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ABBOTT SEEKS COURT’s PERMISSION TO FIRE EX-CHAIRMAN SCHOELLHORN "FOR CAUSE"

Executive Summary

ABBOTT SEEKS COURT's PERMISSION TO FIRE EX-CHAIRMAN SCHOELLHORN "FOR CAUSE," alleging that former Abbott Chairman Robert Schoellhorn misappropriated company assets and abused his position of power at the helm of the pharmaceutical corporation. Abbott filed an emergency motion in Cook County, Illinois Circuit Court April 4 to modify a temporary restraining order to allow the termination of Schoellhorn's employment. The firm has been granted the ability to fire Schoellhorn "without cause." Schoellhorn would be required to forfeit his substantial stock holdings in the firm if he were dismissed "for cause." The motion, filed several hours before a scheduled April 4 hearing at the Cook County Courthouse in Chicago, cites six instances of alleged abuse including use of the corporate plane for personal purposes, submission of laundered expense reports and removal of a $50,000 painting from company headquarters to Schoellhorn's home. At stake is the control of 51,600 shares of restricted stock issued to Schoellhorn as part of an executive retirement package. According to Abbott, the stock is worth $3.3 mil. Under the terms of the package, Schoellhorn was issued restricted stock grants on Feb. 25, 1988 and Oct. 12, 1989 that lapse automatically when he either reaches retirement age 65 or takes early retirement with the consent of the Abbott board. Schoellhorm is 61. According to Abbott, "each of these restricted stock agreements provides that the granted shares are subject to forfeiture if Mr. Schoellhorn is involuntarily discharged 'for cause.'" Currently, Abbott is prohibited from dismissing Schoellhorn under a temporary restraining order issued March 9. The order prevents Abbott from altering "any of the contractual agreements" it has entered into with Schoellhorn and forces Abbott to keep Schoellhorn "in his current surroundings." Although Schoellhorn was relieved of his duties as chairman of the company, he must be retained as an employee. The temporary restraining order was issued following a complaint filed by Schoellhorn on March 9 ("The Pink Sheet" April 2, p.7). * At the April 4 hearing, Judge Anthony Scotilla granted part of Abbott's motion and modified the temporary restraining order to allow Abbott to dismiss Schoellhorn. However, the court specified that Abbott is not allowed to do so "with cause." Arguing on behalf of Abbott, attorney Theodore Livingston maintained that the employment contract between Abbott and Schoellhorn is "a contract for employment at will." An employment at will contract "can be terminated at any time for any reason, good or bad, without liability by either side," he asserted. If the temporary restraining order "has the effect of preventing us from terminating him today," Livingston continued, "then what that TRO has done is not maintained the status quo. It's conferred rights on him. It's written a new contract for him." Judge Scotilla also determined, at Abbott's request, that Schoellhorn should be restrained from selling his stock in the company. The firm is seeking to bar Schoellhorn from disposing of 51,600 shares of Abbott common until the issue of cause is resolved. Livingston said if Abbott terminates Schoellhorn now without cause, the restriction on his stock agreement will lapse and he will be able to sell those shares. If cause exists, then Schoellhorn has to forfeit those shares. John Mathias, Schoellhorn's attorney, responded that he felt that such a reciprocal restriction was unreasonable and in essence "they are having it each way they want it, always to the detriment of Mr. Schoellhorn." According to a proxy for the Abbott annual meeting, scheduled for April 20, Schoellhorn's cash compensation in 1989 totaled$1.6 mil.; the corporation's contribution to his stock retirement plan was $2,889; his annuity retirement plan would entitle him to between $369,977 and $419,477 in annual benefits; and he realized $2.4 mil. in options exercised and had 270,788 unexercised option shares. Abbott filed a motion on April 7 to dismiss Schoellhorn's complaint. Scotilla said that at the April 9 session, the court would set up a schedule to hear the motion to dismiss. Schoellhorn filed his complaint against Abbott on March 9, the same day he was informed that he was being removed from his position as chairman of the board.
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