SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
BAXTER INTERNATIONAL
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(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
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Notes:
Letter to Stockholders
Baxter International Inc. 847.948.2000
One Baxter Parkway
Deerfield, Illinois 60015
[LOGO OF BAXTER INTERNATIONAL INC.]
March , 2001
To our Stockholders:
The Board of Directors joins me in inviting you to attend the 2001 Annual
Meeting of Stockholders. The meeting will be held at the Drury Lane
Theatre in Oakbrook Terrace, Illinois, on Tuesday, May 1, 2001. The
meeting will begin at 10:30 a.m. Central time. Registration will begin at
9:00 a.m. and refreshments will be provided.
I look forward to discussing our plans for Baxter's future and reporting
on an excellent year 2000. Last year you heard me discuss our focus on
building the best team in health care, being the best partner to our
customers and patients and being the best investment for you, our
stockholders. As a result of attaining many of our best team and best
partner objectives, we achieved our best investment goals for 2000. At the
meeting, in addition to discussing matters in the proxy statement, I will
report on our year 2000 achievements and discuss our goals for 2001 and
beyond, including our plans to significantly increase the growth rate of
the Company while continuing our focus on operational excellence.
We hope you will be able to attend the meeting and look forward to seeing
you there.
Sincerely,
/s/ HARRY M. JANSEN KRAEMER, JR.
Harry M. Jansen Kraemer, Jr.
Chairman of the Board and
Chief Executive Officer
[LOGO]
Printed on Recycled Paper
Notice of Annual Meeting
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
[LOGO OF BAXTER APPEARS HERE]
March , 2001
Notice of Annual Meeting of Stockholders
The 2001 Annual Meeting of Stockholders of Baxter International Inc. will
be held at the Drury Lane Theatre in Oakbrook Terrace, Illinois, on
Tuesday, May 1, 2001 at 10:30 a.m. Central time, for the following
purposes:
1. To elect three directors to hold office for three years;
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
accountants for Baxter in 2001;
3. To approve a proposal to amend Baxter's Restated Certificate of
Incorporation, as amended, to increase the number of authorized shares
of common stock;
4. To approve the 2001 Incentive Compensation Program;
5. To act on the stockholder proposal relating to the declassification of
the board of directors; and
6. To transact any other business which is properly presented at the
meeting.
Stockholders of record at the close of business on March 2, 2001 will be
entitled to vote at the meeting. A list of these stockholders will be made
available to any stockholder, for any purpose germane to the meeting, at
Baxter's Corporate Headquarters located at One Baxter Parkway, Deerfield,
Illinois for the 10-day period prior to the meeting.
Even if you plan to attend the Annual Meeting in person, please read these
proxy materials and cast your vote on the matters that will be presented
at the meeting. Once again, our registered stockholders have the option of
voting their shares through the Internet, by dialing a toll-free telephone
number (from the United States or Canada) or by mailing the enclosed proxy
card. Instructions for using these convenient services are described under
the question "How do I vote?" on page 2 of the enclosed proxy statement.
Finally, if you receive more than one of these mailings at the same
address, or if you wish to receive future mailings electronically, please
follow the instructions on page 36 of the proxy statement under the
heading "Reducing Mailing Expenses."
By order of the Board of Directors,
[SIGNATURE OF JAN STERN REED APPEARS HERE]
Jan Stern Reed
Corporate Secretary
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[LOGO OF BAXTER]
Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015,
847.948.2000
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This Proxy Statement and the accompanying proxy card are being mailed,
beginning on or about March , 2001, to owners of shares of Baxter common
stock in connection with the solicitation of proxies by the Board of Directors
for the 2001 Annual Meeting of Stockholders.
Table of Contents
Questions and Answers about Voting......................................... 2
Management Proposals:
Election of Directors--Proposal 1 on the Proxy Card...................... 4
Ratification of Appointment of Independent Accountants--Proposal 2 on the
Proxy Card.............................................................. 4
Approval of Increase in the Authorized Shares of Common Stock--Proposal 3
on the Proxy Card....................................................... 5
Ratification of the Adoption of the 2001 Incentive Compensation Program--
Proposal 4 on the Proxy Card............................................ 6
Board of Directors:
Director Biographies..................................................... 13
Corporate Governance..................................................... 16
Committees of the Board.................................................. 16
Compensation of Directors................................................ 17
Audit Committee Report..................................................... 19
Compensation Committee Report.............................................. 20
Executive Compensation:
Summary.................................................................. 24
Stock Option Grants...................................................... 26
Stock Option Exercises................................................... 27
Long-Term Incentive Plan................................................. 27
Pension Plan, Excess Plans and Supplemental Plans........................ 28
Ownership of Baxter Stock:
Stock Ownership of Directors and Officers................................ 30
5% or Greater Stockholders............................................... 31
Baxter's Financial Performance............................................. 32
Minority Stockholder Proposals:
Declassification of the Board of Directors--Proposal 5 on the Proxy Card. 33
Other Information:
Attending the Annual Meeting............................................. 36
Reducing Mailing Expenses................................................ 36
Cost of Proxy Solicitation............................................... 36
Future Stockholder Proposals and Nominations............................. 37
Exhibit A--2001 Stock Compensation Program............................... A-1
Exhibit B--Audit Committee Charter....................................... B-1
Directions to the Annual Meeting......................................... B-4
1
Questions and Answers about Voting
Your shares can be voted at the Annual Meeting only if you vote by proxy or
if you are present and vote in person. Even if you expect to attend the Annual
Meeting, we encourage you to vote by proxy to assure that your shares will be
represented. If you do wish to attend the Annual Meeting, please follow the
instructions on page 36 under the heading "Attending the Annual Meeting."
Q: Who is entitled to vote?
A: All record holders of Baxter common stock (Common Stock) as of the close of
business on March 2, 2001 are entitled to vote. On that day, approximately
295,093,206 shares were issued and outstanding and eligible to vote. Each
share is entitled to one vote on each matter presented at the Annual Meet-
ing.
Q: How do I vote?
A: Once again, we offer our registered stockholders three ways to vote, other
than by attending the Annual Meeting and voting in person:
. By mail, using the enclosed proxy card and postage-paid return
envelope;
. By telephone, using the telephone number printed on the proxy card and
following the instructions on the proxy card; or
. Through the Internet, using a unique password printed on your proxy
card and following the instructions on the proxy card.
Q: What does it mean to vote by proxy?
A: It means that you give someone else the right to vote your shares in accor-
dance with your instructions. In this case, we are asking you to give your
proxy to our Chief Executive Officer and our General Counsel (the
"Proxyholders"). In this way, you assure that your vote will be counted
even if you are unable to attend the Annual Meeting. If you give your proxy
but do not include specific instructions on how to vote, the Proxyholders
will vote your shares for the election of the board's nominees, for the
ratification of the appointment of the independent accountants, for the
adoption of the increase in authorized shares of Common Stock, for the 2001
Incentive Compensation Program and against the minority stockholder propos-
al.
Q: On what am I voting?
A: There are five items on the agenda: (1) election of three directors, (2)
ratification of the appointment of the independent accountants, (3) ap-
proval of an increase in the number of authorized shares of Common Stock,
(4) ratification of the 2001 Incentive Compensation Program, all of which
are supported by management, and (5) one minority stockholder proposal,
which is opposed by management.
Q: What happens if other matters are raised at the meeting?
A: Although we are not aware of any matters to be presented at the Annual
Meeting other than those contained in the Notice of Annual Meeting, if
other matters are properly raised at the meeting in accordance with the
procedures specified in Baxter's bylaws, any proxies given will be voted by
the Proxyholders in accordance with their best judgment unless you have in-
dicated otherwise.
Q: Is my vote confidential?
A: Whether voting in person, by mail, by telephone or through the Internet,
you will be given the opportunity to request that your vote be treated as
confidential. If you request confidential treatment, only the inspectors of
election and the proxy tabulator will have access to your vote.
2
Questions and Answers about Voting
Q: What if I submit a proxy and later change my mind?
A: If you have given your proxy and later wish to revoke it, you may do so by
either: giving written notice to the Corporate Secretary; submitting an-
other proxy bearing a later date (in any of the permitted forms); or cast-
ing a ballot in person at the Annual Meeting.
Q: Who will count the votes?
A: Baxter's transfer agent, EquiServe, will serve as proxy tabulator and count
the votes, and the results will be certified by the inspectors of election.
Q: How is it determined whether a matter has been approved?
A: Assuming a quorum is present, the approval of the matters specified in the
Notice of Annual Meeting will be determined as follows. The three people
receiving the largest number of votes cast at the Annual Meeting will be
elected as directors. Approval of the proposal to increase the number of
authorized shares of Common Stock requires the affirmative vote of a major-
ity of the outstanding shares entitled to be voted on the proposal. For
each other matter, the affirmative vote of a majority of the shares present
or represented by proxy and entitled to vote is required for approval.
Q: What constitutes a quorum?
A: A quorum is present if a majority of the outstanding shares of Common Stock
entitled to vote is represented. Broker non-votes and abstentions will be
counted for purposes of determining whether a quorum is present.
Q: What are broker non-votes?
A: Broker non-votes occur when nominees, such as banks and brokers holding
shares on behalf of beneficial owners, do not receive voting instructions
from the benefi cial holders at least ten days before the meeting. If that
happens, the nominees may vote those shares only on matters deemed "rou-
tine" by the New York Stock Exchange, such as the election of directors,
ratification of the appointment of independent accountants, adoption of the
increase in authorized shares of Common Stock and adoption of the 2001 In-
centive Compensation Program. On non-routine matters, such as the minority
stockholder proposal, nominees cannot vote unless they receive voting in-
structions from beneficial holders, resulting in so-called "broker non-
votes." Broker non-votes have no effect on the outcome of any of the mat-
ters specified in the Notice of Annual Meeting, except with respect to ap-
proval of the proposal to increase the number of authorized shares, for
which a broker non-vote will have the effect of a vote against the propos-
al.
Q: What effect does an abstention have?
A: Abstentions or directions to withhold authority will have no effect on the
outcome of the election of directors. Abstentions will have the same effect
as a vote against any of the other matters specified in the Notice of An-
nual Meeting.
Q: What shares are covered by the proxy card?
A: The proxy card covers all shares held by you of record (i.e., registered in
your name), including those held in Baxter's Dividend Reinvestment Plan,
Shared Investment Plan, executive compensation plans, Employee Stock Pur-
chase Plan, and shares credited to your Incentive Investment Plan account
held in custody by the plan trustee, State Street Bank.
Q: What if I am a beneficial holder rather than an owner of record?
A: If you hold your shares through a broker, bank, or other nominee, you will
receive separate instructions from the nominee describing how to vote your
shares.
3
Management Proposals
Election of Directors--Proposal 1 on the Proxy Card
Baxter's Board of Directors currently consists of twelve members and is
divided into three classes. Each year, the directors in one of the three
classes are elected to serve a three-year term. At the Annual Meeting, three
directors are proposed for election for a three-year term expiring in 2004.
Frank R. Frame, whose current term expires on May 1, 2001, has decided not to
run for re-election. The Board has nominated the following persons for
election, all of whom are currently directors of Baxter:
Pei-yuan Chia
Arnold J. Levine, Ph.D.
Monroe E. Trout, M.D.
Information regarding each of the nominees follows on page 13. If any
nominee for director becomes unavailable for election, the number of directors
will be reduced. No nominations for directors were received from stockholders,
and no other candidates are eligible for election as directors at the Annual
Meeting.
The Proxyholders intend to vote the shares represented by proxy in favor of
all of the Board's nominees, except to the extent a stockholder withholds
authority to vote for the nominees.
The Board of Directors recommends a vote FOR the election of all of the
nominees for director.
Ratification of Appointment of Independent Accountants--Proposal 2 on the
Proxy Card
The Board of Directors, acting on the recommendation of the Audit Committee,
has appointed PricewaterhouseCoopers LLP as independent accountants for Baxter
in 2001. The Board of Directors requests that the stockholders ratify the
appointment. If the stockholders do not ratify the appointment, the Board of
Directors will consider the selection of another public accounting firm for
2001 and future years.
One or more representatives of PricewaterhouseCoopers LLP will attend the
Annual Meeting. They will have an opportunity to make a statement if they so
desire, and they will be available to answer questions.
Audit Fees
Fees for services performed by PricewaterhouseCoopers LLP during 2000
relating to the audit of the consolidated annual financial statements,
including statutory audits of foreign subsidiaries, aggregated approximately
$3.1 million.
Financial Information Systems Design and Implementation Fees
Fees for professional services performed by PricewaterhouseCoopers LLP
during 2000 in connection with financial information systems design and
implementation aggregated approximately $15.6 million.
4
Management Proposals
All Other Fees
Fees for all other services performed by PricewaterhouseCoopers LLP,
including tax assistance and other consulting services (both audit and non-
audit related), during 2000 aggregated approximately $12.7 million.
The Proxyholders intend to vote the shares represented by proxy in favor of
the ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants, except to the extent a stockholder votes against or
abstains from voting on this proposal.
The Board of Directors recommends a vote FOR the ratification of the
appointment of PricewaterhouseCoopers LLP as independent accountants for
Baxter in 2001.
Approval of the Proposal to Amend Baxter's Restated Certificate of
Incorporation as Amended, to Increase the Number of Authorized Shares of
Common Stock--Proposal 3 on the Proxy Card
The Board of Directors has proposed that stockholders approve an amendment
to Baxter's Restated Certificate of Incorporation, as amended, to increase the
number of shares of authorized Common Stock of Baxter to one billion shares
from the currently authorized number of 350,000,000 shares. The Board of
Directors has declared the proposed amendment to be advisable and has
submitted it to a vote by the stockholders at the Annual Meeting.
On February 27, 2001, the Board of Directors declared a contingent 2-for-1
stock split in the form of a stock dividend. If, and only if, the proposed
amendment to Baxter's Restated Certificate of Incorporation, as amended, is
approved by the stockholders at the Annual Meeting, and the number of shares
of authorized Common Stock is, thereby increased to one billion, the stock
dividend will be distributed on May 30, 2001 to record holders of Common Stock
as of the close of business on May 9, 2001.
If the proposed amendment is approved by the stockholders, Baxter plans to
file a Certificate of Amendment to the Restated Certificate of Incorporation,
as amended, as soon as practicable following the Annual Meeting to increase
the number of shares of authorized Common Stock to one billion.
On March 2, 2001, of the 350,000,000 authorized shares of Common Stock, a
total of 295,093,206 shares were outstanding, approximately 4,407,609 shares
were held in treasury and approximately 57,742,162 shares were reserved for
potential issuance in connection with Baxter's obligations to issue stock in
connection with employee compensation plans, including stock options and
employee stock purchase plans, and equity forward and collar arrangements. The
remainder of the shares of authorized Common Stock were not issued or subject
to reservation.
In addition to enabling the contingent 2-for-1 stock split in the form of a
stock dividend, the additional shares will enhance Baxter's flexibility in
connection with possible future actions, such as acquisitions of property and
securities of other companies, financings, stock splits, stock dividends, and
other corporate purposes. The Board of Directors will determine whether, when
and on what terms the issuance of shares of Common Stock may be warranted in
connection with any of the foregoing purposes. The Board of Directors believes
that it is beneficial to Baxter to have the additional shares available for
such purposes without delay or the necessity of a special meeting of
stockholders. Other than the contingent 2-for-1 stock split, Baxter has no
immediate plans, arrangements, commitments or
5
Management Proposals
understandings with respect to the issuance of any of the additional shares of
Common Stock which would be authorized by the proposed amendment.
If the proposed amendment is approved by the stockholders, the additional
shares will be available for issuance from time to time without further action
by the stockholders (unless required by applicable law, regulatory agencies or
by the rules of any stock exchange on which Baxter's securities may then be
listed) and without first offering those shares to the stockholders.
Stockholders do not have preemptive rights with respect to the Common Stock.
The issuance of Common Stock, or securities convertible into Common Stock, on
other than a pro-rata basis would result in the dilution of a present
stockholder's interest in Baxter.
Baxter has not proposed the increase in the authorized number of shares with
the intention of using the additional shares for anti-takeover purposes,
although Baxter could theoretically use the additional shares to make it more
difficult or to discourage an attempt to acquire control of Baxter. As of this
date, Baxter is unaware of any pending or threatened efforts to acquire
control of Baxter.
The affirmative vote of a majority of the shares of Baxter Common Stock
outstanding as of the close of business on the record date for the Annual
Meeting is required for the approval of the proposed amendment to the
Company's Restated Certificate of Incorporation, as amended.
At the Annual Meeting, the following resolution will be introduced:
RESOLVED, that the Restated Certificate of Incorporation, as amended, of
this Corporation, as amended, be amended by deleting the first sentence of
Article Fourth in its entirety and inserting, in lieu thereof, the
following new first sentence of Article Fourth, providing in its entirety
as follows:
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is one billion, one hundred million (1,100,000,000)
shares, of which one hundred million (100,000,000) shares of no par value
shall be preference stock (the "Preference Stock") and of which one billion
(1,000,000,000) shares, of the par value of U.S. one dollar (U.S. $1.00)
each, amounting in the aggregate to U.S. one billion dollars (U.S.
$1,000,000,000), shall be common stock (the "Common Stock").
The Proxyholders intend to vote the shares represented by proxy in favor of
the proposed amendment, except to the extent a stockholder votes against or
abstains from voting on this proposal.
The Board of Directors recommends a vote FOR the approval of the proposed
amendment to the Restated Certificate of Incorporation, as amended, to
increase the number of authorized shares of Common Stock.
Ratification of the Adoption of the 2001 Incentive Compensation Program--
Proposal 4 on the Proxy Card
On February 27, 2001, the Board of Directors adopted the 2001 Incentive
Compensation Program, subject to approval by Baxter's stockholders. The
program is similar to the 2000 Incentive Compensation Program, which Baxter's
stockholders approved at the 2000 Annual Meeting of Stockholders. The complete
text of the program is included as Exhibit A to this proxy statement. The
following is a summary of the material terms of the program.
6
Management Proposals
General
The purpose of the program is to increase stockholder value and to advance
the interests of Baxter by providing a variety of economic incentives designed
to attract, retain and motivate Baxter employees and other individuals
providing services to Baxter. Incentives may consist of the following: (a)
stock options; (b) restricted stock; (c) stock awards; (d) performance shares;
and (e) other incentives, including cash. Incentives may be granted to any
employee, director, consultant or other independent contractor of Baxter
(eligible participants) as selected from time to time by the Compensation
Committee. As of December 31, 2000, Baxter had approximately 43,000 employees.
The program will be administered by the Compensation Committee of the Board
of Directors. The committee must consist of two or more directors who qualify
as disinterested persons under Rule 16b-3 of the Securities Exchange Act of
1934, as amended, and as outside directors under Section 162(m) of the
Internal Revenue Code, as amended. Section 162(m) prevents a publicly-traded
corporation from taking a tax deduction for certain compensation in excess of
$1 million per year which it or any subsidiary pays to specified executives.
Those specified executives or covered employees are the chief executive
officer and the four next most highly compensated executive officers for whom
proxy disclosure is required. Certain compensation, including compensation
based on the attainment of performance goals, is excluded from the deduction
limit and, therefore, is deductible even if it exceeds $1 million per year. To
qualify for this performance-based exemption, the material terms pursuant to
which the compensation is to be paid, including the performance goals and the
maximum amount payable to the covered employees, must be approved by the
stockholders before payments are made.
Subject to the provisions and limitations of the program, the committee will
have the authority to:
. interpret the provisions of the program, and prescribe, amend, and
rescind rules and procedures related to the program;
. grant awards;
. modify the terms of, cancel and reissue, or repurchase outstanding
awards;
. prescribe the form of agreement, certificate or other instrument
evidencing any award;
. correct any defect or omission and reconcile any inconsistency in the
program or in any award; and
. make all other determinations and take all other actions as it deems
necessary or desirable for the administration of the program.
The committee may not cancel any outstanding stock option for the purpose of
reissuing an option to the holder at a lower exercise price. The committee can
delegate its authority with respect to participation, the grant of awards and
related performance objectives for any person other than Baxter's directors
and those officers subject to the reporting requirements of Section 16 of the
Exchange Act.
The number of shares of Baxter's Common Stock which may be issued under the
program may not exceed 10,000,000 shares. This represents approximately 3.4%
of the outstanding shares of Common Stock on December 31, 2000. The closing
market price of the Common Stock on December 31, 2000 was $88.3125 per share.
7
Management Proposals
Stock Options
Under the program, the committee may grant non-qualified and incentive stock
options to eligible participants to purchase shares of Common Stock from
Baxter. The program gives the committee discretion, with respect to any such
stock option, to determine the number and purchase price of the shares subject
to the option, the term of each option and the time or times during its term
when the option becomes exercisable, subject to the following limitations. No
stock option may be granted with a purchase price below the fair market value
of the shares subject to the option on the date of grant. The fair market
value of shares on the date of grant will be the closing sale price of Common
Stock as reported on the New York Stock Exchange composite reporting tape. The
term of a non-qualified option may not exceed 10 years and one day from the
date of grant. The term of an incentive stock option may not exceed ten years
from the date of the grant, and no incentive stock option may be transferred
other than by will or the laws of descent and distribution. No person may
receive, in any calendar year, stock options which, in the aggregate,
represent more than 500,000 shares of Common Stock. Payment of the option
price will be made in such form and manner as the committee may approve.
Restricted Stock
Restricted stock consists of the sale or grant by Baxter to an employee of
one or more shares of Common Stock which are subject to restrictions on their
sale or other transfer by the participant. The price, if any, at which
restricted stock will be sold or granted will be determined by the committee,
and it may vary from time to time and among participants and may require no
payment or be less than the fair market value of the shares at the date of
sale or grant. All shares of restricted stock granted to executive officers of
Baxter and its principal subsidiaries will be subject to the attainment of
performance goals designed to satisfy the requirements under Section 162(m) of
the code and other restrictions as the committee may determine. Subject to
these restrictions and the other requirements of the program, a participant
receiving restricted stock will have the rights of a stockholder (including
voting and dividend rights) as to those shares only to the extent the
committee designates at the time of the grant. No person may receive, in any
calendar year, more than 50,000 shares of restricted stock. The committee, in
its sole discretion, may substitute cash for shares of Common Stock otherwise
required to be distributed.
8
Management Proposals
Stock Awards
Stock awards consist of the grant by Baxter to an employee of shares of
Common Stock, without payment, as additional compensation for his or her
services to Baxter or a subsidiary of Baxter. Stock awards are subject to the
following limitations. No executive officer of Baxter or its principal
subsidiaries may receive a stock award, and no person eligible to receive a
stock award may receive a stock award representing more than 2,500 shares of
Common Stock in any calendar year.
Performance Shares
Performance shares consist of the grant by Baxter of a contingent right to
receive payment of shares of Common Stock. Each performance share entitles the
participant to one share of Common Stock, subject to the attainment of
performance goals and other terms and conditions specified by the committee.
The performance shares will be paid in shares of Common Stock (or cash, in the
discretion of the committee) to the extent performance goals set forth in the
grant are achieved. All performance shares granted to executive officers of
Baxter and its principal subsidiaries will be subject to the attainment of
performance goals designed to satisfy the requirements under Section 162(m) of
the code. The number of shares granted and the performance goals will be
determined by the committee. No person may receive, in any calendar year, more
than 50,000 performance shares.
Other Incentives
Other incentives may consist of a payment in cash or in kind by Baxter to an
eligible participant as additional compensation for his or her services to
Baxter or a subsidiary of Baxter. The form, amount and the terms and
conditions of other incentives will be determined by the committee. All other
incentives granted to executive officers of Baxter and its principal
subsidiaries will be subject to the attainment of performance goals designed
to satisfy the requirements under Section 162(m) of the code.
Section 162(m) Performance Goals
Under the program, all grants of restricted stock, performance shares and
other incentives granted to executive officers of Baxter and its principal
subsidiaries will be subject to the attainment of performance goals in
compliance with the provisions of Section 162(m) of the code. The specific
performance goals applicable to such an award will be established by the
committee within the first 90 days of the applicable performance period, based
on one or more of the following business criteria: stock price, market share,
sales, earnings per share, net earnings, return on equity, costs and cash
flow.
Non-transferability of Most Incentives
No restricted stock, performance share or other incentive granted under the
program will be transferable by its holder, except in the event of the
holder's death, by will or the laws of descent and distribution. Non-qualified
stock options may be transferred by the holder to the limited extent
authorized by the rules and procedures established by the committee from time
to time or by will or by the laws of descent and distribution.
Amendment of the Program
The Board of Directors may amend or discontinue the program at any time.
However, no amendment or discontinuance may (a) alter or impair, without the
consent of the recipient, an incentive
9
Management Proposals
previously granted or (b) result in a change which would disqualify awards
made under the program from the exemption provided by Rule 16b-3 of the
Exchange Act. In addition, the Board of Directors may not amend the program
without approval of Baxter's stockholders to the extent such approval is
required by law, agreement or any exchange on which the Common Stock is
traded.
Change in Control
In the event of a change in control of Baxter (as specified in the program),
the restrictions on all outstanding shares of restricted stock will lapse
immediately, all outstanding stock options will become exercisable immediately
and all performance goals will be deemed to be met and payment made
immediately.
In connection with certain change of control events (as specified in the
program) the committee can require that any outstanding stock option granted
under the program be surrendered to Baxter for cancellation. The holder of a
stock option that is cancelled will be entitled to receive a cash payment
equal to the number of shares of Common Stock subject to the option
immediately before it was cancelled multiplied by the excess, if any, of the
great of (A) the highest per share price offered to Baxter's stockholders in
the change of control transaction or (B) the fair market value of a share of
Common Stock on the date of the change of control, over the exercise price.
Antidilution Provisions
In the event of any merger, consolidation, reorganization, recapitalization,
spinoff, stock dividend, stock split, reverse stock split, exchange, or other
distribution with respect to Baxter Common Stock (including, without
limitation, the contingent 2-for-1 stock split described in connection with
Proposal 3 above) or other change in the corporate structure or capitalization
affecting the Common Stock, the type and number of shares of stock which are
or may be subject to awards under the program, the terms of any outstanding
awards (including the price at which shares of stock may be issued pursuant to
an outstanding award) and the limits on the number of shares that can be
subject to awards received by individuals in any calendar year described
above, will be equitably adjusted by the committee, in its sold discretion, to
preserve the value of awards made or to be made under the program.
Federal Income Tax Consequences
Under existing federal income tax provisions, a participant who receives a
stock option or performance shares under the program or who purchases or
receives shares of restricted stock under the program will not normally
realize any income, nor will Baxter normally receive any deduction, for
federal income tax purposes in the year such incentive is granted. A
participant who receives a stock award under the program consisting of shares
of Common Stock will realize ordinary income in the year of the award in an
amount equal to the fair market value of the shares of Common Stock covered by
the award on the date it is made, and Baxter will be entitled to a deduction
equal to the amount the employee is required to treat as ordinary income. A
participant who receives a cash award will realize ordinary income at the time
the award is paid equal to the amount received, and the amount of the cash is
expected to be deductible by Baxter.
When a non-qualified stock option granted pursuant to the program is
exercised, the employee will realize ordinary income measured by the
difference between the aggregate purchase price of the shares of Common Stock
as to which the option is exercised and the aggregate fair market value of
10
Management Proposals
shares of the Common Stock on the exercise date, and Baxter will be entitled
to a deduction in the year the option is exercised equal to the amount the
employee is required to treat as ordinary income.
Options which qualify as incentive stock options are entitled to special tax
treatment. Because the capital gains rate is currently lower than the highest
individual rate, there are income tax advantages to receiving incentive stock
options rather than non-qualified options. Incentive stock options must be
exercised within ten years after the grant date or they expire. Incentive
stock options are not transferable, other than by will or the laws of descent
and distribution, and are exercisable, during the optionee's lifetime, only by
the optionee. Under existing federal income tax law, if shares purchased
pursuant to the exercise of an incentive stock option are not disposed of by
the optionee within two years from the date of the option grant or within one
year after the transfer of the shares to the optionee, whichever is longer,
then:
. the optionee recognizes no income upon the exercise of the option;
. any gain or loss will be recognized by the optionee only upon ultimate
disposition of the shares and, assuming the shares constitute capital
assets in the optionee's hands, will be treated as a long-term capital
gain or loss;
. the optionee's basis in the shares purchased will equal the amount of
cash paid for such shares; and
. Baxter will not be entitled to a federal income tax deduction in
connection with the exercise of the option.
Baxter understands that the difference between the option price and the fair
market value of the shares acquired upon exercise of an incentive stock option
will be treated as an "item of tax preference" for purposes of the alternative
minimum tax. In addition, incentive stock options exercised more than three
months after retirement are treated as non-qualified options.
Baxter further understands that if the optionee disposes of the shares
acquired by exercise of an incentive stock option before expiration of the
holding period described above, the optionee must treat as ordinary income in
the year of that disposition an amount equal to the difference between the
optionee's basis in the shares and the lesser of the fair market value of the
shares on the date of exercise or the selling price. In addition, Baxter will
be entitled to a deduction equal to the amount the employee is required to
treat as ordinary income.
If the exercise price of an option is paid by surrender of previously owned
shares, the basis of the shares received in replacement of the previously
owned shares is carried over. If the option is a non-qualified option, the
gain recognized on exercise is added to the basis. If the option is an
incentive stock option, the optionee will recognize gain if the shares
surrendered were acquired through the exercise of an incentive stock option or
through Baxter's employee stock purchase plan and have not been held for the
applicable holding period. This gain will be added to the basis of the shares
received in replacement of the previously owned shares.
A participant who receives restricted stock or performance shares will
normally realize taxable income on the date the shares become transferable or
no longer subject to a substantial risk of forfeiture or on the date of their
earlier disposition. The amount of such taxable income will equal the amount
by which the fair market value of the shares of Common Stock on the date such
restrictions
11
Management Proposals
lapse (or any earlier date on which the shares are disposed of) exceeds their
purchase price, if any. A participant may elect, however, to include in income
in the year of purchase or grant the excess of the fair market value of the
shares of Common Stock (without regard to any restrictions) on the date of
purchase or grant over its purchase price. Baxter expects to be entitled to a
deduction for compensation paid in the same year and in the same amount as
income is realized by the employee.
The Proxyholders intend to vote the shares represented by proxy in favor of
the 2001 Incentive Compensation Program, except to the extent a stockholder
votes against or abstains from voting on this proposal.
The Board of Directors recommends a vote FOR adoption of the 2001 Incentive
Compensation Program.
12
Board of Directors
Director Biographies
Nominees for Election as Directors (Term Expires 2004)
Pei-yuan Chia, age 62, has served as a director of Baxter
[PHOTO] since 1996. Mr. Chia was vice chairman of Citicorp and
Citibank, N.A., its principal subsidiary, from 1994 to 1996
when he retired. From 1993 to 1996, he served as a director of
Citicorp and Citibank, N.A., and assumed responsibility for
their global consumer business in 1992. Between 1974 and 1992,
Mr. Chia held various senior management positions in Citicorp
and Citibank, N.A. and was Citibank, N.A.'s senior customer
contact for corporate banking activities in Asia. Mr. Chia
also serves as a director of American International Group,
Inc.
[PHOTO] Arnold J. Levine, Ph.D., age 61, has served as a director of
Baxter since 1994. In December 1998, Dr. Levine became the
president of Rockefeller University. He was a professor of
biology and the chairman of the molecular biology department
at Princeton University from 1984 to 1998. Since 1982, Dr.
Levine has been the chairman of Baxter's scientific advisory
board. Dr. Levine also serves as a director of Applera
Corporation and ImClone Systems Incorporated.
Monroe E. Trout, M.D., age 69, has served as a director of
[PHOTO] Baxter since 1995. Dr. Trout was chairman of the board,
president and chief executive officer of American Healthcare
Systems, a network of integrated health care systems, from
1987 until he retired in 1994. He was elected president and
chief executive officer of American Healthcare Systems in
1986. Dr. Trout also serves as chairman of the board of Cytyc
Corporation and as a director of Science Applications
International Corporation and West Pharmaceutical Services,
Inc.
13
Board of Directors
Directors Continuing in Office (Term Expires 2002)
Martha R. Ingram, age 65, has been a director of Baxter since
1987. Since 1995, Ms. Ingram has been the chairman of the
board of Ingram Industries Inc., an inland waterway
transportation company, a distributor of trade books and an
automobile insurance company. She was first elected a director
of Ingram Industries Inc. in 1981 and served as its chief
executive officer from 1996 to 1999. Ms. Ingram also serves as
a director of Ingram Micro Inc., AM South Bank and
Weyerhaeuser Company.
[PHOTO]
Harry M. Jansen Kraemer, Jr., age 46, has been a director of
Baxter since 1995 and chairman of the board since January 1,
2000. Mr. Kraemer has been president of Baxter since 1997 and
chief executive officer since January 1, 1999. From 1993 to
1997, he served as senior vice president and chief financial
officer of Baxter. Mr. Kraemer also serves as a director of
Comdisco Inc. and Science Applications International
Corporation.
[PHOTO]
Thomas T. Stallkamp, age 54, was elected as a director of
Baxter in February 2000. Mr. Stallkamp is vice chairman and
chief executive officer of MSX International, Inc., a global
provider of technology-driven engineering, business and
specialized staffing services. From 1980 through 1999,
Mr. Stallkamp held various positions with DaimlerChrysler
Corporation and its predecessor Chrysler Corporation, the most
recent of which were vice chairman and president.
Mr. Stallkamp also serves as a director of Kmart Corporation
and MascoTech, Inc.
[PHOTO]
Fred L. Turner, age 68, has been a director of Baxter since
1982. Mr. Turner is senior chairman of the board of directors
of McDonald's Corporation, a restaurant licensor. Mr. Turner
previously was chairman of the board and chief executive
officer of McDonald's Corporation. He joined McDonald's
in 1956. Mr. Turner also serves as a director of Aon
Corporation and W. W. Grainger, Inc.
[PHOTO]
14
Board of Directors
Directors Continuing in Office (Term Expires 2003)
Walter E. Boomer, age 62, has been a director of Baxter since
1997. Since March 1997, General Boomer has served as president
and chief executive officer of Rogers Corporation, a
manufacturer of specialty materials for use in the
communication, transportation, imaging and computer markets.
From 1994 through 1996, he served as executive vice president
of McDermott International Inc. and president of the Babcock &
Wilcox Power Generation Group. In 1994, General Boomer retired
as a general and assistant commandant of the United States
Marine Corps after 34 years of service. General Boomer also
serves as a director of Cytyc Corporation and Taylor Energy
Company.
[PHOTO]
John W. Colloton, age 70, has been a director of Baxter since
1989. From 1971 to 1993, Mr. Colloton served as the director
of the University of Iowa Hospitals and Clinics, and from 1993
through the year 2000 he was vice president of the University
of Iowa for Statewide Health Services. He is currently
Director Emeritus of the University of Iowa Hospitals and
Clinics. Mr. Colloton also serves as a director of Wellmark
Inc. (Iowa-South Dakota Blue Cross & Blue Shield), Iowa State
Bank & Trust Company and Radiologix Inc.
[PHOTO]
Susan Crown, age 42, has been a director of Baxter since 1993.
Since 1984, Ms. Crown has been a vice president of Henry Crown
and Company, a company which owns and operates diversified
manufacturing operations, real estate and securities. Ms.
Crown also serves as a director of Illinois Tool Works, Inc.
and The Northern Trust Corporation.
[PHOTO]
Brian D. Finn, age 40, was elected as a director of Baxter in
May 2000. Since 1997, Mr. Finn has been a partner in Clayton,
Dubilier & Rice, Inc., a private equity firm. Prior to that,
he was managing Director and co-head of mergers and
acquisitions for Credit Suisse First Boston. Mr. Finn also
serves as a director of U.S. Office Products Company,
Telemundo Holdings, Inc., ICO-Teledesic Global Limited and
Acterna Corporation.
[PHOTO]
15
Board of Directors
Corporate Governance
The Board of Directors recognizes the importance of good corporate
governance as a means of addressing the needs of Baxter's stockholders,
employees, customers and community. Baxter first adopted formal corporate
governance principles in 1995. In 1998, the Board of Directors adopted new
Corporate Governance Guidelines which serve as flexible principles addressing
the role of the Board of Directors in the areas of executive compensation,
fiduciary oversight, strategic and succession planning, social responsibility
and board elections. The Corporate Governance Guidelines also set standards
relating to the composition and operation of the Board of Directors and its
committees, including standards relating to the selection, qualification and
evaluation of directors. The Corporate Governance Guidelines are reviewed
annually and revised, as necessary and appropriate, by the Planning and
Organization Committee of the Board. The Guidelines are available upon request
from Baxter's Corporate Secretary.
Pursuant to the Delaware General Corporation Law, under which Baxter is
organized, the business, property and affairs of Baxter are managed under the
direction of the Board of Directors. Members of the Board are kept informed of
Baxter's business through discussions with the Chairman and officers, by
reviewing materials prepared for them by management and by participating in
meetings of the Board and its committees. During 2000, the Board held seven
meetings and the committees held a total of twenty meetings. The aggregate
attendance of all current directors at the total number of Board and committee
meetings was over 95 percent.
Committees of the Board
The Board of Directors has six committees. Each committee consists solely of
directors who are not Baxter employees, except the Executive Committee as
noted below. Baxter's bylaws contain a complete description of the duties of
each committee.
The Executive Committee consists of three directors. The committee may
exercise most of the powers of the Board, except those reserved to the Board
by Baxter's bylaws or Delaware law. The Executive Committee did not meet in
2000. The current members of the Executive Committee are Harry M. Jansen
Kraemer, Jr. (chairman), John W. Colloton and Susan Crown.
The Audit Committee consists of four directors. The committee assists the
Board in fulfilling its responsibility for Baxter's accounting and financial
reporting practices and provides a channel of communication between the Board
and Baxter's independent accountants. The committee also reviews with the
independent accountants the scope of the accountants' annual and interim
examinations and examines the effectiveness of Baxter's accounting and
internal control functions through discussions with the independent
accountants and appropriate officers of Baxter. The Audit Committee Charter is
attached hereto as Exhibit B. The Audit Committee met four times in 2000. The
current members of the Audit Committee are Fred L. Turner (chairman), Pei-yuan
Chia, Frank R. Frame and Thomas T. Stallkamp.
The Compensation Committee consists of four directors. The committee
determines compensation for officers and makes recommendations to the Board
concerning compensation for the Chairman of the Board and Chief Executive
Officer. It also exercises the authority of the Board relating to Baxter's
employee benefit plans. The Compensation Committee met five times in 2000. The
current members of the Compensation Committee are Pei-yuan Chia (chairman),
Walter E. Boomer, Susan Crown and Brian D. Finn.
16
Board of Directors
The Finance Committee consists of four directors. Within limits established
in Baxter's bylaws, the committee exercises the authority of the Board in
connection with financial transactions and assists and advises the Board
regarding Baxter's financial affairs. The Finance Committee met five times in
2000. The current members of the Finance Committee are Brian D. Finn
(chairman), John W. Colloton, Arnold J. Levine, Ph.D. and Monroe E. Trout,
M.D.
The Planning and Organization Committee consists of five directors. The
committee assists and advises the Board in connection with Board membership,
Board committee structure and membership, general organization and planning
matters and corporate governance issues such as CEO succession planning and
CEO performance evaluations. The committee also considers director candidates.
Pursuant to principles set forth in the Corporate Governance Guidelines, the
committee seeks candidates with high integrity, good judgment and breadth of
experience, among other criteria. The Planning and Organization Committee met
three times in 2000. The current members of the Planning and Organization
Committee are John W. Colloton (chairman), Martha R. Ingram, Thomas T.
Stallkamp, Monroe E. Trout, M.D. and Fred L. Turner.
The Public Policy Committee consists of five directors. The committee
reviews the policies and practices of Baxter to ensure that they are
consistent with its social responsibility to employees, customers and society.
The Public Policy Committee met three times in 2000. The current members of
the Public Policy Committee are Susan Crown (chairperson), Walter E. Boomer,
Frank R. Frame, Martha R. Ingram and Arnold J. Levine, Ph.D.
Compensation of Directors
To further align the interests of the company's non-employee directors with
the company's senior management team and shareholders, the Board of Directors
approved a new Director Compensation Plan, effective May 1, 2001. The
following sections describe the former Director Compensation Plan ("former
plan") in effect for 2000 and the first four months of 2001, the new Director
Compensation Plan ("new plan") beginning May 1, 2001, and the 2001 Transition
Plan.
Former Director Compensation Plan
Under the restricted stock plan for non-employee directors (the "Director
Stock Plan"), each non-employee director receives a grant of 1,000 restricted
shares of Baxter Common Stock as a retainer upon election or re-election to a
three-year term. These restricted shares vest on a monthly basis and are given
to each director at the end of the director's term of office. In addition,
each non-employee director receives 3,000 restricted shares of Baxter Common
Stock as compensation upon election or re-election to a three-year term. These
restricted shares vest in 1,000-share installments on the dates of the three
annual meetings of stockholders following the date of election.
Each non-employee director receives a $1,000 fee for each Board and each
committee meeting attended. Members of committees receive an annual retainer
of $3,000, and chairmen of committees receive an additional annual retainer of
$4,000, except that members of the Executive Committee do not receive a
retainer for their Executive Committee membership. Employee directors are not
compensated separately for their Board or committee activities.
Each non-employee director who retires at age 65 or after, with at least
five years of Board service, receives upon retirement 1,000 restricted shares
of Baxter Common Stock for each of his or
17
Board of Directors
her full years of service as a non-employee director, pursuant to the Director
Stock Plan. These restricted shares vest six months after the grant date. Each
non-employee director is eligible for medical benefits and life insurance
benefits. No medical benefits were paid to non-employee directors in 2000.
Life insurance premiums of $1,495 in the aggregate, were paid in 2000 for the
benefit of non-employee directors.
Restricted stock awarded under the Director Stock Plan vests as described
above, unless specified corporate control changes occur, at which point all
restrictions on the shares terminate. Until vested, the restricted stock may
not be transferred or sold by the director. During the restriction period, the
director has all of the other rights of a stockholder, including the right to
receive dividends and vote the shares.
New Director Compensation Program
Under the new compensation plan, the Board eliminated the restricted stock,
cash, retirement benefit, and medical benefit components of the former plan
and transitioned to a new all-stock option plan design, which also retained
the life insurance benefit from the former plan.
Under the new plan, each non-employee director is entitled to receive a
target grant of 5,000 stock options annually. The actual grant may increase or
decrease based on the percentage change in Baxter's total shareholder return
(TSR) compared to the TSR for the S&P Health Care Composite Index for the
12-month period from October 1 to September 30, prior to the stock option
grant. Based on this comparison, the stock option target could increase up to
a maximum of 150% or decrease to a minimum of 75%. This stock performance
multiplier is the same as that used for senior management, as described in the
Compensation Committee report under "New (2001) LTI Plan" on page 21. In
addition, each non-employee director will be eligible to continue the same
life insurance benefit as that provided under the former plan.
2001 Transition Plan
Each non-employee director will be granted one stock option for each one
share of restricted stock which was previously issued under the former plan
but unearned as of May 1, 2001. In addition, each non-employee director who
qualifies for the non-employee director retirement benefit (provided for under
the former plan) as of May 1, 2001 will be given the choice of keeping their
restricted stock earned under the former plan or converting such restricted
stock into stock options. If a director chooses to retain his or her
restricted stock, the amount of shares will be capped and will be received by
such director when his or her service with the board ends. Each non-employee
director who does not qualify for the retirement benefit as of May 1, 2001,
will be granted stock options for each full year of his or her service on the
board as of May 1, 2001.
Other
In addition to the non-employee director compensation and benefits described
above, Arnold J. Levine, Ph.D. receives an annual consulting fee for his
services as chairman of Baxter's scientific advisory board. The members of
Baxter's scientific advisory board also receive, from time to time, stock
options which give them the opportunity to purchase Baxter Common Stock for a
limited period of time at the closing price of the Common Stock on the date of
grant.
18
Audit Committee Report
The Audit Committee of the Board of Directors of Baxter assists the Board in
fulfilling its oversight responsibilities. The Audit Committee consists of
four independent directors, as defined by New York Stock Exchange listing
standards. Its duties and responsibilities are set forth in a written charter
adopted and approved by the Board on March 21, 2000, a copy of which is
attached to this proxy statement as Exhibit B.
Management is responsible for Baxter's internal controls and the financial
reporting process. PricewaterhouseCoopers LLP (PWC), the independent
accountants, are responsible for performing an independent audit of Baxter's
consolidated financial statements in accordance with generally accepted
auditing standards and for issuing a report on those statements. The Audit
Committee's responsibility is to monitor and oversee these processes.
In the course of fulfilling its responsibilities, the Audit Committee has:
. reviewed and discussed with management Baxter's audited financial
statements for the year ended December 31, 2000;
. discussed with representatives of PWC the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication with
Audit Committees;
. received the written disclosures and the letter from PWC required by
Independence Standards Board Standard No. 1, Independence Discussions
with Audit Committees;
. discussed with representatives of PWC the public accounting firm's
independence from Baxter and management; and
. considered whether the provision by PWC of non-audit services is
compatible with maintaining PWC's independence.
Based on the foregoing, the Audit Committee recommended to the Board of
Directors that Baxter's audited financial statements referred to above be
included in Baxter's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 for filing with the Securities and Exchange Commission.
Fred L. Turner (Chairman)
Pei-yuan Chia, Frank R. Frame
Thomas T. Stallkamp
Compensation Committee Report
The Compensation Committee of the Board of Directors (the "Committee"),
comprised of four non-employee directors, establishes and monitors the total
compensation program for the senior executives of Baxter and its subsidiaries.
Compensation Philosophy for Executive Officers
The Committee's philosophy is to provide compensation opportunities which
are structured to be competitive when compared to manufacturing companies of
similar size, including health care and non-health care companies. This
philosophy is intended to assist Baxter in attracting, retaining and
motivating executives with superior leadership and management abilities.
Consistent with this philosophy, the Committee reviews compensation data from
surveys whose participants include the large companies in the Standard &
Poor's Health Care Composite Index and other large non-health care companies
with which Baxter and its subsidiaries compete for executive talent
("comparable companies"). Based on the survey data, the Committee determines a
total compensation structure for each officer, including Mr. Kraemer, who
served as Baxter's chairman and chief executive officer in 2000, consisting
primarily of salary, cash bonus, and stock options. The proportions of these
elements of compensation vary among the officers depending upon their levels
of responsibility. The senior executive officers ordinarily receive a large
portion of their total compensation through performance-based incentive plans,
which place a greater percentage of their compensation at risk while more
closely aligning their interests with the interests of Baxter's stockholders.
The Committee's philosophy with respect to the $1 million cap on the tax-
deductibility of executive compensation is to maximize the benefit of tax laws
for Baxter's stockholders by seeking performance-based exemptions and the
related stockholder approval where consistent with Baxter's compensation
policies and practices.
Compensation Elements
Salaries
The Committee establishes salaries each year at a level intended to be
competitive with the 50th percentile of salaries paid to executive officers in
the comparable companies. In addition, officer salaries are based on the
officer's individual performance.
Cash Bonuses
Bonuses are intended to provide executive officers with an opportunity to
receive additional cash compensation (which, when combined with salary, is
intended to provide a total cash compensation target of approximately the 60th
percentile of total cash compensation paid to executives in the comparable
companies), but only if it is earned through achievement of specified
performance goals. Each year, the Committee establishes performance goals for
the officer cash bonus plan. The Committee also establishes a bonus range for
each executive officer by utilizing the market data of comparable companies.
After year-end results are reported, the Committee determines each officer's
bonus based on the achievement of the specified performance goals and the
officer's individual performance. Baxter achieved its net income growth and
operational cash flow goals for 2000. Actual bonuses for 2000 ranged from 90
percent to 200 percent of the executive officers' bonus targets.
Long-Term Incentives
Since 1989, Baxter has maintained a stockholder-approved Long-Term Incentive
Plan in which all executive officers and other selected executives
participate. To further align management and stockholder interests, in
20
Compensation Committee Report
November 2000, the company adopted a new Long Term Incentive Plan (2001 LTI
Plan) that eliminated the restricted stock component from the prior LTI Plan
(prior LTI Plan) and introduced a new all-stock option plan design.
The following sections explain the 2001 LTI Plan, the 2000 LTI Transition,
and the prior LTI Plan, which was in effect during 2000.
New (2001) LTI Plan
The 2001 LTI Plan is effective beginning with the 2001 plan year and
initially established a participant's new all-stock option target by
converting his or her 2000 annual restricted stock target under the prior LTI
Plan structure to stock options and adding the converted amount to the
participant's 2000 stock option target under the prior LTI Plan structure.
In addition, similar to the prior LTI Plan, the 2001 LTI Plan contains a
Stock Performance Multiplier, which increases or decreases a participant's
stock option target. The Stock Performance Multiplier measures the percentage
change in Baxter's total shareholder return (TSR) compared to the TSR for the
S&P Health Care Composite Index for the 12-month period from October 1 to
September 30, prior to the stock option grant. Based on this comparison, the
stock option target could increase up to a maximum of 150% or decrease to a
minimum of 75%. Actual stock option awards are based on a combination of the
participant's stock option target, the Stock Performance Multiplier and the
participant's individual performance.
For the period October 1, 1999 to September 30, 2000 the Company's TSR
return of 34% was 162% of the S&P Health Care Composite Index's TSR of 21%. In
accordance with the Stock Performance Multiplier incorporated in the 2001 LTI
Plan, participants' stock option targets were increased to the maximum of 150%
for the 2001 LTI Plan year.
This new, all-stock option plan design established the overall
competitiveness of the 2001 LTI Plan such that the value of the stock option
targets are generally competitive with approximately the 75th percentile of
the long-term incentive opportunities provided to the LTI Plan participants'
counterparts in the comparable companies.
2000 LTI Transition
As part of the transition to the 2001 LTI Plan design, prior LTI Plan
participants were offered the opportunity to convert the restricted shares
they would have earned in 2000 and subsequent years to stock options.
Participants electing the stock option conversion also converted their
restricted shares which were originally issued but unearned as of the date of
their election. Ninety-four percent of prior LTI Plan participants, including
Mr. Kraemer, voluntarily converted their restricted shares to stock options.
Participants who did not elect to receive stock options in lieu of their
2000 annual restricted stock target continued to earn and vest in their 2000
restricted shares pursuant to the prior LTI Plan terms and conditions.
Prior LTI Plan
The prior LTI Plan, which was in effect during 2000, incorporated a
combination of performance-based restricted stock and stock options. The
combined grant value of the restricted stock and stock options was intended to
be competitive with the 67th percentile of the long-term incentive
opportunities provided to the participants' counterparts in the comparable
companies. Each plan participant's total long-term incentive opportunity
represented a mix of approximately 35 percent performance-based restricted
stock and 65 percent stock options. The restricted stock and stock options
provided through the prior LTI Plan are explained below.
21
Compensation Committee Report
Restricted Stock
Each participant in the prior LTI Plan had a target number of restricted
shares that can be earned annually if Baxter achieves the sales growth and
operational cash flow goals established by the Committee and incorporated in
the plan. The number of shares earned was then adjusted up or down based on
Baxter's TSR for the year compared to the TSR for the S&P Health Care
Composite Index. The shares ordinarily vested one year after they are earned,
if the participant remained employed by Baxter or one of its subsidiaries.
Based on (i) Baxter's average sales growth over the three-year period ending
December 31, 2000 and its operational cash flow generated over the three-year
period ending December 31, 2000, and (ii) Baxter's 2000 total rate of return
to stockholders compared to the 2000 total rate of return achieved by the S&P
Health Care Composite Index, 250% of restricted stock targets were earned
under the prior LTI Plan in 2000. The vesting and payout of the 2000 earned
shares will occur on December 31, 2001.
Stock Options
Stock options are granted annually to executive officers and the other
participants in the prior LTI Plan. The number of stock options granted to
each executive officer and other participants in the 2001 LTI Plan is
determined in combination with the participant's annual target award of
restricted stock based on market compensation data, as explained above.
Mr. Kraemer's 2000 Compensation
In 2000, Mr. Kraemer participated in the same compensation plans provided to
the other executive officers. The Committee's general approach to setting Mr.
Kraemer's compensation was to be competitive with comparable companies and to
have a majority of his compensation dependent on achievement of both Baxter
performance goals established by the Committee and the performance of Baxter
Common Stock. All compensation actions relating to Mr. Kraemer were subject to
the approval of the Board. The actions described in this report have been
approved.
Mr. Kraemer's salary for 2000, which was $880,000, was established based on
his performance and the 50th percentile of salaries paid to Mr. Kraemer's
counterparts in comparable companies.
The Committee also determined that Mr. Kraemer earned a bonus of $1,320,000
for 2000 based on Baxter's achievement of its net income growth and
operational cash flow goals for 2000. Baxter's success in 2000 reflects
Mr. Kraemer's continued commitment to Baxter's growth strategy through global
expansion, technological innovation and operational excellence.
On November 26, 2000, Mr. Kraemer received stock options with respect to
300,000 shares of Common Stock for the 2001 LTI plan year. In addition, as
part of the 2000 LTI transition, Mr. Kraemer elected to convert his 2000
restricted shares to stock options. Mr. Kraemer voluntarily forfeited 37,500
restricted shares and was granted stock options with respect to 187,500 shares
of Common Stock, at the then current fair market value of $82.69 per share.
Relationship of Executive Compensation to Company Performance
The Committee believes that management should be motivated and compensated
based primarily on Baxter's financial and Common Stock performance. For this
reason, the Committee has emphasized the goals of sales growth, net income
growth, operational cash flow and Common Stock performance when determining
compensation for all executive officers, as explained above. In addition, the
Committee believes that management should be
22
Compensation Committee Report
motivated and compensated based on important nonfinancial measures, such as
quality, product development, innovation, and employee development. The
Committee believes that a combination of financial, nonfinancial, and Common
Stock performance measures were the appropriate focus for 2000. These goals
are also incorporated in Baxter's 2001 incentive plans for executive officers
and other executives.
Pei-yuan Chia (Chairman)
Walter E. Boomer Susan Crown Brian D. Finn
23
Executive Compensation
Summary
The following table shows, for the years ended December 31, 2000, 1999 and
1998, the compensation provided by Baxter and its subsidiaries to the chairman
of the board and chief executive officer and the four next most highly
compensated executive officers in all capacities in which they served. The
five individuals identified in the Summary Compensation Table are referred to
as the "named executive officers" throughout this proxy statement.
Summary Compensation Table
Long Term Compensation
---------------------------------------
Annual Compensation Awards Payouts
------------------------- --------------------- --------- All
Restricted Other
Stock Securities LTIP Compen-
Name and Principal Salary Bonus Other Award(s) Underlying Payouts sation
Position Year ($)(1) ($)(1) ($)(2) ($)(3) Options(4) ($)(5) ($)(6)
- ------------------------------------------------------------------------------------------------
Harry M. Jansen Kraemer,
Jr. 2000 880,000 1,320,000 146,187 2,150,126 487,500 2,649,375 60,500
Chairman of the Board 1999 800,000 1,120,000 178,416 -0- 362,709 847,969 39,288
and 1998 560,770 743,000 60,246 -0- 88,844 -0- 35,078
Chief Executive Officer
- ------------------------------------------------------------------------------------------------
Jack L. McGinley(7) 2000 475,000 380,000 5,665 786,217 -0- 1,103,906 29,971
Group Vice President 1999 420,769 504,000 3,435 -0- 157,382 329,766 22,857
Baxter Healthcare 1998 360,000 466,750 690 -0- 37,628 -0- 19,538
Corporation
- ------------------------------------------------------------------------------------------------
Thomas H. Glanzmann 2000 350,000 364,000 4,188 780,071 109,250 551,953 15,118
Corporate Vice President 1999 304,233 143,000 858,665 -0- 82,192 235,547 1,570
Baxter World Trade 1998 279,808 175,925 51,218 -0- 18,396 -0- -0-
Corporation
President-Hyland Immuno
- ------------------------------------------------------------------------------------------------
Carlos del Salto 2000 385,192 357,500 1,208 554,392 123,500 772,734 22,665
Senior Vice President 1999 350,000 350,000 2,453 -0- 113,062 282,656 16,637
Baxter World Trade 1998 307,000 309,750 -0- -0- 26,130 -0- 15,467
Corporation
President-Latin America
- ------------------------------------------------------------------------------------------------
Brian P. Anderson 2000 418,077 275,000 6,043 468,512 123,000 662,344 20,350
Senior Vice President 1999 380,000 250,000 4,110 -0- 97,836 282,656 17,963
and 1998 320,769 332,750 -0- -0- 20,904 -0- 15,826
Chief Financial Officer
- ------------------------------------------------------------------------------------------------
(1) Amounts shown include cash compensation earned by the named executive
officers during the year covered, including amounts deferred at the
election of those officers. Bonuses are paid in the year following the
year during which they are earned. Bonus amounts for 1998 include amounts
earned pursuant to the 1998 Supplemental Incentive Plan, a one-time
incentive for all Incentive Plan participants granted because they were
not eligible to earn restricted stock for 1997, as follows: Mr. Kraemer--
$243,000; Mr. McGinley--$141,750; Mr. Glanzmann--$81,000; Mr. del Salto--
$121,500 and Mr. Anderson--$121,500.
(2) As permitted by the rules of the Securities and Exchange Commission (the
"SEC"), this column excludes perquisites and other personal benefits for
the named executive officer if the total incremental cost in a given year
did not exceed the lesser of $50,000 or 10 percent of the combined salary
and bonus for that year. Accordingly, for Messrs. Kraemer (in 1998),
McGinley, Glanzmann (in 2000 and 1998), del Salto and Anderson, the
amounts shown exclude such perquisites and only represent reimbursements
for the payment of taxes. Of the amounts shown for Mr. Kraemer, $41,787 in
2000 and $54,035 in 1999, represent the approximate incremental cost to
Baxter for his personal use of company aircraft, which Baxter required for
security reasons. Of the amounts shown for Mr. Glanzmann, $150,000 in 1999
represents a one-time payment as a buyout of his European housing
allowance upon his relocation to the United States. The amounts shown for
Mr. Glanzmann in 1999 and 1998 include amounts reimbursed by the company
for the payment of taxes due to Mr. Glanzmann's expatriate assignments.
(3) Based on the $55.875 market value of Baxter Common Stock on February 21,
2000. These shares are no longer held by Messrs. Kraemer, Glanzmann, del
Salto and Anderson because they converted their restricted stock to stock
options pursuant to the LTI Transition as described on page 21. Mr.
McGinley, who did not participate in the LTI Transition, held 17,500
shares valued at $1,545,469 based on the $88.3125 closing price of Baxter
Common Stock on December 31, 2000.
24
Executive Compensation
(4) The number shown represents the number of shares of Common Stock for which
options were granted to each named executive officer. The 2000 options
include, for all of the named executive officers except Mr. McGinley,
options granted as a result of the LTI Transition. The 1999 options
include Supplemental Stock Options granted pursuant to the 1998
Supplemental Incentive Plan and options granted pursuant to Baxter's
Shared Investment Plan during which the company's senior management team
collectively purchased over 3 million shares of Common Stock through
personal full-recourse loans to exercise options to purchase Common Stock
on May 3, 1999. The Shared Investment Plan is more fully described in
Baxter's Proxy Statement for the 2000 Annual Meeting of Stockholders. The
amounts shown are adjusted for the stock dividend paid pursuant to the
spin-off of Edwards Lifesciences Corporation on March 31, 2000.
(5) Amounts shown represent the market value of earned restricted stock which
vested under Baxter's Incentive Plan, on December 31, 2000, 1999 and 1998
(each a "Vesting Date"). The vested shares were earned as of the December
31 preceding each Vesting Date.
(6) Amounts shown represent matching contributions in Baxter's Incentive
Investment Plan, a qualified section 401(k) profit sharing plan,
additional matching contributions in Baxter's deferred compensation plan
and the dollar value of split-dollar life insurance benefits. In 2000,
those three amounts, expressed in the same order as identified above, for
the named executive officers are as follows: Mr. Kraemer--$5,100, $54,900
and $500; Mr. McGinley--$5,100, $24,270 and $601; Mr. Glanzmann--$5,100,
$9,690, $328; Mr. del Salto--$5,100, $16,956 and $609; and Mr. Anderson--
$5,100, $14,942 and $308.
(7) Mr. McGinley retired from the company on February 16, 2001.
25
Executive Compensation
Stock Option Grants
The following table contains information relating to the stock option grants
made in 2000 to the named executive officers.
Option Grants Table
Option Grants in Last Fiscal Year (1)
Individual Grants
------------------------------------------------------ Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise or for Option Term
Options Employees in Base Price Expiration ----------------------------------------
Name Granted (#)(2) Fiscal Year (%) ($/Sh)(2)(3) Date 0% 5%(4) 10%(4)
- -------------------------------------------------------------------------------------------------------------------------
Mr. Kraemer 487,500 5.17 82.69 11/12/2010 $0.00 $ 25,351,608 $ 64,245,950
- -------------------------------------------------------------------------------------------------------------------------
Mr. McGinley -0- -0- -- -- $0.00 -- --
- -------------------------------------------------------------------------------------------------------------------------
Mr. Glanzmann 109,250 1.16 82.69 11/12/2010 $0.00 $ 5,681,361 $ 14,397,682
- -------------------------------------------------------------------------------------------------------------------------
Mr. del Salto 123,500 1.31 82.69 11/12/2010 $0.00 $ 6,422,407 $ 16,275,640
- -------------------------------------------------------------------------------------------------------------------------
Mr. Anderson 123,000 1.31 82.69 11/12/2010 $0.00 $ 6,396,406 $ 16,209,747
- -------------------------------------------------------------------------------------------------------------------------
All Stockholders N/A N/A N/A N/A $0.00 $15,276,402,370(5) $38,713,402,941(5)
- -------------------------------------------------------------------------------------------------------------------------
All Optionees 9,423,994 100% various various $0.00 $ 490,078,756(6) $ 1,241,955,789(6)
- -------------------------------------------------------------------------------------------------------------------------
Optionee Gain as % of
All
Stockholders' Gain N/A N/A N/A N/A N/A 3.2% 3.2%
- -------------------------------------------------------------------------------------------------------------------------
(1) In 2000, Baxter granted options on approximately 9.4 million shares of its
Common Stock to approximately 4,000 employees at various exercise prices
at different times during the year.
(2) For all of the named executive officers, except Mr. McGinley, the option
grant listed above includes those options which were granted as a result
of the LTI Transition as described on page 21. The grants become
exercisable from one to three years from the date of grant. The exercise
price of the options may be paid in cash or in shares of Baxter Common
Stock. If specified corporate control changes occur, all outstanding
options will become exercisable immediately.
(3) The exercise price shown for the named executive officers is the closing
price of Baxter Common Stock on the date of the grant, which was November
13, 2000.
(4) Potential realizable values are calculated net of the option exercise
price but before taxes associated with exercise. The assumed rates of
stock price appreciation are set by rules of the Securities and Exchange
Commission governing proxy statement disclosure and are not intended to
forecast the future appreciation of Baxter Common Stock.
(5) The potential realizable values for all stockholders were calculated on
the 293,758,345 shares of Baxter Common Stock outstanding on December 31,
2000. The potential realizable values were calculated assuming the
stockholders purchased Baxter Common Stock at $82.69, the closing price on
November 13, 2000.
(6) The potential realizable values for all optionees were calculated based on
the approximately 9.4 million shares subject to options that were granted
to employees of Baxter at various exercise prices at different times
during the year. The potential realizable values were calculated assuming
that all of the options were granted at the $82.69 exercise price.
26
Executive Compensation
Stock Option Exercises
The following table contains information relating to the exercise of stock
options by the named executive officers in 2000, as well as the number and
value of their unexercised options as of December 31, 2000.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year-End (#)(1) Fiscal Year End ($)(2)
Shares Acquired Value ------------------------- -------------------------
Name on Exercise (#)(1) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------
Mr. Kraemer 5,522 293,985 237,455 699,053 11,038,132 8,451,665
Mr. McGinley 5,013 229,289 192,448 95,010 9,277,537 2,546,099
Mr. Glanzmann -0- -- 73,090 159,838 3,406,075 1,961,149
Mr. del Salto -0- -- 100,341 192,692 4,397,707 2,538,173
Mr. Anderson -0- -- 118,076 181,740 5,845,653 2,246,365
- --------------------------------------------------------------------------------------------------
(1) The sum of the numbers under the Exercisable and Unexercisable columns of
this table represents each named executive officer's total number of
outstanding options.
(2) The dollar amounts shown under the Exercisable and Unexercisable columns
of this table represent the number of shares subject to exercisable and
unexercisable options, respectively, which had an exercise price below the
closing price of Baxter Common Stock on December 31, 2000, which was
$88.3125, multiplied by the difference between that price and the exercise
price of the options.
Long-Term Incentive Plans
The following table provides information relating to restricted stock grants
made to the named executive officers during 2000. All of the amounts shown on
the following table represent shares of Common Stock.
Long-Term Incentive Plans
Awards in Last Fiscal Year
Estimated Future Payouts Under
Non-Stock
Performance or Price-Based Plans
# of Shares, Other Period -----------------------------------
Units or Other Until Maturation Annual
Name Rights (#) Or Payout Threshold (#) Target (#) Maximum (#)
- --------------------------------------------------------------------------------
Mr.
Kraemer 38,481 -- -- -- --
Mr.
McGinley 14,071 -- -- -- --
Mr.
Glanzmann 13,961 -- -- -- --
Mr. del
Salto 9,922 -- -- -- --
Mr.
Anderson 8,385 -- -- -- --
- --------------------------------------------------------------------------------
The shares of restricted stock granted in 2000 to the named executive
officers were granted under the Baxter's 1998 Long-Term Incentive Plan, prior
to Baxter's decision to eliminate the restricted stock component from the
prior LTI Plan. The restricted shares, for all of the named executive officers
except Mr. McGinley, were converted to stock options as part of the LTI
Transition as described on page 21. Mr. McGinley forfeited his restricted
shares upon his retirement in February 2001. Therefore, none of the restricted
shares are currently outstanding, and no performance periods or annual targets
27
Executive Compensation
have been shown in the table. A full description of Baxter's Long-Term
Incentive Plan is contained in the Compensation Committee Report under the
heading "Compensation Elements--Long-Term Incentives" and "--Restricted Stock"
on pages 20 and 21.
Pension Plan, Excess Plans and Supplemental Plans
The table on the following page shows estimated annual retirement benefits
payable to participants in Baxter's United States pension plan ("Pension
Plan") whose employment terminates at normal retirement (age 65). The normal
retirement benefit equals (i) 1.75 percent of a participant's Final Average
Pay multiplied by the employee's number of years of Pension Plan
participation, minus (ii) 1.75 percent of a participant's estimated primary
social security benefit, multiplied by the employee's years of Pension Plan
participation. The Final Average Pay is equal to the average of a
participant's five highest consecutive calendar years of earnings out of his
or her last ten calendar years of earnings. In general, the earnings covered
by the Pension Plan include salary, annual cash bonuses and other regular pay.
The figures shown include benefits payable under the Pension Plan, Baxter's
related defined benefit excess pension plan and supplemental plans for certain
individuals. The estimates assume that benefit payments begin at age 65 under
a single life annuity form. The figures are net of the Social Security offset
specified by the Pension Plan's benefit formula and therefore do not include
Social Security benefits payable from the federal government. The estimated
primary Social Security benefit used in the calculations is that payable for
an individual attaining age 65 in 2000.
28
Executive Compensation
Although age 65 is the normal retirement age under the Pension Plan, the
Pension Plan has early retirement provisions based on a point system. Under
the point system, each participant is awarded one point for each year of
Pension Plan participation and one point for each year of age. Participants
who terminate employment after accumulating at least 65 points, and who wait
to begin receiving their Pension Plan benefits until they have 85 points,
receive an unreduced Pension Plan benefit regardless of their actual age when
they begin receiving their Pension Plan benefits.
Pension Plan Table
Estimated Annual Retirement Benefits
Years of Pension Plan Participation(1)(2)($)
------------------------------------------------------------
Final Average
Pay(1)(2)($) 15 20 25 30 35
-------------------------------------------------------------------------------
300,000 74,200 99,000 123,700 148,500 173,400
400,000 100,500 134,000 167,500 201,000 234,700
500,000 126,700 169,000 211,200 253,500 295,900
600,000 153,000 204,000 255,000 306,000 357,200
700,000 179,200 239,000 298,700 358,500 418,400
800,000 205,500 274,000 342,500 411,000 479,700
900,000 231,700 309,000 386,200 463,500 540,900
1,000,000 258,000 344,000 430,000 516,000 602,200
1,100,000 284,200 379,000 473,700 568,500 663,400
1,200,000 310,500 414,000 517,500 621,000 724,700
1,300,000 336,700 449,000 561,200 673,500 785,900
1,400,000 363,000 484,000 605,000 726,000 847,200
1,500,000 389,200 519,000 648,700 778,500 908,400
-------------------------------------------------------------------------------
(1) As of December 31, 2000, the named executive officers' years of Pension
Plan participation and Final Average Pay for purposes of calculating
annual retirement benefits payable under the Pension Plan are as follows:
Mr. Kraemer--17 years and $1,008,302; Mr. McGinley--35 years and $681,262;
Mr. del Salto--26 years and $531,578; and Mr. Anderson--8 years and
$461,520. Mr. Glanzmann does not participate in the Pension Plan. In 1999,
Mr. Glanzmann transferred to the United States and became a participant in
Baxter's International Retirement Plan, earning his first year of service
under that plan in 1999. In addition, for each year Mr. Glanzmann
participates in the International Retirement Plan, he is credited with 20
percent of his 21 years of pre-participation Baxter service.
(2) Before 1995, Mr. McGinley managed operations of Baxter's subsidiaries in
Canada and Japan. While he resided in those two countries, he did not
accrue benefits in the Pension Plan. In 1995, in recognition of Mr.
McGinley's service for Baxter outside the United States, Baxter provided
Mr. McGinley with a non-qualified and unfounded pension supplement. The
pension supplement will provide Mr. McGinley with the difference between
(i) his actual accrued benefits under the Pension Plan and Baxter's
Canadian Pension Plan and (ii) the benefit he would have accrued under the
Pension Plan if his service in Canada and Japan were included in the
Pension Plan. Also, the pension supplement provides him with five
additional years of Pension Plan participation and five additional years
of age. The 35 years of Pension Plan participation shown for Mr. McGinley
includes the five additional years which he received through the pension
supplement. The pension supplement is payable to Mr. McGinley at the same
time he begins to receive his actual accrued benefit under the Pension
Plan.
29
Ownership of Baxter Stock
Stock Ownership of Directors and Officers
On January 31, 2001, there were approximately 294,685,535 shares of Baxter
Common Stock outstanding. The following table sets forth information as of
that date, unless otherwise specified, regarding beneficial ownership of
Baxter's Common Stock by the named executive officers and all directors, each
of whom owned less than one percent of the outstanding Common Stock. The table
also sets forth the total number of shares of Baxter Common Stock beneficially
owned by all executive officers and directors of Baxter, as a group, which
amounted to 1.15 percent of the outstanding Common Stock. Except as otherwise
noted, each individual has sole investment and voting power with respect to
the shares listed.
Options
Shares Exercisable
Beneficially Within 60 Restricted
Name Owned days Shares Total
- ---------------------------------------------------------------------------------------------
Non-employee Directors:
Walter E. Boomer 4,260 -- 4,000 8,260
Pei-yuan Chia 6,380(1) -- 2,000 8,380(1)
John W. Colloton 4,210 -- 4,000 8,210
Susan Crown 19,000(2) -- 4,000 23,000(2)
Brian D. Finn 2,500(1) -- 4,000 6,500(1)
Frank R. Frame 5,925 -- 2,000 7,925
Martha R. Ingram 37,000 -- 3,000 40,000
Arnold J. Levine,
Ph.D. 8,386(3) 1,567 12,000 21,953(3)
Thomas T. Stallkamp 1,000(1) -- 3,380 4,380(1)
Monroe E. Trout, M.D. 11,385(4) -- 2,000 13,385(4)
Fred L. Turner 16,061 -- 3,000 19,061
Named Executive
Officers:
Harry M. Jansen
Kraemer, Jr. 307,877(1)(3)(5)(7) 237,455 -- 545,332(1)(3)(5)(7)
Brian P. Anderson 76,579(1) 118,076 194,655(1)
Carlos del Salto 82,902 100,341 183,243
Thomas H. Glanzmann 57,640 73,090 130,730
Jack L. McGinley 118,022 192,448 17,500 327,970
All directors and 1,524,619 1,796,650 63,880 3,385,151
executive officers as (1)(3)(5) (1)(3)(5)
a group (30 persons) (6)(7) (6)(7)
- ---------------------------------------------------------------------------------------------
(1) Includes shares held in joint tenancy with spouse over which the named
individual shares voting or investment power as follows: Mr. Anderson--
16,182 shares; Mr. Chia--6,380 shares; Mr. Finn--2,500 shares, Mr.
Kraemer--67,255 shares; Mr. Stallkamp--1,000 shares; and all directors and
executive officers as a group--182,068 shares.
(2) Includes 1,000 shares held in a trust of which Ms. Crown is a co-trustee,
4,000 shares held by a family partnership of which Ms. Crown is a partner,
and 2,000 shares held by various trusts of which her minor children are
beneficiaries. Ms. Crown disclaims beneficial ownership of those shares.
(3) Includes shares not held directly by the named individual but held by or
for the benefit of their spouses or minor children as follows: Dr.
Levine--4,200 shares; Mr. Kraemer--170 shares; and all directors, nominees
and executive officers as a group--6,900 shares.
(4) Includes 11,385 shares held in a family trust with respect to which Dr.
Trout disclaims beneficial ownership.
(5) Includes shares which the individual has a right to acquire within 60 days
of January 31, 2001 pursuant to his or her participation in Baxter's
Employee Stock Purchase Plan as follows: all executive officers as a
group--1,636 shares.
30
Ownership of Baxter Stock
(6) Includes shares beneficially owned as of January 31, 2001 by executive
officers in Baxter's Incentive Investment Plan, a qualified 401(k) profit
sharing plan, over which such executive officers have voting and
investment power.
(7) Includes shares held by individuals pursuant to the terms of the Shared
Investment Plan, as follows: Mr. Kraemer--240,000 shares; Mr. Anderson--
60,000 shares; Mr. del Salto--70,000 shares; Mr. Glanzmann--50,000 shares;
and Mr. McGinley--100,000 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Christopher Joseph, the son of Donald W. Joseph, received a gift of 200
shares in December 1998. Donald W. Joseph was Group Vice President of Baxter
Healthcare Corporation and Baxter World Trade Corporation until his retirement
on December 31, 2000. This share transaction was not reported in a timely
manner with the Securities and Exchange Commission (SEC) to indicate that the
shares were indirectly owned by Donald Joseph. Christopher Joseph then sold 37
shares in August 2000 in a transaction that was not reported in a timely
manner with the SEC. On December 11, 1998, Carlos del Salto, Senior Vice
President of Baxter World Trade Corporation, gave a gift of 100 shares to his
grandson in a transaction that was not reported in a timely manner with the
SEC.
5% or Greater Stockholders
As of December 31, 2000, Baxter is not aware of any stockholder owning in
excess of 5% of its outstanding Common Stock.
31
Baxter's Financial Performance
The following graph compares the performance of Baxter's Common Stock with
the Standard & Poor's 500 Composite Index and the Standard & Poor's Health
Care Composite Index. The comparison of total return (change in year end stock
price plus reinvested dividends) for each of the years assumes that $100 was
invested on December 31, 1995 in each of Baxter, the Standard & Poor's 500
Index and the Standard & Poor's Health Care Composite Index, with investment
weighted on the basis of market capitalization. The 1996 Baxter dividend
includes the Allegiance Corporation stock dividend distributed in connection
with the spin-off of Allegiance Corporation by Baxter on September 30, 1996.
The 2000 Baxter dividend includes the Edwards Lifesciences Corporation stock
dividend distributed in connection with the spin-off of Edwards Lifesciences
Corporation by Baxter on March 31, 2000. Historical results are not
necessarily indicative of future performance.
12/95 12/96 12/97 12/98 12/99 12/00
---------------------------------------------------
Baxter International
Inc. $100 $114 $143 $186 $186 $278
S&P 500 $100 $123 $164 $211 $255 $229
S&P Health Care
Composite Index $100 $118 $168 $239 $217 $292
32
Minority Stockholder Proposal
Stockholder Proposal Relating to Declassification of the Board of Directors--
Proposal 5 on the Proxy Card
Baxter has been informed that the following stockholder proposal will be
presented for a vote at the 2001 Annual Meeting. The Board of Directors
recommends a vote AGAINST this proposal; its reasons follow the stockholder's
proposal and supporting statement.
Stockholder Proposal
Baxter has been notified that AFSCME (American Federation of State, County
and Municipal Employees, AFL-CIO), 1625 L Street, N.W., Washington, D.C.
20036-5687, beneficial owner of 4,100 shares of Baxter common stock, will have
the following resolution presented at the annual meeting:
RESOLVED: That the shareholders of Baxter International Inc. ("Baxter" or
the "Company") hereby urge the Board of Directors to take the necessary steps
to eliminate the classification of the Board of Directors of the Company and
to require that all Directors stand for election annually. The Board
declassification shall be completed in a manner that does not affect the
unexpired terms of Directors previously elected.
Stockholder's Statement Supporting the Proposed Resolution
We believe the election of directors is the most powerful way that
shareholders influence the strategic direction of our Company. Currently,
Baxter's Board is divided into three classes, one with five members and two
with four. Each class serves staggered three-year terms. Because of this
structure, shareholders may only vote on roughly one third of the Directors
each year. The staggered term structure of Baxter's Board is not in the best
interests of shareholders because it reduces accountability and is an
unnecessary anti-takeover device.
Shareholders should have the opportunity to vote on the performance of the
entire Board of Directors each year. We feel that such annual accountability
serves to keep Directors closely focused on the performance of top executives
and on increasing shareholder value. Annual election of all Directors gives
shareholders the power to either completely replace their Board, or replace a
majority of Directors, if a situation arises which warrants such drastic
action.
We are concerned about Baxter's unresponsiveness to shareholders regarding
its classified Board structure. Last year, 60% of the votes cast at the
company's annual meeting were in favor of a proposal to declassify the Board.
Our Board has refused to declassify the Board despite overwhelming shareholder
support to do so.
We do not believe destaggering the Board of Baxter will be destabilizing to
our Company or affect the continuity of Director service. Our Directors, like
the directors of the overwhelming majority of other public companies, are
routinely elected with over 95% shareholder approval.
We also do not find the anti-takeover aspects of classified boards valuable
to shareholders because they reduce our power and influence during situations
where Directors are most likely to have conflicts of interest. The staggered
board structure protects Baxter's Directors from replacement in the event
their performance or decisions become an issue in a takeover situation.
Additionally, studies indicate that classified boards and other anti-
takeover devices have an adverse impact on shareholder value. A 1991 study by
Lilli Gordon of the Gordon Group and John Pound of Harvard University found
that companies with restrictive corporate governance structures, including
those with classified boards, are "significantly less likely to exhibit
outstanding long-term performance relative to their industry peers."
33
Minority Stockholder Proposal
A growing number of shareholders appear to agree with our concerns. Last
year a majority of shareholders supported proposals asking their boards to
repeal classified board structures at a total of 34 companies, including
Eastman Kodak, Kmart, Foundation Health and Reebok International.
For a greater voice in the governance of Baxter and annual Board of Direc-
tors accountability, we urge shareholders to vote YES on this proposal.
Board of Directors' Statement Opposing Stockholder Resolution
In response to last years' stockholder vote on this proposal, which received
votes in favor representing approximately 41.6% of the total shares entitled
to vote at Baxter's annual meeting, the Board of Directors again carefully
considered repealing the declassification of the Board and found unanimously
that this would not serve the best interests of Baxter and its shareholders.
Accordingly, the Board recommends a vote AGAINST the proposed resolution for
reasons explained below.
Baxter's Certificate of Incorporation provides for the Board to be divided
into three classes of directors serving staggered three-year terms (classified
board). This provision was moved from Baxter's Bylaws to its charter in 1987
when a total restatement of the Certificate of Incorporation was adopted by
Baxter's stockholders.
Although the provision for a classified board was written into Baxter's
Restated Certificate of Incorporation just 14 years ago, Baxter has achieved
its current size and success under the guidance of a classified board for over
40 years. Baxter began functioning with a classified board following the
annual meeting of stockholders in 1959, when by a nearly unanimous affirmative
vote, the stockholders approved an amendment to Baxter's Bylaws to provide for
the election of three classes of directors in staggered three year terms.
The classified board provides enhanced continuity and stability in the
Board's business strategies and policies. At all times, two-thirds of the di-
rectors will have had prior experience and familiarity with Baxter's business
and affairs. This enables the directors to build on past experience and plan
for a reasonable period into the future. A classified board encourages long-
term focus in the management of the business and affairs of the corporation.
In addition to providing experienced directors, a staggered board helps the
corporation attract and retain highly qualified individuals willing to commit
the time and resources necessary to understand the corporation, its operations
and its competitive environment. The Investor Responsibility Research Center
recently reported that over 60% of corporations included in the S&P Index cur-
rently have similar procedures for staggered elections of members of the Board
of Directors.
Board classification is further intended to give the corporation valuable
protection against an unsolicited takeover unfavorable to stockholders. A
classified board permits a more orderly process for directors to consider any
and all alternatives to maximize stockholder value. The classified board is
intended to encourage persons who may seek to acquire control of Baxter to
initiate such action through negotiations with the Board. At least two
meetings of stockholders would generally be required to replace a majority of
the Board. By reducing the threat of an abrupt change in the composition of
the entire Board, classification of directors provides the Board with an
adequate opportunity to fulfill its duties to Baxter's stockholders to review
any takeover proposal, study appropriate alternatives and achieve the best
results for all stockholders.
Adoption of this proposal would not automatically eliminate the classified
board. Further action by the stockholders would be required to amend the
Restated Certificate of Incorporation, as amended. An affirmative vote of at
least two-thirds of the holders of all
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Minority Stockholder Proposal
securities of the corporation entitled to vote is required for repeal of the
classified board provision, which is set forth in Article SIXTH of the
Restated Certificate of Incorporation, as amended. Under Delaware law, an
amendment to the Certificate of Incorporation requires a recommendation from
the Board of Directors prior to submission to stockholders. While the Board
would consider such an amendment, it would do so consistent with its fiduciary
duty to act in a manner it believes to be in the best interest of Baxter and
its stockholders.
For the reasons stated above, the Board of Directors recommends a vote
AGAINST this proposal.
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Attending the Annual Meeting
The Annual Meeting will take place at the Drury Lane Theatre in Oakbrook
Terrace, Illinois. A map showing the meeting location appears at the end of
this proxy statement.
Admittance to the meeting will be limited to stockholders eligible to vote
or their authorized representatives. If you plan to attend the Annual Meeting,
simply indicate your intention by marking the designated box on the proxy
card, or by following the instructions provided when you vote through the
Internet or by telephone. Stockholders who wish to attend the Annual Meeting,
but do not wish to vote by proxy prior to the meeting, may register at the
door. Beneficial owners holding shares through a broker, bank or other nominee
will be admitted upon proof of ownership.
Reducing Mailing Expenses
New Proxy Rules: The SEC has adopted amendments to the proxy rules under the
Securities Exchange Act of 1934 that allow companies and intermediaries
(brokers) to satisfy the delivery requirements for proxy statements and annual
reports by delivering a single proxy statement and annual report to those
security holders who share the same address. Therefore, Baxter or an
intermediary may be in contact with you for your consent to receiving a single
proxy statement and annual report per household. We encourage you to provide
your consent as it will reduce the volume of duplicate information received at
your household as well as reduce our operating expenses.
If you are already participating in householding and no longer wish to do
so, please contact your bank or broker or Baxter's Investor Relations
Department at our principal executive offices at One Baxter Parkway,
Deerfield, Illinois 60015 or by calling (847) 948-2000.
Duplicates: If you received more than one copy of the 2000 Annual Report to
Stockholders at the same address and you wish to reduce the number you
receive, we will discontinue the mailing of the annual report on accounts you
select if you mark the designated box on the appropriate proxy card(s) or
follow the instructions provided when you vote through the Internet or by
telephone. At least one account at your address must continue to receive the
annual report, unless you elect to view future documents through the Internet.
Electronic Delivery: If you wish to view future proxy materials and annual
reports over the Internet instead of receiving copies in the mail, follow the
instructions provided when you vote through the Internet. You may contact us
at http://www.eproxyvote.com/bax during the proxy voting period. If you vote
by telephone, you will not have the option to elect electronic delivery while
voting. A registered stockholder may choose electronic delivery at any time
during the year by accessing the site directly at http://www.econsent.com/bax
and enrolling. If you elect electronic delivery, we will discontinue mailing
the proxy materials and annual reports to you beginning next year and send you
an e-mail message notifying you of the Internet address or addresses where you
may access the proxy materials and annual report.
Cost of Proxy Solicitation
Baxter will bear the costs of soliciting proxies. Copies of proxy
solicitation materials will be mailed to all stockholders, and employees of
Baxter may communicate with stockholders to solicit their proxies. Banks,
brokers and others holding stock in their names, or in the names of nominees,
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Other Information
may request and forward copies of the proxy solicitation material to
beneficial owners and seek authority for execution of proxies, and Baxter will
reimburse them for their expenses in doing so at the rates approved by the New
York Stock Exchange.
In addition, Baxter has retained D.F. King & Co., Inc., 77 Water Street, New
York, New York 10005 to assist in the distribution and solicitation of
proxies. Baxter has agreed to pay D.F. King & Co., Inc. a fee of $10,000 plus
expenses for these services.
Future Stockholder Proposals and Nominations
Any stockholder who intends to present a proposal at Baxter's annual meeting
to be held in 2002, and who wishes to have a proposal included in Baxter's
proxy statement for that meeting, must deliver the proposal to the Corporate
Secretary. All proposals must be received by the Corporate Secretary no later
than November 23, 2001 and must satisfy the rules and regulations of the
Securities and Exchange Commission to be eligible for inclusion in the proxy
statement for that meeting.
Stockholders may present proposals that are proper subjects for
consideration at an annual meeting, even if the proposal is not submitted by
the deadline for inclusion in the proxy statement. To do so, the stockholder
must comply with the procedures specified by Baxter's bylaws. The bylaws,
which are available upon request from the Corporate Secretary, require all
stockholders who intend to make proposals at an annual stockholders meeting to
submit their proposals to the Corporate Secretary not fewer than 60 and not
more than 90 days before the anniversary date of the previous year's annual
meeting.
The bylaws also provide that nominations for director may only be made by
the Board of Directors (or an authorized board committee) or by a stockholder
entitled to vote who sends notice to the Corporate Secretary not fewer than 60
nor more than 90 days before the anniversary date of the previous year's
annual meeting.
To be eligible for consideration at the 2002 annual meeting, proposals which
have not been submitted by the deadline for inclusion in the proxy statement
and any nominations for director must be received by the Corporate Secretary
between February 1 and March 2, 2002. This advance notice period is intended
to allow all stockholders to have an opportunity to consider all business and
nominees expected to be considered at the meeting.
All submissions to, or requests from, the Corporate Secretary should be made
to Baxter's principal executive offices at One Baxter Parkway, Deerfield,
Illinois 60015.
By order of the Board of Directors,
/s/ Jan Stern Reed
Jan Stern Reed
Corporate Secretary
Deerfield, Illinois
March , 2001
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EXHIBIT A
BAXTER INTERNATIONAL INC.
2001 INCENTIVE COMPENSATION PROGRAM
1. Purpose. The purpose of the Baxter International Inc. 2001 Incentive
Compensation Program ("Program") is to increase stockholder value and to
advance the interests of Baxter International Inc. ("Baxter") and its
subsidiaries (collectively, the "Company") by providing a variety of
economic incentives designed to attract, retain and motivate directors,
officers, other employees, consultants, independent contractors and
agents. As used in this Program, the term "subsidiary" means any entity,
whether or not incorporated, in which Baxter has a direct or indirect
interest in the equity of the entity.
2. Administration.
2.1 Administration by Committee. The Program shall be administered by the
Compensation Committee of the Baxter Board of Directors ("Committee"),
which shall consist of two or more non-employee directors within the
meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended
("Exchange Act") who also qualify as outside directors within the meaning
of Section 162(m) and the related regulations under the Internal Revenue
Code of 1986, as amended, except as otherwise determined by the Board of
Directors. The Board of Directors may also exercise any or all authority
otherwise delegated to the Committee under the terms of the Program with
respect to the grant or administration of incentives.
2.2 Authority. Subject to the provisions of the Program, the Committee shall
have the authority to (a) interpret the provisions of the Program, and
prescribe, amend, and rescind rules and procedures relating to the
Program, (b) grant incentives under the Program, in such forms and
amounts and subject to such terms and conditions as it deems appropriate,
including, without limitation, incentives which are made in combination
with or in tandem with other incentives (whether or not contemporaneously
granted) or compensation or in lieu of current or deferred compensation,
(c) modify the terms of, cancel and reissue, or repurchase outstanding
incentives, subject to subsection 11.9(b), (d) prescribe the form of
agreement, certificate or other instrument evidencing any incentive under
the Program, (e) correct any defect or omission and reconcile any
inconsistency in the Program or in any incentive hereunder, and (f) make
all other determinations and take all other actions as it deems necessary
or desirable for the administration of the Program; provided, however,
that in no event shall the Committee cancel any outstanding stock option
for the purpose of reissuing an option to the option holder at a lower
exercise price. The determination of the Committee on matters within its
authority shall be conclusive and binding on the Company and all other
persons. The Committee shall comply with all applicable law in
administering the Plan.
3. Participation. Subject to the terms and conditions of the Program, the
Committee shall determine and designate from time to time the directors
(including non-employee directors), officers and other employees of the
Company, persons expected to become directors, officers and other
employees, consultants, independent contractors and agents of the Company
who shall receive incentives under the Program ("Participants"). All
employees of the Company are eligible to receive incentives under the
Program. Participation in the Program, the grant of incentives, and any
related performance goals for persons subject to section 16(a) of the
Exchange Act, must be approved by the Committee. The Committee's
authority with respect to
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participation, the grant of incentives and related performance objectives
for others (persons not subject to section 16(a)) may be delegated. For
purposes of the Program, references to employment shall also mean service
as a director of Baxter as well as an agency or independent contractor
relationship.
4. Shares Subject to the Program
4.1 Number of Shares Reserved. Shares of common stock, $1.00 par value, of
Baxter ("Common Stock") shall be available for incentives under the
Program. To the extent provided by resolution of the Baxter Board of
Directors, such shares may be uncertificated. Subject to adjustment in
accordance with subsections 4.3 and 4.4, the aggregate number of shares
of Common Stock available for incentives under the Program shall be
10,000,000 shares.
4.2 Type of Common Stock. Common Stock issued under the Program in connection
with Stock Options and Performance Shares may be authorized and unissued
shares or issued shares held as treasury shares. Common Stock issued
under the Program in connection with Restricted Stock or Stock Awards
shall be issued shares held as treasury shares; provided, however, that
authorized and unissued shares may be issued in connection with
Restricted Stock or Stock Awards to the extent that the Committee
determines that past services of the Participant constitute adequate
consideration for at least the par value thereof.
4.3 Reusage of Shares.
(a) In the event of the exercise or termination (by reason of forfeiture,
expiration, cancellation, surrender or otherwise) of any incentive
under the Program, that number of shares of Common Stock that was
subject to the incentive but not delivered shall again be available
for incentives under the Program.
(b) In the event that shares of Common Stock are delivered under the
Program as Restricted Stock or pursuant to a Stock Award and are
thereafter forfeited or reacquired by the Company pursuant to rights
reserved upon the award thereof, such forfeited or reacquired shares
shall again be available for incentives under the Program.
(c) Notwithstanding the provisions of paragraphs (a) or (b), the following
shares of Common Stock shall not be available for reissuance under the
Program: (1) shares which are withheld from any award or payment under
the Program to satisfy tax withholding obligations (as described in
subsection 11.5(e)); (2) shares which are surrendered to fulfill tax
obligations (as described in subsection 11.5(e)); and (3) shares which
are surrendered in payment of the Option Price (as defined in
subsection 5.1) upon the exercise of a Stock Option.
4.4 Adjustments to Shares Reserved. In the event of any merger, consolidation,
reorganization, recapitalization, spinoff, stock dividend, stock split,
reverse stock split, exchange, or other distribution with respect to
shares of Common Stock or other change in the corporate structure or
capitalization affecting the Common Stock, the type and number of shares
of stock which are or may be subject to incentives under the Program, the
terms of any outstanding incentives (including the price at which shares
of stock may be issued pursuant to an outstanding incentive) and the
limitations set forth in Sections 5.1, 6, 7.1, and 8.1 shall be equitably
adjusted by the Committee, in its sole discretion, to preserve the value
of incentives awarded or to be awarded to Participants under the Program.
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5. Stock Options.
5.1 Awards. Subject to the terms and conditions of the Program, the Committee
shall designate the employees to whom options to purchase shares of
Common Stock ("Stock Options") are to be awarded under the Program and
shall determine the number, type, and terms of the Stock Options to be
awarded to each of them. Stock Option awards are subject to the following
specific limitations. Each Stock Option shall expire on the earlier of
the date provided by the option terms or the date which is 10 years and
one day after the date of grant. The option price per share ("Option
Price") for any Stock Option awarded shall not be less than the greater
of par value or the Fair Market Value of a share of Common Stock on the
date the Stock Option is awarded. Each Stock Option awarded under the
Program shall be a "nonqualified stock option" for tax purposes unless
the Stock Option satisfies all of the requirements of section 422 of the
Internal Revenue Code of 1986, as amended, and the Committee designates
such Stock Option as an "Incentive Stock Option". No person shall
receive, in any calendar year, Stock Options which, in the aggregate,
represent more than 500,000 shares of Common Stock, subject to adjustment
as set forth in Section 4.4.
5.2 Manner of Exercise. A Stock Option may be exercised, in whole or in part,
by giving written notice to Baxter prior to the date on which the Stock
Option expires; provided, however, that a Stock Option may only be
exercised with respect to whole shares of Common Stock. Such notice shall
specify the number of shares of Common Stock to be purchased and shall be
accompanied by payment of the Option Price for such shares in such form
and manner as the Committee may from time to time approve, provided,
however, that shares of Common Stock may not be used to pay any portion
of the Option Price unless such shares are shares of Common Stock for
which the holder thereof has good title, free and clear of all liens and
encumbrances and which such holder either (i) has held for at least six
months or (ii) has purchased on the open market. The Committee may
establish attestation procedures to be used in lieu of the actual
delivery of shares in payment of the Option Price.
5.3 Substitution of Cash. Notwithstanding any provision in this Program to
the contrary, or any provision in any agreement evidencing a Stock Option
awarded hereunder to the contrary, in the event of a Change in Control
pursuant to paragraph (1) or (2) of subsection 11.10, or in the event of
a Change in Control pursuant to paragraph (3) or (4) of subsection 11.10
in connection with which the holders of Common Stock receive
consideration other than shares of Common Stock that are registered under
Section 12 of the Exchange Act, the Committee shall have the authority to
require that any outstanding Stock Option be surrendered to the Company
by the holder thereof for cancellation by the Company, and the holder
thereof shall receive, within ten days of the occurrence of such Change
in Control, a cash payment from the Company in an amount equal to the
number of shares of Common Stock then subject to such Stock Option,
multiplied by the excess, if any, of the greater of (A) the highest per
share price offered to stockholders of Baxter in any transaction whereby
the Change in Control takes place or (B) the Fair Market Value of a share
of Common Stock on the date of occurrence of the Change in Control, over
the purchase price per share of Common Stock subject to the Stock Option.
6. Stock Awards. Subject to the terms and conditions of the Program, the
Committee shall designate the employees who shall be awarded shares of
Common Stock without restrictions ("Stock Awards"), under the Program and
shall determine the number and terms of the Stock Awards to be awarded to
each of them. Stock Awards are subject to the following specific
limitations. No person subject to section 16(a) of the Exchange Act may
receive a Stock Award,
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and no person eligible to receive a Stock Award may receive a Stock Award
representing more than 2,500 shares of Common Stock in any calendar year,
subject to adjustment as set forth in Section 4.4.
7. Restricted Stock.
7.1 Awards. Subject to the terms and conditions of the Program, the Committee
shall designate the employees to whom shares of Common Stock, subject to
restrictions ("Restricted Stock"), shall be awarded under the Program and
determine the number of shares and the terms and conditions of each such
award. Each Restricted Stock award shall entitle the Participant to
receive shares of Common Stock upon the terms and conditions specified by
the Committee and subject to the following provisions of this Section 7
and the provisions of Section 10, and no person eligible to receive
Restricted Stock may receive more than 50,000 shares in any calendar
year, subject to adjustment as set forth in Section 4.4.
7.2 Restrictions. All shares of Restricted Stock transferred or sold
hereunder shall be subject to such restrictions as the Committee may
determine, including, without limitation, any or all of the following:
(a) a required period of employment with the Company, as determined by the
Committee, prior to the vesting of the shares of Restricted Stock;
(b) a prohibition against the sale, assignment, transfer, pledge,
hypothecation or other encumbrance of the shares of Restricted Stock
for a specified period as determined by the Committee;
(c) a requirement that the holder of shares of Restricted Stock forfeit
(or in the case of shares sold to a Participant, resell to the Company
at his or her cost) all or a part of such shares in the event of
termination of his or her employment during any period in which such
shares are subject to restrictions; or
(d) a prohibition against employment of the holder of such Restricted
Stock by any competitor of the Company or against such holder's
dissemination of any secret or confidential information belonging to
the Company.
All restrictions on shares of Restricted Stock awarded pursuant to the
Program shall expire at such time or times as the Committee shall specify.
7.3 Registration of Shares. Shares of Restricted Stock awarded pursuant to
the Program shall be registered in the name of the Participant and, if
such shares are certificated, in the discretion of the Committee, may be
deposited in a bank designated by the Committee or with Baxter. The
Committee may require a stock power endorsed in blank with respect to
shares of Restricted Stock whether or not certificated.
7.4 Stockholder Rights. Subject to the terms and conditions of the Program,
during any period in which shares of Restricted Stock are subject to
forfeiture or restrictions on transfer, each Participant who has been
awarded shares of Restricted Stock shall have such rights of a
stockholder with respect to such shares as the Committee may designate at
the time of the award, including the right to vote such shares and the
right to receive all dividends paid on such shares. Unless otherwise
provided by the Committee, stock dividends or non-cash dividends and,
except as otherwise provided by subsection 11.10, any other securities
distributed with respect to Restricted Stock shall be restricted to the
same extent and subject to the same terms and conditions as the
Restricted Stock to which they are attributable.
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7.5 Lapse of Restrictions. Subject to the terms and conditions of the
Program, at the end of any time period during which the shares of
Restricted Stock are subject to forfeiture or restrictions on transfer,
such shares will be delivered free of all restrictions to the Participant
(or to the Participant's legal representative, beneficiary or heir).
7.6 Substitution of Cash. The Committee may, in its sole discretion,
substitute cash equal to the Fair Market Value (determined as of the date
of the distribution) of shares of Common Stock otherwise required to be
distributed to a Participant in accordance with this Section 7.
8. Performance Shares.
8.1 Awards. A performance share is an award which shall be paid in shares of
Common Stock, as described below. Subject to the terms and conditions of
the Program, the Committee shall designate the employees to whom
Performance Shares are to be awarded in accordance with this Section 8
and the number of shares subject to the award and the terms and
conditions of such awards. No person eligible for a Performance Share
Award shall receive more than 50,000 shares in any calendar year, subject
to adjustment as set forth in Section 4.4. Each Performance Share awarded
pursuant to this Section 8 shall entitle the Participant to a payment in
the form of one share of Common Stock upon the attainment of such
performance goals and other terms and conditions as may be specified by
the Committee.
8.2 No Adjustments. Except as otherwise provided by the Committee, no
adjustment shall be made in Performance Shares awarded on account of cash
dividends which may be paid or other rights which may be provided to the
holders of Common Stock prior to the end of any period for which
performance goals were established.
8.3 Substitution of Cash. The Committee may, in its sole discretion,
substitute cash equal to the Fair Market Value (determined as of the date
of the issuance) of shares of Common Stock otherwise required to be
issued to a Participant in accordance with this Section 8.
9. Other Incentives. In addition to the incentives described in Sections 5
through 8 above and subject to the terms and conditions of the Program,
the Committee may grant other incentives ("Other Incentives"), payable in
cash or in kind, under the Program as it determines to be in the best
interest of the Company.
10. Performance Goals and Application of Tax Deduction Limitations.
Compensation attributable to a Stock Option awarded to a Participant is
intended to satisfy the requirements of the exception for qualified
performance-based compensation within the meaning of section 162(m) and
the related regulations under the Internal Revenue Code of 1986, as
amended. All awards of Restricted Stock, Performance Shares, and Other
Incentives under the Program, to persons subject to section 16(a) of the
Exchange Act, shall be made subject to the attainment of performance
goals relating to one or more of the business criteria within the meaning
of section 162(m) identified above, including but not limited to, stock
price, market share, sales, net earnings, earnings per share, return on
equity, costs, and cash flow, as determined by the Committee from time to
time.
11. General.
11.1 Effective Date. The Program will become effective upon its approval by
the affirmative vote of the holders of a majority of the voting stock of
Baxter present in person or represented by proxy and entitled to vote
thereon at a meeting of Baxter's stockholders. Unless approved within
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one year after the date of the Program's adoption by the Board of
Directors, the Program shall not be effective for any purpose. Prior to
the approval of the Program by Baxter's stockholders, the Committee may
award incentives, but if such approval is not received in the specified
period, then such awards shall be of no effect.
11.2 Duration. The Program shall remain in effect until all incentives granted
under the Program have either been satisfied by the issuance of shares of
Common Stock or the payment of cash or been terminated in accordance with
the terms of the Program or the incentive and until all restrictions
imposed on shares of Common Stock issued under the Program have lapsed.
No incentive may be granted under the Program after the tenth anniversary
of the date the Program is approved by Baxter's stockholders.
11.3 Non-transferability of Incentives. No share of Restricted Stock,
Performance Share, or Other Incentive under the Program may be
transferred, pledged, or assigned by the holder thereof (except, in the
event of the holder's death, by will or the laws of descent and
distribution to the limited extent provided in the Program or in the
terms of the incentive), and the Company shall not be required to
recognize any attempted assignment of such rights by any Participant.
Stock Options may be transferred by the holder thereof to the limited
extent authorized by rules and procedures established by the Committee
from time to time.
11.4 Effect of Termination of Employment or Death. If a Participant ceases to
be an employee of the Company for any reason, including death, any
incentives then outstanding may be exercised or shall expire in
accordance with the terms of the incentive.
11.5 Compliance with Applicable Law and Withholding.
(a) Notwithstanding any other provision of the Program, Baxter shall have
no obligation to issue any shares of Common Stock under the Program if
such issuance would violate any applicable law or any applicable
regulation or requirement of any securities exchange or similar
entity.
(b) Prior to the issuance of any shares of Common Stock under the Program,
Baxter or the Company may require a written statement that the
recipient is acquiring the shares for investment and not for the
purpose or with the intention of distributing the shares and that the
recipient will not dispose of them in violation of the registration
requirements of the Securities Act of 1933.
(c) With respect to any person who is subject to section 16(a) of the
Exchange Act, the Committee may, at any time, add such conditions and
limitations to any incentive or payment under the Program or implement
procedures for the administration of the Program which it deems
necessary or desirable to comply with the requirements of Rule 16b-3
of the Exchange Act.
(d) If, at any time, Baxter, in its sole discretion, determines that the
listing, registration, or qualification (or any updating of any such
document) of any type of incentive, or the shares of Common Stock
issuable pursuant thereto, is necessary on any securities exchange or
under any federal or state securities or blue sky law, or that the
consent or approval of any governmental regulatory body is necessary
or desirable as a condition of, or in connection with, any incentive,
the issuance of shares of Common Stock pursuant to any incentive, or
the removal of any restrictions imposed on shares subject to an
incentive, such incentive shall not be granted and the shares of
Common Stock shall not be issued or such
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restrictions shall not be removed, as the case may be, in whole or in
part, unless such listing, registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions
not acceptable to Baxter.
(e) All incentives and payments under the Program are subject to
withholding of all applicable taxes and the Company shall have the
right to withhold from any award under the Program or to collect as a
condition of any payment under the Program, as applicable, any taxes
required by law to be withheld. To the extent provided by the
Committee, a Participant may elect to have any distribution, or a
portion thereof, otherwise required to be made under the Program to
be withheld or to surrender to the Company previously owned shares of
Common Stock to fulfill any tax withholding obligation.
11.6 No Continued Employment. The Program does not constitute a contract of
employment or continued service, and participation in the Program will
not give any employee or Participant the right to be retained in the
employ of the Company or the right to continue as a director of the
Company or any right or claim to any benefit under the Program unless
such right or claim has specifically accrued under the terms of the
Program or the terms of any incentive under the Program.
11.7 Treatment as a Stockholder. No incentive granted to a Participant under
the Program shall create any rights in such Participant as a stockholder
of Baxter until shares of Common Stock related to the incentive are
registered in the name of the Participant.
11.8 Deferral Permitted. Payment of cash to a Participant or distribution of
any shares of Common Stock to which a Participant is entitled under any
incentive shall be made as provided in the terms of the incentive.
Payment may be deferred at the request of the Participant to the extent
provided in the incentive.
11.9 Amendment of the Program. The Board may, at any time and in any manner,
amend, suspend, or terminate the Program or any incentive outstanding
under the Program; provided, however, that no such amendment or
discontinuance shall:
(a) be made without stockholder approval to the extent such approval is
required by law, agreement or the rules of any exchange or automated
quotation system upon which the Common Stock is listed or quoted;
(b) alter or impair the rights of Participants with respect to incentives
previously made under the Program without the consent of the holder
thereof; or
(c) make any change that would disqualify awards made under the Program,
intended to be so qualified, from the exemption provided by Rule 16b-
3 of the Exchange Act.
11.10 Acceleration of Incentives. Notwithstanding any provision in this
Program to the contrary or the normal terms of vesting in any
incentive, (a) the restrictions on all shares of Restricted Stock
awarded shall lapse immediately, (b) all outstanding Stock Options will
become exercisable immediately, and (c) all performance goals shall be
deemed to be met and payment made immediately if a Change in Control
occurs. For purposes of this Program, a "Change in Control" shall have
occurred if:
(1) any "Person", as such term is used in Section 13(d) and 14(d) of the
Exchange Act (other than Baxter, any corporation owned, directly or
indirectly, by the stockholders of Baxter in
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substantially the same proportions as their ownership of stock of
Baxter, and any trustee or other fiduciary holding securities under an
employee benefit plan of Baxter or such proportionately owned
corporation), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities
of Baxter representing 30% or more of the combined voting power of
Baxter's then outstanding securities;
(2) during any period of not more than 24 months, individuals who at the
beginning of such period constitute the Board of Directors of Baxter,
and any new director (other than a director designated by a Person
who has entered into an agreement with Baxter to effect a transaction
described in paragraph (1), (3) or (4) of this subsection 11.10)
whose election by the board or nomination for election by Baxter's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at
least a majority thereof;
(3) a merger or consolidation of Baxter with any other corporation shall
be consummated, other than (A) a merger or consolidation which would
result in the voting securities of Baxter outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity) more than 60% of the combined voting power of the
voting securities of Baxter or such surviving entity outstanding
immediately after such merger or consolidation, or (B) a merger or
consolidation effected to implement a recapitalization of Baxter (or
similar transaction) in which no Person acquires more than 30% of the
combined voting power of Baxter's then outstanding securities; or
(4) a plan of complete liquidation or dissolution of Baxter or an
agreement for the sale or disposition by Baxter of all or
substantially all of Baxter's assets (or any transaction having a
similar effect) shall be consummated.
11.11 Definition of Fair Market Value. Except as otherwise determined by the
Committee, the "Fair Market Value" of a share of Common Stock as of any
date shall be equal to the closing sale price of a share of Common
Stock as reported on The National Association of Securities Dealers'
New York Stock Exchange Composite Reporting Tape (or if the Common
Stock is not traded on the New York Stock Exchange, the closing sale
price on the exchange on which it is traded or as reported by an
applicable automated quotation system) ("Composite Tape") on the
applicable date or, if no sales of Common Stock are reported on such
date, the closing sale price of a share of Common Stock on the date the
Common Stock was last reported on the Composite Tape (or such other
exchange or automated quotation system, if applicable).
viii
Other Information
EXHIBIT B
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF BAXTER INTERNATIONAL INC.
Statement of Purpose
The primary purpose of the Audit Committee (the "Committee") of the Board of
Directors (the "Board") of Baxter International Inc. ("Baxter" or the
"Corporation") is to assist the Board in fulfilling its oversight
responsibilities. The Committee will review the Corporation's financial
reporting process, system of internal control, audit process and the process
for monitoring compliance with laws and regulations. In performing its duties,
the Committee will maintain effective working relationships with and open
communication between the Board, management and the internal and independent
auditors.
Organization and Meetings
The Committee, a standing committee of the board, will be composed of three
or more directors, each of whom has no relationship to Baxter that may
interfere with the exercise of his or her independence from management and the
Corporation. All members of the Committee will be financially literate, or
will become financially literate within a reasonable period of time after
appointment to the Committee, and at least one member of the Committee will
possess accounting or related financial management expertise, as the Board
interprets such qualifications. Members of the Committee, including its
Chairperson, shall be elected by the Board at the annual organizational
meeting of the Board and shall serve until their successors shall have been
duly elected and qualified.
The Committee will have at least four regularly scheduled meetings each
year, with additional meetings to be held as circumstances require. The
Committee will keep minutes of its meetings, and will regularly report to the
Board on its activities, making recommendations as appropriate.
Key Responsibilities
The Committee's job is one of oversight and it recognizes that the
Corporation's management is responsible for preparing the Corporation's
financial statements and that the outside auditors are responsible for
auditing those financial statements. Additionally, the Committee recognizes
that financial management, including the internal audit staff as well as the
outside auditors, have more time, knowledge and more detailed information on
the Corporation than do Committee members; consequently, in carrying out its
oversight responsibilities, the Committee is not providing any expert or
special assurance as to the Corporation's financial statements or any
professional certification as to the outside auditor's work.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight function. These functions are set
forth as a guide with the understanding that the Committee may diverge from
this guide as appropriate given the circumstances.
Internal Control
. Review Baxter's policies and procedures with management and recommend to
the Board any changes considered appropriate.
i
Other Information
. Review the adequacy and effectiveness of Baxter's financial and accounting
controls with the independent auditor and the internal auditor, as
appropriate, receiving recommendations for the improvement of such controls
and reviewing whether any such previously approved recommendations have
been implemented.
External Control
. Review and recommend to the Board the independent auditor to be selected to
audit Baxter's consolidated financial statements. The Committee, subject to
any action that may be taken by the full Board, shall have the ultimate
authority and responsibility to select, evaluate and, where appropriate,
replace the independent auditor, and the independent auditor shall be
ultimately accountable to the Committee and the Board.
. Ensure the objectivity of the independent auditor by reviewing and
discussing with the independent auditor all significant relationships which
the auditor has with the Corporation and its affiliates, including: (i)
requesting, receiving and reviewing, on an annual basis, a formal written
statement delineating all relationships which may reasonably be thought to
bear on the independence of the independent auditor with respect to the
Corporation in accordance with professional standards governing such
independence; (ii) discussing with the independent auditor any disclosed
relationships or services that may impact the objectivity and independence
of the independent auditor; and (iii) recommending that the Board take
appropriate action in response to the independent auditor's report to
satisfy itself of the independence of the independent auditors.
. Meet with the independent auditor and management to review the proposed
audit scope and procedures to be utilized.
. At the conclusion of each annual audit, review such matters related to the
conduct of the audit that are to be communicated to the Committee under
generally accepted auditing standards, as well as any other comments or
recommendations made by the independent auditor.
Internal Audit
. Review the qualifications and organizational structure of the internal
audit function and concur in the appointment, replacement, reassignment or
dismissal of the Vice President , corporate audit.
. Review the proposed audit plan of the internal auditor, including the
independence and authority of the internal auditor's reporting obligations,
the adequacy of internal audit resources and the coordination and
completeness of coverage between the internal and independent auditors.
. Receive periodic summaries of findings from completed internal audits and,
as appropriate, the status of major audits in process. Receive progress
reports on the completion of the current year's internal audit plan,
including explanations for any significant deviations from the plan.
Financial Reporting
. Review the Corporation's consolidated financial statements that will be
contained in its Annual Report to Shareholders with management and the
independent auditor to determine whether they are complete and consistent
with information known to the Committee members, and whether the
independent auditor is satisfied with the disclosure and content of those
financial statements. Based on such review, recommend to the Board that the
consolidated financial statements of the
ii
Other Information
Corporation be included in its Annual Report on Form 10-K (or the Annual
Report to Shareholders if distributed prior to the filing of the Form 10-K
with the Securities and Exchange Commission).
. Review with management, the independent auditor and the internal auditor
the interim consolidated financial statements of the Corporation and the
results of the independent auditor's review of those statements. This
review shall occur prior to the Corporation's filing of the Form 10-Q with
the Securities and Exchange Commission and may, at the Committee's
discretion, be performed by the Committee Chairperson.
. Discuss with the independent auditor the auditor's judgments about the
quality and the acceptability of accounting principles used to prepare the
Corporation's consolidated financial statements. Review the impact on the
annual financial statements of any significant accounting and reporting
issues, including recent professional and regulatory pronouncements and any
newly adopted or proposed changes in accounting principles that would
significantly affect Baxter or its consolidated financial statements.
Ethical and Legal Compliance
. Assure that a system is in place for monitoring compliance with laws and
regulations, including receiving reports from the General Counsel on the
results of management's review of compliance with Baxter's policies and any
investigations by management related to significant fraudulent acts or
irregularities.
. Periodically review with the General Counsel Baxter's preventive law
program and activities, as well as any legal and regulatory matters that
may have a material impact on Baxter.
. In conjunction with the Public Policy Committee, evaluate whether
management is setting the appropriate "tone at the top" by communicating
the importance of Baxter's ethical and business practices standards,
including the importance of internal accounting controls.
Other Responsibilities
. Meet separately with the internal auditor and the independent auditor
without members of management present to discuss any matters that the
auditors or the Committee believe should be discussed privately.
. Review with the General Counsel any legal matters that could have a
significant impact on the Corporation's financial statements.
. If necessary, institute special investigations and, if appropriate, hire
special counsel or experts to assist in such investigations as needed.
. Review the policies and procedures in effect for considering officers'
expenses and perquisites.
. Perform such other oversight functions as assigned by law, the
Corporation's articles of incorporation, as amended or restated, the bylaws
of the Corporation or the Board of Directors.
. Review and discuss the adequacy of the Audit Committee Charter on an annual
basis, or more frequently upon changes to the membership of the Committee
or as otherwise needed.
Approved and adopted by the Baxter International Inc. Board of Directors
March 21, 2000
iii
Other Information
Directions to the Annual Meeting
[MAP]
From downtown Chicago From O'Hare Airport
Take I-290 West to I-88 West, Take I-190 East to I-294 South,
Immediately after you pay the first Take I-294 South to I-88 West,
toll on I-88, exit at Cermak Road, Immediately after you pay the first
Proceed straight at stop light on toll on I-88, exit at Cermak Road,
Spring Road, Proceed straight at stop light on
You will then pass through two stop Spring Road,
lights and will pass the Hyatt on You will then pass through two stop
your right, lights and will pass the Hyatt on
After the second stop light, turn your right,
right onto Drury Lane, After the second stop light, turn
Turn left at Drury Lane Entrance right onto Drury Lane,
sign. Turn left at Drury Lane Entrance
sign.
From the Western suburbs
Take I-88 East, exit at Midwest From Baxter Corporate Headquarters in
Road, Deerfield
After paying toll, turn right at Take I-294 South to I-88 West,
stop light onto Midwest Road, Immediately after you pay the first
Turn right at stop light onto 22nd toll on I-88, exit at
Street, Cermak Road,
Turn left at stop light onto Route Proceed straight at stop light on
83 (Kingery Highway), Spring Road,
Proceed straight on Route 83 (past You will then pass through two stop
Oak Brook Shopping Center) to lights and will pass
Butterfield/Roosevelt Road, the Hyatt on your right,
Exit to right onto After the second stop light, turn
Butterfield/Roosevelt Road and right onto Drury Lane,
proceed to Drury Lane (South), Turn left to the Drury Lane Entrance
Turn right at Drury Lane Entrance sign.
sign.
PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 1, 2001
Solicited by the Board of Directors of Baxter International Inc.
The undersigned hereby appoint(s) Harry M. Jansen Kraemer, Jr. and Thomas J.
Sabatino, Jr., and each of them, as proxyholders, with the powers the
undersigned would possess if personally present and with full power of
substitution, to vote all shares of common stock of the undersigned in Baxter
International Inc. (including shares credited to the Dividend Reinvestment Plan
and the Employee Stock Purchase Plan) at the Annual Meeting of Stockholders to
be held on May 1, 2001, and at any adjournment thereof, upon all subjects that
may properly come before the meeting, subject to any directions indicated on the
reverse side of this card. If no directions are given, the proxyholders will
vote: for the election of the three nominees for director listed hereon; in
accordance with the Board of Directors' recommendations on the matters listed on
the reverse side of this card; and at their discretion on any other matter that
may properly come before the meeting.
Election of Directors, Nominees:
01 Pei-yuan Chia
02 Arnold J. Levine, Ph.D.
03 Monroe E. Trout, M.D.
Comments/Change of Address
______________________________________
______________________________________
______________________________________
______________________________________
______________________________________
To vote through the Internet or by telephone, please see the instructions on the
reverse side of this card. To vote by mail, please sign and date this card on
the reverse and mail promptly in the enclosed postage-paid envelope.
SEE REVERSE
SIDE
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
ELECTRONIC DISSEMINATION OF FUTURE PROXY MATERIALS
If you wish to access future proxy materials and the annual report via the
Internet instead of receiving copies in the mail, please follow the directions
below.
If you elect to vote via the Internet at http://www.eproxyvote.com/bax, a link
to the site during the 2001 proxy voting period will enable you to enroll for
the electronic dissemination of next year's proxy material.
Any registered stockholder may elect the electronic dissemination of next year's
proxy material at any time during the year by enrolling at
http://www.econsent.com/bax.
[X] Please mark your 8552
votes as in this
example.
This proxy, when properly executed, will be voted in the manner directed
herein. If no directions are given, this proxy will be voted FOR election
of directors, FOR proposals 2, 3, and 4 and AGAINST proposal 5.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1, 2, 3 and 4.
- --------------------------------------------------------------------------------
1. Election of FOR WITHHOLD
Directors [_] [_]
(See Reverse).
For, except vote withheld from the following nominee(s):
_________________________________________________________
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of [_] [_] [_]
independent
accountants.
3. Approval to increase [_] [_] [_]
the authorized
shares of common
stock.
FOR AGAINST ABSTAIN
4. Adoption of Baxter's 2001 [_] [_] [_]
Incentive Compensation
Program.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST proposal 5.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
5. Proposal relating to [_] [_] [_]
declassification of the
board of directors.
- --------------------------------------------------------------------------------
Mark the box if you have more than one account and want to discontinue [_]
receiving multiple copies of future annual reports.
Mark the box if you will attend the Annual Meeting. [_]
Mark the box if you want your votes treated as confidential. [_]
SIGNATURE (S) ______________________________ DATE _______
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournment thereof.
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
Baxter encourages you to take advantage of several convenient ways to vote your
shares on the matters to be covered at the 2001 Annual Meeting of Stockholders.
Please take the opportunity to use one of the three voting methods outlined
below to cast your ballot. If you vote through the Internet or by telephone, use
the voter control number printed in the box above, just below the perforation.
Your vote authorizes the named proxies to act in the same manner as if you
marked, signed, dated and returned the proxy card.
1. Vote through the Internet. Log on to the Internet and go to the web site
http:// www.eproxyvote.com/bax. Internet voting is available 24 hours a day,
7 days a week until 24 hours prior to the Annual Meeting. Have this proxy
card in hand when you log on and follow the step-by-step instructions
provided on the screen.
2. Vote by phone. United States and Canadian stockholders may call 1-877-PRX-
Vote (1-877-779-8683) from any touch-tone telephone. Stockholders in other
countries may call 201-536-8073. Telephone voting is available 24 hours a
day, 7 days a week until the Annual Meeting begins. Have your proxy card in
hand when you call. To vote in accordance with the recommendations of the
Board of Directors on ALL proposals, press 1. Your vote will be confirmed and
cast as directed and the call will end. If you wish to vote on each proposal
separately, press 2.
3. Vote by mail. Mark, sign and date your proxy card (above) and return it in
the postage-paid envelope herein provided or otherwise return it to Baxter,
P.O. Box 8616, Edison, New Jersey 08818-8616.
Thank You For Your Vote
[LOGO]
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015-4633