Laboratories de Chile                              Chile
 Limitada


Ningbo Asia-Pacific Biotechnology, Ltd.                   China           25%


Shanghai Abbott Pharmaceutical Co., Ltd.                  China           75%(2)


Abbott Laboratories de Colombia, S.A.                     Colombia


Abbott Laboratories s.r.o.                                Czech Republic


Abbott Laboratories A/S                                   Denmark


Abbott Laboratorios del Ecuador, S.A.                     Ecuador


Abbott, S.A. de C.V.                                      El Salvador


Abbott Investments Limited                                England


Abbott Laboratories Limited                               England


Abbott (UK) Finance Limited                               England


Abbott (UK) Holdings Limited                              England


Abbott Laboratories Trustee                               England
 Company Limited


IMTC Holdings (UK) Limited                                England


- -------------------------

(2)  Shanghai Abbott Pharmaceutical Co., Ltd. is 75% owned by Abbott
Laboratories Ltd. (Hong Kong)


                                       5




                                                      
MediSense UK Ltd.                                         England


Murex Biotech Limited (UK)                                England


Murex Biotech (UK) Limited (Sales)                        England


Abbott OY                                                 Finland


Abbott France S.A.                                        France


Alcyon Analyzer S.A.                                      France


MediSense France SARL                                     France


Murex Diagnostics (France) S.A.                           France


Abbott G.m.b.H.                                           Germany


Abbott Diagnostics G.m.b.H                                Germany


Murex Diagnostica GmbH                                    Germany


Abbott Laboratories (Hellas) S.A.                         Greece


Abbott Grenada Limited                                    Grenada


Abbott Laboratorios, S.A.                                 Guatemala


Abbott Laboratories Limited                               Hong Kong


Abbott Laboratories (Hungary) Ltd.                        Hungary



                                       6





                                                                     
Abbott Laboratories (India) Ltd.                          India             51%


Abind Healthcare Private Limited                          India


P. T. Abbott Indonesia                                    Indonesia         97%


Abbott Laboratories, Ireland,                             Ireland
 Limited


Abbott Ireland Ltd.                                       Ireland


Murex Medical Research Limited                            Isle of Mann


Technology License Company Limited                        Isle of Mann


Abbott S.p.A.                                             Italy


Murex Diagnostici S.p.A.                                  Italy


Abbott West Indies Limited                                Jamaica           51%


Consolidated Laboratories Limited                         Jamaica


Abbott Japan K.K.                                         Japan


Dainabot Co., Ltd.                                        Japan             82%


Abbott Korea Limited                                      Korea


Abbott Middle East S.A.R.L.                               Lebanon


Abbott Laboratories
 (Malaysia) Sdn. Bhd.                                     Malaysia


                                       7





                                                      
Abbott Laboratories de
 Mexico, S.A. de C.V.                                     Mexico


Abbott Laboratories (Mozambique)
 Limitada                                                 Mozambique


Abbott Logistics B.V.                                     The Netherlands


Abbott B.V.                                               The Netherlands


Abbott Laboratories B.V.                                  The Netherlands


Abbott Finance B.V.                                       The Netherlands



                                       8





                                                                      

Abbott Holdings B.V.                                      The Netherlands


MediSense Europe B.V.                                     The Netherlands


MediSense Netherlands, B.V.                               The Netherlands


IMTC Holdings B.V.                                        The Netherlands


IMTC Finance B.V.                                         The Netherlands


Murex Diagnostics Benelux B.V.                            The Netherlands


Abbott Laboratories (N.Z.) Limited                        New Zealand


Abbott Laboratories Nigeria Limited                       Nigeria           40%


Abbott Norge A S                                          Norway


Abbott Laboratories (Pakistan) Limited                    Pakistan          83.42%


Abbott Laboratories, C.A.                                 Panama


Abbott Overseas, S.A.                                     Panama


Abbott Laboratorios S.A.                                  Peru


Abbott Laboratories                                       Philippines


Union-Madison Realty Company, Inc.                        Philippines       40%



                                       9





                                                      
Abbott Laboratories Sp. z.o.o.                            Poland


Abbott Laboratorios, Limitada                             Portugal


Abbottfarma - Promocao de Produtos                        Portugal
Farmaceuticos, Limitada


Abbott Laboratories (Singapore)                           Singapore
 Private Limited


Abbott Laboratories South Africa                          South Africa
 (Pty.) Limited


Abbott Laboratories, S.A.                                 Spain


Abbott Cientifica, S.A.                                   Spain


Murex Diagnosticos, S.A.                                  Spain


Abbott Scandinavia A.B.                                   Sweden


Abbott A.G.                                               Switzerland


Abbott Laboratories S.A.                                  Switzerland


Abbott Finance Company S.A.                               Switzerland


Abbott Laboratories Taiwan Limited                        Taiwan


Abbott Laboratories Limited                               Thailand


Abbott Laboratuarlari Ithalat Ihracat
 Ve Tecaret Limited Sirketi                               Turkey


                                       10





                                                      
Abbott Laboratories Uruguay Limitada                      Uruguay


Abbott Laboratories, C.A.                                 Venezuela


Medicamentos M & R, S.A.                                  Venezuela



                                       11

               CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

     As independent public accountants, we hereby consent to the
incorporation by reference of the following into Abbott's previously filed
Form S-8 Registration Statements 33-4368 for the Abbott Laboratories 1986
Incentive Stock Program, 33-39798 for the Abbott Laboratories 1991 Incentive
Stock Program, 333-09071, 333-43381, 333-69547, 333-93253 and 333-52768 for
the Abbott Laboratories 1996 Incentive Stock Program, 333-13091 for the
Abbott Laboratories Ashland Union 401(k) Plan and Trust, and 33-26685,
33-51585, 33-56897, 33-65127, 333-19511, 333-43383, 333-69579, and 333-93257
for the Abbott Laboratories Stock Retirement Plan and Trust; Abbott's
previously filed post-effective Amendment No. 1 to Registration Statement on
Form S-8 333-85867 for the Perclose, Inc. 1992 Stock Plan, Perclose, Inc.
1995 Director Option Plan, Perclose, Inc. 1997 Stock Plan and Perclose, Inc.
1995 Employee Stock Purchase Plan; and into Abbott's previously filed S-3
Registration Statements 33-50253, 333-06155, 333-63481, 333-65601, 333-83647
and 333-55446:

     1. Our supplemental report dated January 15, 2001 included in this
Annual Report on Form 10-K for the year ended December 31, 2000; and

     2. Our report dated January 15, 2001 included in this Annual Report on
Form 10-K for the year ended December 31, 2000.




                                     ARTHUR ANDERSEN LLP


Chicago, Illinois
February 15, 2001

                                                                    Exhibit 99.1



           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The Financial Review and other sections of this Form 10-K contain
forward-looking statements that are based on management's current expectations,
estimates and projections. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," variations of these words and similar
expressions are intended to identify these forward-looking statements. Certain
factors, including but not limited to those listed below, may cause actual
results to differ materially from current expectations, estimates, projections
and from past results.

     -    Economic factors including changes in the rate of inflation, business
          conditions, interest rates, foreign currency exchange rates, and
          market value of Abbott's equity investments.

     -    Competitive factors, including: (i) pricing pressures, both in the
          United States and abroad, primarily from managed care groups and
          government agencies, (ii) the development of new products by
          competitors having lower prices or superior performance or that are
          otherwise competitive with Abbott's current products, (iii) generic
          competition when Abbott's products lose their patent protection, (iv)
          technological advances and patents obtained by competitors and (v)
          problems with licensors, suppliers and distributors.

     -    Difficulties and delays inherent in the development, manufacturing,
          marketing, or sale of products including: (i) efficacy or safety
          concerns, (ii) delays in the receipt of or the inability to obtain
          required approvals, (iii) the suspension or revocation of the
          authority necessary for manufacture, marketing, or sale, (iv) the
          imposition of additional or different regulatory requirements, such as
          those affecting labeling, (v) seizure or recall of products, (vi) the
          failure to obtain, the imposition of limitations on the use of, or the
          loss of patent and other intellectual property rights, and (vii)
          manufacturing or distribution problems.

     -    Governmental action including: (i) new laws, regulations and judicial
          decisions related to health care availability, method of delivery and
          payment for health care products and services, (ii) changes in the
          Federal Food and Drug Administration and foreign regulatory approval
          processes that may delay or prevent the approval of new products and
          result in lost market opportunity, (iii) new laws, regulations and
          judicial decisions affecting pricing or marketing and (iv) changes in
          the tax laws relating to Abbott's operations.



     -    Changes in accounting standards promulgated by the Financial
          Accounting Standards Board, the Securities and Exchange Commission or
          the American Institute of Certified Public Accountants.

     -    Changes in costs or expenses, including variations resulting from
          changes in product mix, changes in tax rates both in the United States
          and abroad, the effects of acquisitions, dispositions or other events
          occurring in connection with evolving business strategies.

     -    Costs or difficulties related to the integration of Abbott and the
          pharmaceutical business of BASF, which includes the global operations
          of Knoll, may be greater than expected.

     -    Complying with the consent decree between Abbott and the United States
          Food and Drug Administration (this consent decree is described in the
          portion of this Form 10-K captioned "Regulation") and Abbott's ability
          to return diagnostic products to market successfully.

     -    Legal difficulties, any of which could preclude commercialization of
          products or adversely affect profitability, including: claims
          asserting antitrust violations, claims asserting securities law
          violations, claims asserting violations of the Federal False Claims
          Act, Anti-Kickback Act, the Prescription Drug Marketing Act or other
          violations in connection with Medicare and/or Medicaid reimbursement,
          derivative actions, product liability claims, disputes over
          intellectual property rights (including patents) and environmental
          matters.

No assurance can be made that any expectation, estimate or projection contained
in a forward-looking statement can be achieved. Readers are cautioned not to
place undue reliance on such statements, which speak only as of the date made.
Abbott undertakes no obligation to release publicly any revisions to
forward-looking statements as the result of subsequent events or developments.