UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [_]
Check the appropriate box:
[_] Preliminary proxy statement.
[_] Confidential, for use of the Commission only (as
permitted by Rule 14a-6(e)(2)).
[X] Definitive proxy statement.
[_] Definitive additional materials.
[_] Soliciting material under Rule 14a-12.
Baxter International Inc.
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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.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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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 the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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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 was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Letter to Stockholders
Baxter International Inc. 847.948.2000
One Baxter Parkway
Deerfield, Illinois 60015
[CHART]
Baxter
March 21, 2003
To our Stockholders:
The Board of Directors joins me in inviting you to attend the 2003 Annual
Meeting of Stockholders. The meeting will be held at the Drury Lane Theatre
in Oakbrook Terrace, Illinois, on Tuesday, May 6, 2003. The meeting will
begin at 10:30 a.m. Central time. Registration will begin at 9:00 a.m.
At the meeting, in addition to covering matters in the proxy statement, I
will report on Baxter's business and our achievements in 2002. I believe
that Baxter is well-positioned for future success in the global healthcare
environment. I look forward to discussing our plans for Baxter's future at
the Annual Meeting, and I hope to see you there.
Sincerely,
/s/ Harry M. Jansen Kraemer, Jr.
HARRY M. JANSEN KRAEMER, JR.
Chairman of the Board and
Chief Executive Officer
[GRAPHIC]
Recycled Printed on Recycled Paper
Notice of Annual Meeting
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
[CHART]
Baxter
March 21, 2003
Notice of Annual Meeting of Stockholders
The 2003 Annual Meeting of Stockholders of Baxter International Inc. will
be held at the Drury Lane Theatre in Oakbrook Terrace, Illinois, on
Tuesday, May 6, 2003 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 2003;
3. To approve the 2003 Incentive Compensation Program;
4. To act on a stockholder proposal relating to cumulative voting in the
election of directors; and
5. To transact any other business which is properly presented at the
meeting.
Stockholders of record at the close of business on March 7, 2003 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. You have the option of voting your shares through the
Internet, by telephone or by mailing the enclosed proxy card. Instructions
for our registered stockholders are described under the question "How do I
vote?" on page 2 of the 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 43 of the proxy statement under the heading
"Reducing Mailing Expenses."
By order of the Board of Directors,
/s/ Jan Stern Reed
Jan Stern Reed
Corporate Secretary and
Associate General Counsel
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[CHART]
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 21, 2003, to owners of shares of Baxter common
stock in connection with the solicitation of proxies by the Board of Directors
for the 2003 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 2003 Incentive Compensation Program--Proposal 3 on the Proxy Card........ 6
Board of Directors:
Director Biographies................................................................. 12
Corporate Governance................................................................. 15
Committees of the Board.............................................................. 18
Compensation of Directors............................................................ 21
Audit Committee Report.................................................................. 22
Compensation Committee Report........................................................... 23
Executive Compensation:
Summary.............................................................................. 27
Stock Option Grants.................................................................. 29
Stock Option Exercises............................................................... 30
Pension Plan, Excess Plans and Supplemental Plans.................................... 30
Ownership of Baxter Stock:
Stock Ownership of Directors and Officers............................................ 33
Stock Ownership of Largest Stockholder............................................... 35
Section 16(a) Beneficial Ownership Reporting Compliance.............................. 35
Equity Compensation Plan Information.................................................... 36
Baxter's Financial Performance.......................................................... 40
Minority Stockholder Proposal:
Cumulative Voting in the Election of Directors--Proposal 4 on the Proxy Card......... 41
Other Information:
Attending the Annual Meeting......................................................... 43
Reducing Mailing Expenses............................................................ 43
Cost of Proxy Solicitation........................................................... 43
Future Stockholder Proposals and Nominations......................................... 44
Exhibit A--2003 Incentive Compensation Program....................................... A-i
Exhibit B--Revised Audit Committee Charter........................................... B-i
Directions to the Annual Meeting..................................................... Back Cover
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 wish to attend the Annual Meeting, please follow the
instructions on page 43 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 7, 2003 are entitled to vote. On that day,
approximately 597,020,517 shares were issued and outstanding and eligible
to vote. Each share is entitled to one vote on each matter presented at the
Annual Meeting.
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 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
accordance 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
approval of the 2003 Incentive Compensation Program, and against the
minority stockholder proposal.
Q: On what am I voting?
A: There are four items on the agenda: (1) election of three directors, (2)
ratification of the appointment of the independent accountants, (3)
approval of the 2003 Incentive Compensation Program, all of which are
supported by the Board and management, and (4) one minority stockholder
proposal relating to cumulative voting in the election of directors, which
is opposed by the Board and 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
indicated 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 (continued)
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
another proxy bearing a later date (in any of the permitted forms); or
casting 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. 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 beneficial holders at least ten days before the meeting. If that
happens, the nominees may vote those shares only on matters deemed
"routine" by the New York Stock Exchange, such as the election of
directors, ratification of the appointment of independent accountants, and
approval of the 2003 Incentive Compensation Program. On non-routine
matters, such as the minority stockholder proposal, nominees cannot vote
unless they receive voting instructions from beneficial holders, resulting
in so-called "broker non-votes." Broker non-votes have no effect on the
outcome of any of the matters specified in the Notice of Annual Meeting.
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
Annual 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
Purchase Plan, and shares credited to your Incentive Investment Plan
account held in custody by the plan trustee, State Street Bank. The proxy
card does not cover shares held by you through a broker, bank or other
nominee.
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 eleven 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 2006.
John W. Colloton, whose current term expires on May 6, 2003, will not run for
re-election as he is retiring from the Board. In addition, Susan Crown, whose
current term also expires on May 6, 2003, has decided not to run for
re-election. The Board and management would like to thank Mr. Colloton and Ms.
Crown for their many years of dedicated service to Baxter and its stockholders.
In February 2003, the Board elected James R. Gavin III, M.D., Ph.D. to serve as
a director until the 2003 Annual Meeting of Stockholders. The Board has
nominated the following persons for election, all of whom except Mr. Storm are
currently directors of Baxter:
Walter E. Boomer
James R. Gavin III, M.D., Ph.D.
Kees J. Storm
Information regarding each of the nominees follows on page 12. 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 Audit Committee of the Board of Directors has appointed
PricewaterhouseCoopers LLP (PwC) as independent accountants for Baxter in 2003.
The Audit Committee requests that the stockholders ratify the appointment. If
the stockholders do not ratify the appointment, the Audit Committee will
consider the selection of another public accounting firm for 2003 and future
years.
One or more representatives of PwC 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 PwC relating to the audit of the
consolidated annual financial statements and all other services performed to
comply with generally accepted auditing standards such as those related to debt
and equity offerings and reviews of reports filed with the Securities and
Exchange Commission, aggregated approximately $4.8 million in 2002 and $5.3
million in 2001.
4
Management Proposals (continued)
Audit-Related Fees
Fees for assurance and related services performed by PwC related to the
performance of the audit or review of the financial statements, including
acquisition due diligence, internal control reviews and employee benefit plan
audits, aggregated approximately $500,000 in 2002 and $800,000 in 2001.
Tax Fees
Fees for services performed by PwC for international, federal, state and
local tax compliance, tax advice, and tax planning, including acquisition,
transfer pricing and VAT reviews, aggregated approximately $5.8 million in 2002
and $8.8 million in 2001.
All Other Fees
Fees for all other services performed by PwC aggregated approximately $12.3
million in 2002 and $29.4 million in 2001. These amounts include fees of
approximately $12.1 million in 2002 and $28.7 million in 2001 which were paid
to PwC's consulting business, which was separated from PwC on October 1, 2002
and is now part of a separate publicly-traded company. These amounts include
approximately $3.6 million in 2002 and $17.9 million in 2001 related to
financial system design and implementation services, all of which were paid to
PwC's consulting business. Excluding fees paid to PwC's consulting business
which is now separated from PwC and part of a separate company, fees for all
other services performed by PwC, primarily acquisition integration services,
aggregated approximately $200,000 in 2002 and $700,000 in 2001. Since the Audit
Committee, with the endorsement of the full Board of Directors, revised its
guidelines in February 2002 to permit the completion of then existing projects
but otherwise preclude the use of PwC for any new financial systems and
management consulting services, the company has not engaged PwC to perform any
such new services.
Reports on PwC projects and services are presented to the Audit Committee
on a regular basis. The Audit Committee is responsible for the engagement for
all audit services. In February 2003, the Audit Committee established
pre-approval policies and procedures for engaging PwC for permitted non-audit
services identified in the policy. The engagement for these non-audit services
will require the pre-approval of the chairman of the Audit Committee or the
entire Audit Committee, depending upon the amount of the engagement.
The Proxyholders intend to vote the shares represented by proxy in favor of
the ratification of the appointment of PwC as independent accountants, except
to the extent a stockholder votes against or abstains from voting on this
proposal.
The Audit Committee of the Board of Directors recommends a vote FOR the
ratification of the appointment of PwC as independent accountants for Baxter in
2003.
5
Management Proposals (continued)
Approval of 2003 Incentive Compensation Program--Proposal 3 on the Proxy Card
On February 25, 2003, the Board of Directors adopted the 2003 Incentive
Compensation Program (the "Program"), subject to approval by Baxter's
stockholders. The Program is similar to the 2001 Incentive Compensation
Program, which Baxter's stockholders approved at the 2001 Annual Meeting of
Stockholders. As of February 28, 2002, a total of approximately 3,062,264
shares of Baxter Common Stock remained available for future awards under
Baxter's Incentive Compensation Programs. The Board of Directors believes that
it is in the best interest of Baxter and its stockholders to adopt a new
program, approved by Baxter's stockholders, that will allow Baxter to continue
to provide long-term incentives to employees and others providing services to
Baxter. The Board and management believe that stock incentives are critical to
Baxter's ability to attract, retain and motivate employees. If the Program is
not approved by stockholders, the Program will not be effective and, under
rules currently proposed by the New York Stock Exchange, the additional
25,000,000 shares authorized by the Program would not be available for future
awards, which would put Baxter at a competitive disadvantage. For further
information on the company's current stock incentive programs, please refer to
"Equity Compensation Plan Information" beginning on page 36 of this proxy
statement.
The Program contains a number of provisions that the Board of Directors
believes are consistent with the interests of stockholders and sound corporate
governance practices. These include:
. Prohibition on Stock Option Repricings. The Program prohibits the
cancellation of any outstanding stock option for the purpose of
reissuing an option to the option holder at a lower exercise price.
. No Discount Stock Options. The Program prohibits the grant of a stock
option with an exercise price of less than the fair market value of
Baxter Common Stock on the date the stock option is granted.
. Independent Committee. The Program will be administered by the
Compensation Committee, which is comprised of independent, non-employee
directors. As further described under "Board of Directors-Corporate
Governance" and "Board of Directors-Committees of the Board" below, the
Board of Directors has determined, after careful review, that all
members of the Compensation Committee are independent as defined by
Baxter's Corporate Governance Guidelines and the rules currently
proposed by the New York Stock Exchange.
. No Annual "Evergreen" Provision. The Program provides for a specific
number of shares available for awards.
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.
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
6
Management Proposals (continued)
independent contractor of Baxter as selected from time to time by the
Compensation Committee. As of December 31, 2002, Baxter had approximately
54,600 employees.
The Program will be administered by the Compensation Committee of the Board
of Directors (the "Committee"). The Committee must consist of two or more
non-employee directors within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934, as amended, who qualify as outside directors under
Section 162(m) of the Internal Revenue Code, as amended.
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, 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 25,000,000 shares. This represents approximately 4.2% of
the outstanding shares of Common Stock on December 31, 2002. The closing market
price of the Common Stock on December 31, 2002 was $28.00 per share.
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. Each stock option will expire on
(1) the date provided by the option terms, which may not be later than eleven
years after the grant date or (2) if the option terms do not provide for an
expiration date, the date which is ten years and one day after the grant date.
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 1,000,000 shares of Common
Stock. Payment of the option price will be made in such form and manner as the
Committee may approve.
7
Management Proposals (continued)
Restricted Stock
Restricted stock consists of the sale or grant by Baxter to an eligible
participant of one or more shares of Common Stock which are subject to
restrictions on 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. Subject to any restrictions established by the Committee 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 300,000 shares of
restricted stock. The Committee, in its sole discretion, may substitute cash
for shares of Common Stock otherwise required to be distributed.
Stock Awards
Stock awards consist of the grant by Baxter to an eligible participant of
shares of Common Stock, without payment, as additional compensation for
services to the company. No person eligible to receive a stock award may
receive a stock award representing more than 50,000 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. 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 300,000 performance shares.
Other Incentives
The Committee may grant other incentives, including stock appreciation
rights, restricted stock units and performance units, payable in cash or in
kind by Baxter to an eligible participant. The form, amount and the terms and
conditions of other incentives will be determined by the Committee. The total
number of shares of Common Stock for which stock appreciation rights or other
incentives may be granted to any person may not exceed 1,000,000 in any
calendar year. The total amount that may be awarded to any person in the form
of performance unit and other cash-based awards may not exceed $3,000,000 in
any calendar year.
Section 162(m)
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
8
Management Proposals (continued)
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.
Except as otherwise determined by the Committee, grants of restricted
stock, performance shares and other incentives granted to executive officers
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 a particular 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: net income (before or after taxes), stock
price, total shareholder return, market share, sales, net sales, earnings per
share, costs, cash flow (including without limitation operational cash flow),
gross margin, operating margin, gross profit ratio, economic value added, and
return measures (including without limitation return on assets, capital,
equity, and sales).
Non-transferability
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 Committee may amend or discontinue the Program at any time. However, no
amendment or discontinuance may (a) impair, without the consent of the
recipient, an incentive 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 Committee 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 greater 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.
9
Management Proposals (continued)
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 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 sole discretion, to preserve the value of awards made or
to be made under the Program.
United States Federal Income Tax Consequences
Under existing U.S. 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 participant 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 participant 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
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
participant 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.
10
Management Proposals (continued)
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 termination of employment 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 earliest of the date the shares become
transferable, the date the shares are no longer subject to a substantial risk
of forfeiture, or the date of their 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 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 participant.
The Proxyholders intend to vote the shares represented by proxy in favor of
approval of the Program, except to the extent a stockholder votes against or
abstains from voting on this proposal.
The Board of Directors recommends a vote FOR approval of the 2003 Incentive
Compensation Program.
11
Board of Directors
Director Biographies
Nominees for Election as Directors (Term Expires 2006)
[PHOTO] Walter E. Boomer, age 64, 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. General Boomer was named Chairman of
the Board of Rogers Corporation in April 2002. 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.
[PHOTO] James R. Gavin III, M.D., Ph.D., age 57, was elected as a director of Baxter in
February 2003. Since July 2002, Dr. Gavin has served as president of the Morehouse
School of Medicine. From 1991 to July 2002 he was Senior Science Officer at Howard
Hughes Medical Institute, a nonprofit medical research organization. From 1987 to 1991
he was at the University of Oklahoma Health Sciences Center as a professor and as chief
of the Diabetes Section and acting chief of the Section on Endocrinology, Metabolism
and Hypertension. Dr. Gavin is non-executive chairman of the board of directors of
Equidyne Corporation and a director of MicroIslet, Inc.
[PHOTO] Kees J. Storm, age 60, director nominee, has been nominated by the Baxter Board of
Directors. Mr. Storm is a registered accountant (the Dutch equivalent of a Certified
Public Accountant) and was chairman and chief executive officer of AEGON N.V., an
international insurance group from 1993 until 2002 when he retired. Mr. Storm is a
supervisory board member and chairman of Royal Wessanen N.V., a Dutch food
manufacturer, and Laurus N.V., a Dutch supermarket group. He also serves on the
supervisory boards of AEGON N.V., Interbrew S.A. and KLM N.V.
12
Board of Directors (continued)
Directors Continuing in Office (Term Expires 2004)
[PHOTO] Pei-yuan Chia, age 64, has served as a director of Baxter 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. and Bank of China (Hong Kong) Limited.
[PHOTO] Gail D. Fosler, age 55, has served as a director of Baxter since 2001. Since 1989, Ms.
Fosler has held several positions with The Conference Board, a research and business
membership organization. Ms. Fosler is currently senior vice president and chief
economist of The Conference Board and directs its Economics Research Program, which
produces economic indicators and analyses. Ms. Fosler is also a director of Caterpillar
Inc., Unisys Corporation, H.B. Fuller Company, DBS Holdings (Singapore).
[PHOTO] Monroe E. Trout, M.D., age 71, has served as a director of 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 emeritus of Cytyc Corporation and as a director
of Science Applications International Corporation.
13
Board of Directors (continued)
Directors Continuing in Office (Term Expires 2005)
[PHOTO] Harry M. Jansen Kraemer, Jr., age 48, has been a director of Baxter since 1995 and
chairman of the board since January 2000. Mr. Kraemer has been president of Baxter
since 1997 and chief executive officer since January 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 Science Applications International Corporation.
[PHOTO] Joseph B. Martin, M.D., Ph.D., age 64, has been a director of Baxter since 2002.
Dr. Martin has served as the Dean of the Harvard Faculty of Medicine since July 1997.
He was Chancellor of the University of California, San Francisco from 1993 to 1997 and
Dean of the UCSF School of Medicine from 1989 to 1993. Dr. Martin also serves as a
director of Cytyc Corporation and Scientific Learning Corp.
[PHOTO] Thomas T. Stallkamp, age 56, has been a director of Baxter since 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 Visteon
Corporation.
[PHOTO] Fred L. Turner, age 70, 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 is a Life Trustee of Ronald
McDonald House Charities, Inc., a not-for-profit corporation. Mr. Turner also serves as a
director of W. W. Grainger, Inc.
14
Board of Directors (continued)
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. 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 management, by reviewing materials prepared for them by
management and by participating in meetings of the Board and its committees.
During 2002, the Board held six meetings and the committees held a total of 21
meetings. The aggregate attendance of all current directors at the total number
of Board and committee meetings was over 92 percent.
Corporate Governance Guidelines
Baxter first adopted formal corporate governance principles in 1995. In
1998, the Board of Directors revised these principles by adopting new Corporate
Governance Guidelines (the "Guidelines") which address the role of the Board of
Directors in areas such as fiduciary oversight, strategic planning, social
responsibility, succession planning and board elections. The 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. They also address a number of other
matters, such as: director access to management, the authority of the Board and
its committees to hire outside advisors, the appropriateness of continued Board
membership in the event of a change in a director's employment or other
circumstances, the mandatory retirement age for directors, executive
compensation and director compensation. In February 2003, the Board of
Directors approved further changes to Baxter's Guidelines to update or
establish new guidelines with respect to a number of topics, such as specific
criteria for director independence, establishment of a lead director, director
continuing education, and recommended stock ownership for directors.
Rules currently proposed by the New York Stock Exchange would require
listed companies to adopt governance guidelines covering various matters. The
company believes that Baxter's Guidelines currently comply with the proposed
rules in all material respects. However, the company will make any required
changes after these rules are final. The Corporate Governance Committee of the
Board reviews at least annually the adequacy of the Guidelines, and recommends
any proposed changes to the Board for approval.
The Guidelines, as well as other information on Corporate Governance, are
available on Baxter's website at www.baxter.com under "Corporate Governance"
and in print upon request by writing to Baxter International Inc., Corporate
Secretary, One Baxter Parkway, Deerfield, Illinois 60015.
Director Independence
The Board of Directors has determined, after careful review, that all
directors and director nominees except for Harry Kraemer are independent, as
defined by Baxter's Corporate Governance Guidelines and the rules currently
proposed by the New York Stock Exchange. Baxter's Guidelines require that a
majority of Baxter's directors qualify as independent. To be considered
independent, the Board must affirmatively determine that a director does not
have any direct or indirect material relationship with Baxter.
15
Board of Directors (continued)
Baxter's Guidelines include the following standards for determining
director independence:
. A director will not be independent if, within the preceding five years:
(a) the director was employed by Baxter; (b) an immediate family member
of the director was employed by Baxter as an executive officer; (c) the
director or an immediate family member of the director was employed by
or affiliated with the independent auditor of Baxter; or (d) a Baxter
executive officer was on the compensation committee of the board of
directors of a company which concurrently employed the Baxter director,
or which concurrently employed an immediate family member of the
director as an executive officer.
. The following commercial or charitable relationships will not be
considered to be material relationships that would impair a director's
independence: (a) if a Baxter director is a partner, officer, or
controlling shareholder of or is otherwise affiliated with another
company or professional entity (including any law firm or investment
banking firm) that does business with Baxter and the annual payments
to, or from, Baxter in any year do not exceed (i) one percent of the
annual revenue of Baxter for its most recently completed fiscal year or
(ii) the greater of $200,000 or one percent of the annual revenue of
the other company or professional entity for its most recently
completed fiscal year; (b) if a Baxter director is a partner, executive
officer or controlling shareholder of or is otherwise affiliated with
another company which is indebted to Baxter, or to which Baxter is
indebted, and the total amount of either company's indebtedness to the
other does not exceed (i) one percent of the total consolidated assets
of Baxter as of the end of its most recently completed fiscal year or
(ii) one percent of the total consolidated assets of the other company
as of the end of its most recently completed fiscal year; and (c) if a
Baxter director serves as an officer, director or trustee of or is
otherwise affiliated with a charitable organization, and Baxter's
discretionary charitable contributions to the organization are less
than the greater of $100,000 or five percent of that organization's
total annual charitable receipts.
For relationships not covered by these guidelines, the determination of whether
the director is independent or not will be made by the directors who satisfy
the independence guidelines.
Executive Sessions and Lead Director
Baxter's Corporate Governance Guidelines require the Board to meet in
executive session without management or any employee director present at every
regularly scheduled meeting. The Audit Committee is required by its charter to
hold separate executive sessions during at least five committee meetings per
year with the internal auditor, the independent auditor and management. The
other committees of the Board also have the authority to hold executive
sessions without management present.
In February 2003, the Board of Directors amended Baxter's Guidelines to
provide for a lead director who will be responsible for presiding at all
executive sessions of the Board and acting as the liaison between the
non-management directors and the Chairman of the Board. In addition, the lead
director will serve as the contact person to facilitate communications by
Baxter employees and shareholders directly with the non-management members of
the Board. The Corporate Governance Committee will recommend a lead director to
the full Board for approval on an annual basis, with the first lead director to
be elected in May 2003.
16
Board of Directors (continued)
Annual Assessment of Board Performance
The Board has annually reviewed its own performance, structure and
processes for the past nine years in order to assess how effectively it is
functioning. This assessment was implemented and is administered by the
Corporate Governance Committee through an annual Board self-evaluation survey.
The views of individual directors are collected by the Corporate Secretary and
the chairman of the Corporate Governance Committee and summarized for
consideration by the full Board. In addition, beginning this year, each
committee of the Board is required by its charter to conduct an annual
self-evaluation of its performance.
Business Practice Standards and Corporate Responsibility Office
Baxter's ethics policies can be found in its Global Business Practice
Standards, which are designed to promote honest and ethical conduct and
compliance with applicable laws and serve as a guide for making business
decisions. The Global Business Practice Standards are applicable to all
employees of the company, including the Chief Executive Officer, Chief
Financial Officer and other senior financial officers. These standards include
policies on a number of topics, such as protection and use of company assets,
competitive and confidential information, insider trading, bioethics, conflicts
of interest, employment practices, gifts, political activities, trade
compliance and other aspects of business ethics. These standards address
Baxter's commitment to full, fair, accurate, timely, and understandable
disclosure in all public communications, including reports that the company
files with, or submits to, the Securities and Exchange Commission and other
government agencies. The standards also address the consequences of failure to
comply with applicable law and Baxter's policies and procedures and require
prompt internal reporting of wrongdoing.
Baxter's Global Business Practice Standards include procedures for
employees to seek guidance or report concerns about business practices,
including concerns regarding accounting, internal accounting controls,
auditing, or other matters. These procedures have been reviewed by the Public
Policy Committee and the Audit Committee and approved by the Board of
Directors. Questions and concerns can be submitted confidentially or
anonymously. Employees may raise issues or concerns through multiple channels,
such as calling the toll-free Business Practice Standards Helpline, sending an
e-mail to the Business Practices website, writing to the Corporate
Responsibility Office's post office box, or contacting the members of the
Corporate Responsibility Office or its regional committees directly.
The Corporate Responsibility Office was established by the Board in 1993 to
assist the Public Policy Committee in carrying out its responsibility to
oversee Baxter's global business practices. The Corporate Responsibility Office
is responsible for communicating the company's business practice standards,
maintaining processes for employees to report issues, providing guidance and
training to employees, and monitoring compliance. The monitoring process
includes an annual certification of compliance with Baxter's business practice
standards by senior managers and thousands of other employees worldwide. These
activities are coordinated and implemented by members of the Corporate
Responsibility Office and Baxter's Business Practices staff. Permanent members
of the Corporate Responsibility Office include the company's Vice President of
Business Practices, who reports to the Public Policy Committee, and the Vice
President of Corporate Audit, who reports to the Audit Committee.
Baxter's Global Business Practice Standards are available on Baxter's
website at www.baxter.com under "Corporate Governance" and in print upon
request by writing to Baxter International Inc., Business Practices, One Baxter
Parkway, Deerfield, Illinois 60015.
17
Board of Directors (continued)
Disclosure Controls and Procedures
The company has established disclosure controls and procedures designed to
ensure that financial and non-financial information required to be disclosed by
Baxter in the reports it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported on a timely basis. These
controls and procedures are designed to ensure that such information is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, to allow for timely decisions regarding
required disclosure. Each quarter, the company carries out an evaluation, under
the supervision and with the participation of the company's Disclosure
Committee, including the Chief Executive Officer and Chief Financial Officer,
as well as other members of the company's management team, of the effectiveness
of the company's disclosure controls and procedures.
Committees of the Board
The Board of Directors has five committees. Each committee consists solely
of independent directors who are not Baxter employees. In February 2003, the
Board approved amendments to the Audit Committee's charter and established
charters for the other committees of the Board. Each committee is required by
its charter on an annual basis to conduct a performance evaluation of the
committee and to review the adequacy of its charter. The company believes that
these committee charters substantially comply with the rules currently proposed
by the New York Stock Exchange and satisfy the requirements of the
Sarbanes-Oxley Act of 2002. However, the company will make any required changes
after these rules are final. A copy of the Audit Committee's charter is
attached to this proxy statement as Exhibit B. All committee charters are
available on Baxter's website at www.baxter.com under "Corporate Governance"
and in print upon request by writing to Baxter International Inc., Corporate
Secretary, One Baxter Parkway, Deerfield, Illinois 60015.
The Audit Committee consists of four directors. The committee reviews the
company's financial reporting process and the integrity of its financial
statements, Baxter's system of internal controls, the internal and external
audit process, and the process for monitoring compliance with laws and
regulations. Common recurring activities of the Audit Committee in carrying out
its oversight function include:
. reviewing the adequacy and effectiveness of Baxter's financial and
accounting controls with the independent and internal auditors, and
reviewing with management Baxter's disclosure controls and procedures;
. retaining and evaluating the qualifications, independence and
performance of the independent auditor;
. the pre-approval of permissible non-audit engagements to be undertaken
by the independent auditor, either explicitly or through pre-approval
policies and procedures approved by the committee;
. reviewing the scope of the annual internal and external audits;
. reviewing the company's consolidated financial statements including
Management's Discussion and Analysis of Financial Condition and Results
of Operations, and discussing with the independent auditor the quality
and acceptability of accounting principles used to prepare the
consolidated financial statements;
18
Board of Directors (continued)
. discussing earnings press releases with the Chairman of the Audit
Committee prior to issuance of the release;
. holding separate executive sessions with the internal auditor, the
independent auditor and management; and
. discussing guidelines and policies governing the process by which
Baxter assesses and manages risk.
The Audit Committee also establishes Baxter's policy with respect to the
hiring of employees and former employees of its independent auditor. The
current policy is that Baxter will not hire any current or previous employees
of its independent auditor who are or have, within the last two years, worked
on the company's account.
The Audit Committee met five times in 2002. The current members of the
Audit Committee are Thomas T. Stallkamp (chairman), Pei-yuan Chia, Gail D.
Fosler and Fred L. Turner.
The Compensation Committee consists of four directors. The committee
exercises the authority of the Board relating to employee benefit plans and the
compensation of Baxter's executives. The Compensation Committee's
responsibilities include:
. making recommendations to the Board concerning the salary of the Chief
Executive Officer;
. determining the salaries of executive officers, other than the Chief
Executive Officer, and advising the Board of such determination;
. making recommendations to the Board with respect to incentive
compensation plans and equity-based plans and exercising the authority
of the Board concerning benefit plans; and
. serving as the administration committee of the company's stock option
plans.
The Compensation Committee met three times in 2002. The current members of
the Compensation Committee are Pei-yuan Chia (chairman), Walter E. Boomer,
Susan Crown and Thomas T. Stallkamp.
The Corporate Governance Committee consists of four directors. The Board of
Directors changed the name of this committee in 2002 from the Planning and
Organization Committee to the Corporate Governance Committee in order to better
align this committee's name with its responsibilities. The committee assists
and advises the Board on corporate governance and general organization and
planning matters. The Corporate Governance Committee's responsibilities include:
. developing criteria for use in selecting potential new Board members
and assisting the Board in identifying and attracting qualified
director candidates;
. selecting and recommending that the Board approve the director nominees
for the next annual meeting of stockholders, and recommending persons
to fill any vacancy on the Board;
. determining Board committee structure and membership;
. reviewing at least annually the adequacy of Baxter's Corporate
Governance Guidelines;
. overseeing the succession planning process for management, including
the Chief Executive Officer;
19
Board of Directors (continued)
. developing and implementing an annual process for evaluating the
performance of the Chief Executive Officer;
. developing and implementing an annual procedure for evaluating Board
performance; and
. making recommendations to the Board concerning director compensation.
Recommendations for director nominees received from stockholders by the
Corporate Secretary will be referred to the Corporate Governance Committee for
consideration.
The Corporate Governance Committee met four times in 2002. The current
members of the Corporate Governance Committee are John W. Colloton (chairman),
Joseph B. Martin, M.D., Ph.D., Monroe E. Trout, M.D. and Fred L. Turner.
The Finance Committee consists of four directors. The committee assists the
Board in fulfilling its responsibilities in connection with the company's
financial affairs The Finance Committee reviews and, subject to the limits
specified in its charter, approves or makes recommendations or reports to the
Board regarding:
. proposed financing transactions, capital expenditures, acquisitions,
divestitures and other transactions;
. dividends;
. results of the management of pension assets; and
. risk management relating to the company's hedging activities, use of
derivative instruments, and insurance coverage.
The Finance Committee met six times in 2002. The current members of the
Finance Committee are Walter E. Boomer (chairman), John W. Colloton, Joseph B.
Martin, M.D., Ph.D. and Monroe E. Trout, M.D.
The Public Policy Committee consists of three directors. The committee
reviews the policies and practices of Baxter to ensure that they are consistent
with its social responsibility to act with integrity as a global corporate
citizen to employees, customers and society. The Public Policy Committee has a
wide range of responsibilities, including:
. addressing the company's responsibilities with respect to the health
and safety of employees and consumers, and the environment;
. overseeing, reviewing and making recommendations to the Corporate
Responsibility Office as set forth in the company's Business Practice
Standards;
. reviewing and making recommendations regarding Baxter's Quality and
Regulatory programs and performance; and
. reviewing and making recommendations on the company's Government
Affairs Program, including the company's positions with respect to
pending legislative and other initiatives.
The Public Policy Committee met three times in 2002. The current members of
the Public Policy Committee are Susan Crown (chairperson), Walter E. Boomer and
Gail D. Fosler.
20
Board of Directors (continued)
Compensation of Directors
The Corporate Governance Committee revisits director compensation from time
to time to evaluate the market competitiveness of Baxter's program. Based on a
review of current market practices, the increased demands being placed on
directors of publicly-traded companies, and the need to be able to attract and
retain directors, the Board of Directors has approved a new non-employee
director compensation plan (New Director Compensation Plan).
Under the former non-employee director compensation plan (Former Director
Compensation Plan), non-employee director compensation consisted solely of
stock options. Under the New Director Compensation Plan, the Board has
transitioned to a new compensation structure which consists of a combination of
stock options, restricted stock and cash compensation, as described below.
Under the New Director Compensation Plan, each non-employee director will
continue to be entitled to receive a grant of stock options annually on the
date of the annual meeting of stockholders. However, under the new plan, the
amount of the grant will no longer be increased or decreased based on the
percentage change in Baxter's total shareholder return (TSR) compared to the
TSR for the Standard & Poor's 500 Health Care Index, as was the case under the
Former Director Compensation Plan. Rather, beginning with the option grant on
the date of the 2003 Annual Meeting of Stockholders, the annual stock option
grant to each non-employee director will have a target value on the grant date
based on a Black-Scholes valuation of $60,000. The stock options will become
exercisable on the date of the next annual meeting of stockholders, and may
become exercisable earlier in the event of death, disability, or a change in
control of Baxter.
In addition, beginning on the date of the 2003 Annual Meeting of
Stockholders, each non-employee director will also receive an annual grant of
restricted shares of Baxter Common Stock on the date of the annual meeting of
stockholders. The number of restricted shares to be granted to each
non-employee director each year equals the quotient of $60,000 divided by the
closing sale price for a share of Baxter Common Stock on the date of the annual
meeting. The restricted shares will vest on the date of the next annual meeting
of stockholders, and will be forfeited if the non-employee director leaves the
Board for any reason other than death or disability prior to that date. In the
event of a change in control of Baxter, all restrictions on the shares will
terminate. Until vested, the restricted stock cannot be transferred or sold.
During the restriction period, the directors have all of the other rights of a
stockholder, including the right to receive dividends and vote the shares.
Under the New Director Compensation Plan, effective beginning in May 2003,
each non-employee director will receive a $45,000 annual cash retainer. As of
September 2002, each non-employee director also receives a $1,000 fee for each
Board and each committee meeting attended, and each non-employee director who
acts as the chairperson of any committee meeting receives an additional $1,000
for each meeting chaired by him or her. In addition, non-employee directors
will be eligible to participate in a deferred compensation plan which will
allow deferral of all or any portion of cash payments until Board service ends.
Each non-employee director will continue to be eligible for life insurance
benefits. Life insurance premiums of $878 in the aggregate were paid in 2002
for the benefit of non-employee directors.
In February 2003, the Board of Directors amended Baxter's Corporate
Governance Guidelines to establish recommended stock ownership guidelines for
directors. The current stock ownership guideline recommended for each director,
after five years of Board service, is to hold five times the annual cash
retainer provided to directors.
21
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. The Board of Directors has determined that Thomas T. Stallkamp, who
is the Chairman of the Audit Committee, as well as Kees J. Storm, who is a
director nominee but not a current member of the Board or Audit Committee, each
qualify as an "audit committee financial expert" as defined by the Securities
and Exchange Commission. The Audit Committee's duties and responsibilities are
set forth in a written charter, which was initially adopted and approved by the
Board on March 21, 2000. In February 2003, the Board approved amendments to the
Audit Committee's charter to address the New York Stock Exchange's corporate
governance rule proposals and the requirements of the Sarbanes-Oxley Act. A
copy of the written charter, which is annually reviewed and revised as
appropriate, is attached to this proxy statement as Exhibit B.
Management is responsible for Baxter's internal controls and the financial
reporting process. A professional staff of in-house corporate auditors reviews
the design of, and compliance with, Baxter's internal control systems and the
accounting policies and procedures supporting the financial reporting process.
PricewaterhouseCoopers LLP (PwC), the company's 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 the results of the internal audit plan for the
year ended December 31, 2002;
. reviewed and discussed with management Baxter's audited financial
statements for the year ended December 31, 2002;
. 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, 2002 for filing with the Securities and Exchange Commission.
Thomas T. Stallkamp (Chairman)
Pei-yuan Chia
Gail D. Fosler
Fred L. Turner
22
Compensation Committee Report
The Compensation Committee of the Board of Directors (the "Committee")
makes recommendations to the Board concerning compensation for the Chief
Executive Officer and determines compensation for other officers. The Committee
also exercises the authority of the Board with respect to Baxter's employee
benefit plans. The Committee is comprised of four independent, non-employee
directors, as discussed above under "Board of Directors-Corporate Governance"
and "Board of Directors-Committees of the Board."
Compensation Philosophy for Executive Officers
The Committee's compensation philosophy provides a framework for aligning
compensation with business objectives. The Committee's philosophy is to provide
compensation opportunities that are structured to: (i) recognize performance by
basing compensation on the achievement of pre-established performance goals for
the company as well as individual performance and (ii) be competitive when
compared to health care and non-health care companies of similar size and
scope. Consistent with Baxter's goal of building the best team in health care,
this philosophy is intended to assist Baxter in attracting, retaining and
motivating executives with superior leadership and management abilities.
Relationship of Executive Compensation to Performance
To promote a pay-for-performance philosophy, employee compensation is based
on company as well as individual performance. The Committee believes that
management should be motivated and compensated based on both financial and
non-financial measures. For this reason, the Committee emphasizes the financial
measures of sales growth, earnings per share, operational cash flow, gross
profit ratio and total shareholder return when determining compensation for all
executive officers. In terms of non-financial measures, the Committee focuses
on such areas as quality, leadership, building customer loyalty, product
development, innovation, talent management, operational excellence, and
adherence to Baxter's shared values of respect, responsiveness and results. The
Committee believes that a combination of financial and non-financial measures
were the appropriate focus for 2002. These goals are also incorporated in
Baxter's 2003 incentive plans for executive officers and other executives.
In order to reward individual performance in a manner which differentiates
between the members of management, a performance differentiation framework is
used to determine each officer's compensation, including salary, bonus and
stock options. This approach is designed to strengthen the link between an
individual's compensation and his or her personal performance as measured by
select talent management data points, such as individual performance reviews,
future potential performance, achievement of key business strategies, feedback
from colleagues, and adherence to Baxter's shared values of respect,
responsiveness and results. Using these measurements, adjustments are made to
each officer's compensation which differentiate individual compensation based
on relative performance.
The company's philosophy with respect to the $1 million cap on the
tax-deductiblity 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.
Market Competitive Compensation
The Committee reviews compensation survey data from selected companies in
the pharmaceutical, medical device, and biotech industries included in the
Standard & Poor's 500 Health Care Index, as well as other large non-
23
Compensation Committee Report (continued)
health care companies of similar size and scope ("comparable companies"). Based
on the survey data from the comparable companies, the Committee determines the
competitiveness of the total compensation structure for each officer, including
Mr. Kraemer, who served as Baxter's chairman and chief executive officer in
2002.
Compensation Elements
The company's compensation structure consists primarily of salaries, cash
bonuses, and stock options. The executive officers ordinarily receive the
majority 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.
Salaries
The Committee has established salaries each year based on each executive
officer's individual performance within a structure intended to be competitive
with the 50th percentile of salaries paid to executive officers in the
comparable companies. Officer salaries are typically reviewed and adjusted each
year at the Committee's February meeting. However, at management's suggestion,
the Committee did not approve any salary increases for Baxter's executive
officers at its meeting in February 2003. Management's suggestion to not
increase officer salaries was based on the company's financial performance in
2002 and the decline in the company's stock price.
Cash Bonuses
Cash bonuses are intended to provide executive officers with an opportunity
to receive additional cash compensation, but only if it is earned through
achievement of specified performance goals. Cash bonuses, when combined with
salary, are intended to provide a total cash compensation target of
approximately the 60th percentile of total cash compensation paid to executive
officers in the comparable companies. The Committee establishes annual and
quarterly performance goals for the company under the officer cash bonus plan.
The Committee also establishes annual and quarterly bonus targets for each
executive officer by utilizing the market data from the comparable companies.
After year-end results are reported, the Committee determines each executive
officer's bonus based on the achievement of the specified annual and quarterly
performance goals and the executive officer's individual performance.
Individual performance is assessed using the performance differentiation
framework discussed above.
Baxter did not achieve the target sales, earnings per share, gross profit
ratio, and operational cash flow goals established by the Committee as the
performance measures under the officer cash bonus plan for 2002. Accordingly,
actual bonus amounts for 2002 ranged from 20% to 49% of the individual
officers' annual bonus targets, and officers did not receive any bonuses based
on the quarterly performance criteria. In addition, at management's suggestion,
the Committee did not increase bonus ranges for the executive officers for
2003, given the company's financial performance in 2002 and the decline in the
company's stock price.
Long-Term Incentives
To further align management and stockholder interests and to continue to
promote a pay-for-performance philosophy, Baxter maintains a Long Term
Incentive (LTI) Plan. The LTI Plan permits the grant of stock options to senior
managers within the company, including Mr. Kraemer and the other executive
officers. The LTI Plan is structured so that the value of the stock option
targets are competitive with approximately the 75th percentile of the long-term
incentive opportunities provided to the LTI Plan participants' counterparts in
the comparable companies.
24
Compensation Committee Report (continued)
To motivate participants to achieve superior total shareholder return (TSR)
compared to Baxter's competitors, the LTI Plan contains a Stock Performance
Multiplier that increases or decreases a participant's stock option target. The
Stock Performance Multiplier measures the percentage change in Baxter's TSR
compared to the TSR for the Standard & Poor's 500 Health Care Index for the
12-month period from October 1 to September 30, prior to the stock option
grant. Based on this comparison, a participant's stock option target could
increase up to a maximum of 150% or decrease to a minimum of 75% of target.
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.
Since the company's TSR for the period from October 2001 through September
2002 was below the TSR for the Standard & Poor's 500 Health Care Index,
participants' stock option targets were adjusted to the minimum of 75% of
target. The Committee then assessed individual officer performance based on the
performance differentiation framework discussed above. Actual stock option
awards for executive officers ranged from 50% to 120% of the adjusted target
due to individual performance.
Mr. Kraemer's 2002 Compensation
In 2002, Mr. Kraemer participated in the same compensation plans provided
to the other executive officers as described above. The Committee's general
approach to setting Mr. Kraemer's compensation was to be competitive with the
comparable companies, while ensuring that his compensation was dependent upon
achievement of Baxter's financial performance goals and personal performance
objectives, both of which are reviewed and approved by the Board. The Board has
established a process through which the Compensation and the Corporate
Governance Committees work together to ensure that decisions regarding Mr.
Kraemer's compensation are directly based upon the extent to which his
performance objectives are met. All compensation actions relating to Mr.
Kraemer are subject to the approval of the Board.
In February 2002, the Committee increased Mr. Kraemer's salary from
$880,000 to $925,000, in recognition of Mr. Kraemer's exceptional leadership
skills and development as a chief executive officer. This salary increase was
also made to bring Mr. Kraemer's salary closer to the 50/th/ percentile of
salaries paid to Mr. Kraemer's counterparts at the comparable companies. As
stated above, in February 2003, at management's suggestion, the Committee did
not approve any salary increases for Baxter's executive officers, including Mr.
Kraemer.
Consistent with its pay-for-performance philosophy, the Committee focused
on increasing Mr. Kraemer's long-term incentive compensation for 2002. To bring
his long-term incentive compensation closer to the 75/th/ percentile of
long-term incentive opportunities provided to Mr. Kraemer's counterparts in the
comparable companies, the Committee increased Mr. Kraemer's stock option target
under the company's LTI Plan from 400,000 to 500,000 options in February 2002.
In November 2002, pursuant to the terms of the LTI Plan described above,
Mr. Kraemer's 500,000 stock option target was decreased to 375,000 options due
to the Stock Performance Multiplier. The Committee granted 375,000 options to
Mr. Kraemer at that time with an exercise price equal to the then current fair
market value of $30.06 per share, which represented 100% of his adjusted target.
In February 2002, based on Mr. Kraemer's performance and to ensure
competitiveness with approximately the 60/th/ percentile of cash compensation
provided to Mr. Kraemer's
25
Compensation Committee Report (continued)
counterparts in the comparable companies, the Committee approved an increase in
Mr. Kraemer's annual target bonus amount from $880,000 to $1,156,250, which was
equal to 125% of his salary. In addition, the Committee established an
incremental quarterly target bonus amount of $231,250, equal to 20% of Mr.
Kraemer's annual target bonus, which could be earned based on achievement of
quarterly performance goals for sales, gross profit ratio and operational cash
flow.
Baxter did not achieve the target sales, earnings per share, gross profit
ratio and operational cash flow goals established by the Committee under the
officer cash bonus plan for 2002. Accordingly, in February 2003, the Committee
determined that, for 2002, Mr. Kraemer earned a bonus of $403,000. Mr.
Kraemer's bonus represented approximately 35% of his annual target bonus
amount. Mr. Kraemer did not receive any bonus based on the quarterly
performance criteria.
Pei-yuan Chia (Chairman)
Walter E. Boomer
Susan Crown
Thomas T. Stallkamp
26
Executive Compensation
Summary
The following table shows, for the years ended December 31, 2002, 2001 and
2000, the compensation provided by Baxter and its subsidiaries to the chairman
of the board and chief executive officer and the four next most highly
compensated executive officers in all capacities in which they served. The five
individuals identified in the Summary Compensation Table are referred to as the
"named executive officers" throughout this proxy statement.
Share numbers and per share amounts have been adjusted in this proxy
statement to reflect the two-for-one split of Baxter's Common Stock in May 2001.
Summary Compensation Table
Long Term Compensation
------------------------------------------------
Annual Compensation Awards Payouts
------------------------- ------------------------- ---------
Restricted Securities LTIP All Other
Salary Bonus Other Stock Award(s) Underlying Payouts Compensation
Name and Principal Position Year ($)(1) ($)(1) ($)(2) ($)(3) Options(4) ($)(5) ($)(6)
--------------------------- ---- ------- --------- ------- -------------- ---------- --------- ------------
Harry M. Jansen Kraemer, Jr. 2002 916,346 403,000 177,620 -0- 375,000 -0- 45,361
Chairman of the Board and 2001 880,000 528,000 169,658 -0- 600,000 -0- 66,793
Chief Executive Officer 2000 880,000 1,320,000 146,187 2,150,126 975,000 2,649,375 60,500
---------------------------------------------------------------------------------------------------------------
Alan L. Heller(7) 2002 620,192 164,000 5,048 -0- 84,000 -0- 26,795
Senior Vice President and 2001 600,000 240,000 3,864 -0- 164,700 -0- 990
President-Renal 2000 92,308 80,000 -0- 248,070 183,000 -0- 83
---------------------------------------------------------------------------------------------------------------
Carlos del Salto 2002 441,154 176,000 -0- -0- 99,000 -0- 23,239
Senior Vice President and 2001 425,000 224,000 3,612 -0- 108,000 -0- 24,710
President-Intercontinental/Asia 2000 385,192 357,500 1,208 554,392 247,000 772,734 22,665
---------------------------------------------------------------------------------------------------------------
Brian P. Anderson 2002 486,154 128,600 8,911 -0- 66,000 -0- 23,367
Senior Vice President and 2001 470,000 248,500 9,047 -0- 120,000 -0- 22,965
Chief Financial Officer 2000 418,077 275,000 6,043 468,512 246,000 662,344 20,350
---------------------------------------------------------------------------------------------------------------
Thomas H. Glanzmann 2002 450,603 119,400 14,282 -0- 63,000 -0- 21,454
Senior Vice President and 2001 401,539 252,000 2,113 -0- 156,000 -0- 23,318
President-BioScience 2000 350,000 364,000 4,188 780,071 218,500 551,953 15,118
---------------------------------------------------------------------------------------------------------------
(1) Amounts shown in these columns 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.
(2) As permitted by the rules of the Securities and Exchange Commission, 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. Heller, del Salto, Anderson and
Glanzmann, the amounts shown exclude such perquisites and only represent
reimbursements for the payment of taxes. Of the amounts shown for Mr.
Kraemer, $48,742 in 2002, $42,122 in 2001 and $41,787 in 2000 represent the
approximate incremental cost to Baxter for his personal use of company
aircraft, which Baxter required for security reasons.
(3) Except for the amount shown for Mr. Heller, the amounts in this column are
based on the $27.9375 closing price of Baxter Common Stock on February 21,
2000, the date the restricted stock was awarded. As of December 31, 2000,
these shares were no longer held by Messrs. Kraemer, del Salto, Anderson
and Glanzmann because they converted their restricted stock to stock
options pursuant to the transition to a new Long Term Incentive Plan. The
amount for Mr. Heller is based on the $41.345 closing price of Baxter
Common Stock on November 13, 2000, the date the 6,000 shares of restricted
stock were awarded to
27
Executive Compensation (continued)
Mr. Heller. The restricted stock awarded to Mr. Heller vested on December
31, 2001. Mr. Heller still held all of these shares as of December 31,
2002, valued at $168,000 based on the $28.00 closing price of Baxter Common
Stock on December 31, 2002.
(4) The numbers shown in this column represent 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.
Heller, options granted as a result of the transition to a new Long Term
Incentive Plan. On November 13, 2000, options to purchase 183,000 shares of
Common stock at an exercise price of $41.345 per share were granted to Mr.
Heller. These options granted to Mr. Heller become exercisable on November
13, 2003. If Mr. Heller's employment terminates for any reason other than
willful misconduct before January 1, 2004, then Baxter will pay Mr. Heller
in cash the difference between the fair market value and the exercise price
of the shares of Common Stock underlying these options.
(5) Amounts shown in this column represent the market value of earned
restricted stock which vested under Baxter's old LTI Plan on December 31,
2000. These vested shares were earned as of December 31, 1999.
(6) Amounts shown in this column 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 and
2001 and the dollar value of term life insurance benefits in 2001 and 2002.
Baxter terminated the split-dollar life insurance program in October 2001.
In 2002, matching contributions in Baxter's Incentive Investment Plan,
additional matching contributions in Baxter's deferred compensation plan,
and the dollar value of term life insurance benefits for each of the named
executive officers were as follows: Mr. Kraemer--$6,000, $37,330 and
$2,031; Mr. Heller--$6,000, $19,805 and $990; Mr. del Salto--$6,000,
$13,955 and $3,284; Mr. Anderson--$6,000, $16,039 and $1,328; and Mr.
Glanzmann--$ 6,000, $15,008 and $446.
(7) Mr. Heller joined Baxter in October 2000.
28
Executive Compensation (continued)
Stock Option Grants
The following table contains information relating to the stock option
grants made in 2002 to the named executive officers.
Option Grants Table
Option Grants in Last Fiscal Year
Individual Grants
--------------------------------------------------
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise or for Option Term
Options Employees in Base Price Expiration ----------------------------------------
Name Granted (#) Fiscal Year (%) ($/Sh) (1) Date 0% 5% (2) 10% (2)
----------------------- ----------- --------------- ----------- ---------- ----- --------------- ---------------
Mr. Kraemer 375,000 3.21 30.06 11/16/2012 $0.00 $ 7,089,215 $ 17,965,462
----------------------------------------------------------------------------------------------------------------------
Mr. Heller 84,000 .72 30.06 11/16/2012 $0.00 $ 1,587,984 $ 4,024,263
----------------------------------------------------------------------------------------------------------------------
Mr. del Salto 99,000 .85 30.06 11/16/2012 $0.00 $ 1,871,553 $ 4,742,882
----------------------------------------------------------------------------------------------------------------------
Mr. Anderson 66,000 .56 30.06 11/16/2012 $0.00 $ 1,247,702 $ 3,161,921
----------------------------------------------------------------------------------------------------------------------
Mr. Glanzmann 63,000 .54 30.06 11/16/2012 $0.00 $ 1,190,988 $ 3,018,198
----------------------------------------------------------------------------------------------------------------------
All Stockholders N/A N/A N/A N/A $0.00 $11,333,372,530(3) $28,720,991,161(3)
----------------------------------------------------------------------------------------------------------------------
All Optionees 11,832,472 100.00 various various $0.00 $ 223,687,825(4) $ 566,868,866(4)
----------------------------------------------------------------------------------------------------------------------
Optionee Gain as % of
All Stockholders' Gain N/A N/A N/A N/A N/A 2.0% 2.0%
----------------------------------------------------------------------------------------------------------------------
(1) The exercise price shown for the named executive officers is the closing
price of Baxter Common Stock on November 15, 2002, which was the trading
day immediately preceding the date of the grant which was a Sunday. The
options become exercisable 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.
(2) 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.
(3) The potential realizable values for all stockholders were calculated on the
599,504,302 shares of Baxter Common Stock outstanding on December 31, 2002.
The potential realizable values were calculated assuming the stockholders
purchased Baxter Common Stock at $30.06, the closing price on November 15,
2002.
(4) The potential realizable values for all optionees were calculated based on
the approximately 11.7 million shares subject to options that were granted
to approximately 6,865 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 $30.06
exercise price.
29
Executive Compensation (continued)
Stock Option Exercises
The following table contains information relating to the exercise of stock
options by the named executive officers in 2002, as well as the number and
value of their unexercised options as of December 31, 2002.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Options at
Fiscal Year End (#)(1) Fiscal Year End ($)(2)
------------------------- -------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------- --------------- ------------ ----------- ------------- ----------- -------------
Mr. Kraemer 2,112 33,102 1,186,034 1,650,000 3,214,436 -0-
Mr. Heller -0- -- -0- 431,700 -0- -0-
Mr. del Salto -0- -- 426,566 366,500 1,155,432 -0-
Mr. Anderson -0- -- 412,398 357,000 1,771,493 -0-
Mr. Glanzmann -0- -- 313,666 362,500 937,650 -0-
------------- --------------- ------------ ----------- ------------- ----------- -------------
(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, 2002, which was
$28.00, multiplied by the difference between that price and the exercise
price of the options.
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 2002.
30
Executive Compensation (continued)
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)($)
-----------------------------------------------------------------------------------------------
Final Average
Pay(1)(2)($) 10 15 20 25 30 35
-------------- --------------- --------------- --------------- --------------- --------------- ---------------
300,000 49,000 73,500 98,000 122,500 147,000 171,800
400,000 66,500 99,800 133,000 166,300 199,500 233,000
500,000 84,000 126,000 168,000 210,000 252,000 294,300
600,000 101,500 152,300 203,000 253,800 304,500 355,500
700,000 119,000 178,500 238,000 297,500 357,000 416,800
800,000 136,500 204,800 273,000 341,300 409,500 478,000
900,000 154,000 231,000 308,000 385,000 462,000 539,300
1,000,000 171,500 257,300 343,000 428,800 514,500 600,500
1,100,000 189,000 283,500 378,000 472,500 567,000 661,800
1,200,000 206,500 309,800 413,000 516,300 619,500 723,000
1,300,000 224,000 336,000 448,000 560,000 672,000 784,300
1,400,000 241,500 362,300 483,000 603,800 724,500 845,500
1,500,000 259,000 388,500 518,000 647,500 777,000 906,800
1,600,000 276,500 414,800 553,000 691,300 829,500 968,000
1,700,000 294,000 441,000 588,000 735,000 882,000 1,029,300
1,800,000 311,500 467,300 623,000 778,800 934,500 1,090,500
1,900,000 329,000 493,500 658,000 822,500 987,000 1,151,800
2,000,000 346,500 519,800 693,000 866,300 1,039,500 1,213,000
2,100,000 364,000 546,000 728,000 910,000 1,092,000 1,274,300
2,200,000 381,500 572,300 763,000 953,800 1,144,500 1,335,500
2,300,000 399,000 598,500 798,000 997,500 1,197,000 1,396,800
2,400,000 416,500 624,800 833,000 1,041,300 1,249,500 1,458,000
2,500,000 434,000 651,000 868,000 1,085,000 1,302,000 1,519,300
--------------------------------------------------------------------------------------------------------------
(1) As of December 31, 2002, 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--19 years and $1,621,023; Mr. Heller--1 year and $753,462; Mr. del
Salto--28 years and $643,469; Mr. Anderson--10 years and $651,950; and Mr.
Glanzmann--1 year and $702,603. Mr. Glanzmann began participating in the
Pension Plan in July 2002. Mr. Glanzmann also participates in Baxter's
International Retirement Plan. In connection with his transition to the
Pension Plan, Mr. Glanzmann's years of credited service under the
International Retirement Plan will be capped at 14 years as of December 31,
2003. In addition, the retirement benefit payable to Mr. Glanzmann under
the International Retirement Plan will be based on his average compensation
during 2000, 2001 and 2002. Mr. Glanzmann earned his first year of service
under the International Retirement Plan in 1999. For each of the five years
Mr. Glanzmann participates in the International Retirement Plan through
December 31, 2003, he is credited with 20 percent of his 11 years of
pre-participation Baxter service. As of
31
Executive Compensation (continued)
December 31, 2002, the annual retirement benefit payable to Mr. Glanzmann
after retirement under the International Retirement Plan is approximately
$368,000, based on Mr. Glanzmann's 12 years of credited service under the
plan and his average compensation, excluding deferred and certain other
types of compensation specified in the plan, during the last three years.
(2) In the event Mr. Heller's employment terminates for any reason other than
willful misconduct before December 31, 2003, the company has committed to
provide Mr. Heller with a special supplemental pension benefit under
Baxter's Supplemental Pension Plan (the "Supplemental Plan") equal to the
sum of (i) his accrued benefit under the Pension Plan and (ii) the excess
benefit and pension make-whole benefit he would have been entitled to under
the Supplemental Plan upon termination of employment had Mr. Heller's
Pension Plan benefit been vested. Under this arrangement, if Mr. Heller's
employment had terminated as of December 31, 2002 for any reason other than
willful misconduct, he would have been entitled to an annual retirement
benefit after reaching age 64 of approximately $11,000.
32
Ownership of Baxter Stock
Stock Ownership of Directors and Officers
On February 28, 2003, there were approximately 596,996,864 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 and nominees,
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 and nominees, as a
group, which amounted to 1.39 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
Name Owned Days Total
-------------------------------------------------------------------------------------------------------
Non-employee Directors and Director
Nominees:
Walter E. Boomer 11,192 60,328(9) 71,520
Pei-yuan Chia 13,640(1) 65,000(9) 78,640(1)
John W. Colloton 11,802 140,328(9) 152,130
Susan Crown 40,672(2)(3) 100,328(9) 141,000(2)(3)
Gail D. Fosler 1,000(4) 11,250(9) 12,250(4)
James R. Gavin III, M.D., Ph.D. -- -- (9) --
Joseph B. Martin, M.D., Ph.D. 100(5) 2,500(9) 2,600(5)
Thomas T. Stallkamp 7,160(4) 27,600(9) 34,760(4)
Kees J. Storm -- -- --
Monroe E. Trout, M.D. 26,770(5) 15,000(9) 41,770(5)
Fred L. Turner 35,466 17,656(9) 53,122
Named Executive Officers:
Harry M. Jansen Kraemer, Jr. 618,732(3)(4)(8) 1,186,034 1,804,766(3)(4)(8)
Alan L. Heller 11,431(4)(5)(6) -- 11,431(4)(5)(6)
Carlos del Salto 167,240(6)(8) 426,566 593,806(6)(8)
Brian P. Anderson 154,595(4)(6)(8) 412,398 566,993(4)(6)(8)
Thomas H. Glanzmann 103,833(6)(8) 313,666 417,499(6)(8)
All directors, director nominees and
executive officers as a group (31
persons) 2,505,359 (1)-(7)(8) 5,766,360(9) 8,271,719 (1)-(7)(8)(9)
-------------------------------------------------------------------------------------------------------
(1) Excludes 3,120 shares held for the benefit of Mr. Chia's adult children in
various trusts, for which Mr. Chia's adult children act as trustees. Mr.
Chia does not have or share voting or investment power over these shares
and disclaims beneficial ownership.
(2) Includes 2,000 shares held by a partnership of which Ms. Crown is a partner
and 4,000 shares held by various trusts of which her minor children are
beneficiaries. Ms. Crown disclaims beneficial ownership of these shares,
except to the extent of her interest in such entities.
(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: Ms.
Crown--8,000 shares; Mr. Kraemer--340 shares; and all directors, director
nominees and executive officers as a group--13,382 shares.
33
Ownership of Baxter Stock (continued)
(4) Includes shares held in joint tenancy with spouse over which the named
individual shares voting or investment power as follows: Ms. Fosler--1,000
shares; Mr. Stallkamp--7,160 shares; Mr. Kraemer--138,052 shares; Mr.
Heller--3,000 shares; Mr. Anderson--34,137 shares; and all directors,
director nominees and executive officers as a group--314,452 shares.
(5) Includes shares not held directly by the named individual but in a family
trust of which the named individual is a co-trustee or trustee as follows:
Dr. Martin--100 shares; Dr. Trout--26,770 shares and Mr. Heller--380 shares.
(6) Includes shares which the individual has a right to acquire within 60 days
of February 28, 2003 pursuant to his or her participation in Baxter's
Employee Stock Purchase Plan as follows: Mr. Heller--188 shares; Mr. del
Salto--174 shares; Mr. Anderson--192 shares; Mr. Glanzmann--142 shares; and
all executive officers as a group--2,570 shares.
(7) Includes shares beneficially owned as of February 28, 2003 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; all executive officers as a group--28,893.
(8) Includes shares held by individuals pursuant to the terms of the Shared
Investment Plan, as follows: Mr. Kraemer--480,000 shares; Mr. del
Salto--140,000 shares; Mr. Anderson--120,000 shares; and
Mr. Glanzmann--100,000 shares; and all executive officers as a
group--1,775,000 shares.
(9) Does not include options to purchase 15,000 shares vesting on May 7, 2003
which were granted on May 7, 2002 under the Non-Employee Director Stock
Option Plan for Annual Grant to each of the current non-employee directors
except Dr. Gavin. Also excludes options to purchase 2,500 shares vesting on
February 25, 2004 which were granted to Dr. Gavin upon his election to the
Board.
34
Ownership of Baxter Stock (continued)
Stock Ownership of Largest Stockholder
As of December 31, 2002, the following entity was the beneficial owner of
more than five percent of Baxter's Common Stock:
Percent
Shares of
Name and Address of Beneficial Owner Beneficially Owned Class
------------------------------------ ------------------ -------
FMR Corp.(1)
82 Devonshire Street
Boston, Massachusetts 02109 44,884,574 shares 7.4%
------------------------------------ ------------------ -------
(1) Based solely on a Schedule 13G dated February 14, 2003, which indicates
that these shares are beneficially owned by FMR Corp. ("FMR") and various
FMR subsidiaries and related persons and entities, including Fidelity
Management and Research Company, which is a wholly-owned subsidiary of FMR
and an investment adviser ("Fidelity"), Edward C. Johnson, Chairman of FMR,
Abigail Johnson, a director of FMR, Fidelity Management Trust Company,
which is a wholly-owned subsidiary of FMR and an investment manager of
institutional accounts, and other entities. The Schedule 13G reports sole
power to vote or direct the voting of 1,680,906 shares and sole power to
dispose or direct the disposition of 44,884,574 shares. The Schedule 13G
reports that voting power for 42,939,058 of these shares resides with the
Boards of Trustees of various funds and is carried out by Fidelity under
written guidelines established by the Boards of Trustees. The Schedule 13G
also indicates that a total of 3,950,720 shares in the table above are
included based on the assumed conversion of other securities.
Baxter is not aware of any other stockholder owning in excess of 5 percent of
the outstanding Common Stock.
Section 16(a) Beneficial Ownership Reporting Compliance
John Colloton, a director, inadvertently failed to timely file a Form 4 to
report a purchase of 366 shares of Baxter Common Stock made in March 2000. Mr.
Colloton subsequently filed a Form 5 reporting this transaction.
35
Equity Compensation Plan Information
The following table provides information relating to shares of Common Stock
that may be issued under Baxter's existing equity compensation plans as of
December 31, 2002. The table does not include shares that may be issued under
the 2003 Incentive Compensation Program, if that program is approved by
Baxter's stockholders at the 2003 Annual Meeting.
Share numbers and per share amounts have been adjusted in this proxy
statement to reflect the stock dividend paid pursuant to the spin-off of
Edwards Lifesciences Corporation in March 2000 and the two-for-one split of
Baxter's Common Stock in May 2001.
A B C
-------------------------------------------------------------------------
Number of Shares Remaining
Available for Future Issuance
Number of Shares to be Weighted Average Under Equity Compensation
Issued upon Exercise of Exercise Price of Plans (Excluding Shares
Plan Category Outstanding Options Outstanding Options Reflected in Column A)
-------------------------------------------------------------------------------------------------------
Equity Compensation Plans
Approved by Stockholders(1) 53,964,582(2) $39.228 15,888,435(3)
Equity Compensation Plans Not
Approved by Stockholders(4) 15,865,674(2)(5) $35.748 7,134,326(6)
---------- ------- ----------
Total........................ 69,830,256 $38.437 23,022,761
---------- ------- ----------
--------------------------------------------------------------------------------
(1) Consists of the 1987, 1994, 1998, 2000 and 2001 Incentive Compensation
Programs (collectively, the "Programs") and the Employee Stock Purchase
Plan for United States Employees and the Employee Stock Purchase Plan for
International Employees (collectively, the "Employee Stock Purchase
Plans"). No additional awards may be granted under the 1987 Incentive
Compensation Program.
(2) Excludes purchase rights under the Employee Stock Purchase Plans. Under the
Employee Stock Purchase Plans, eligible employees may purchase shares of
Common Stock through payroll deductions of up to 12 percent of base pay. On
the last trading day of each month, participating employees purchase shares
at a per share price equal to the lower of (i) 85 percent of the closing
price on the first day of the employee's 24-month subscription period or
(ii) 85 percent of the closing price on the monthly purchase date. A
participating employee may not purchase more than $25,000 in fair market
value of Common Stock under the Employee Stock Purchase Plans in any
calendar year and may withdraw from the Employee Stock Purchase Plans at
any time.
(3) Includes 10,097,212 shares of Common Stock available for purchase under the
Employee Stock Purchase Plan for United States Employees as of December 31,
2002.
(4) Consists of the 2001 Global Stock Option Plan and various other plans,
which are described below.
(5) Of the 15,865,674 shares issuable upon exercise of outstanding options
granted under equity compensation plans not approved by stockholders,
7,382,400 are issuable upon exercise of options granted in February 2001
under the 2001 Global Stock Option Plan described below. No options were
granted under the 2001 Global Stock Option Plan to any directors or
executive officers.
(6) Consists of (i) 3,634,326 shares of Common Stock available for purchase
under the Employee Stock Purchase Plan for International Employees and (ii)
3,500,000 additional shares of Common Stock available under the 2001
Incentive Compensation Program. Although the Employee Stock Purchase Plan
for International Employees and the 2001 Incentive Compensation Program
have been approved by the company's stockholders, these additional shares
have been approved by the company's Board of Directors but not by the
company's stockholders.
36
Equity Compensation Plan Information (continued)
2001 Global Stock Option Plan
The 2001 Global Stock Option Plan is a broad-based plan that was adopted by
Baxter's Board of Directors in February 2001 to enable Baxter to make a special
one-time stock option grant to eligible non-officer employees worldwide. On
February 27, 2001, Baxter granted a non-qualified option to purchase 200 shares
of Common Stock at an exercise price of $45.515 per share to approximately
44,000 eligible employees under the 2001 Global Stock Option Plan. The exercise
price of these options equals the closing price for Baxter Common Stock on the
New York Stock Exchange on the grant date. The options become exercisable on
February 27, 2004, which is the third anniversary of the grant date, and expire
on February 25, 2011.
Active employees on the February 27, 2001 grant date were eligible to
participate in the 2001 Global Stock Option Plan, except that the following
persons were excluded: Baxter's executive officers and all other participants
in the company's Long Term Incentive Plan, temporary employees, people
receiving severance pay, independent contractors, leased employees, employees
of therapy centers of the Renal Therapy Services business, and employees of the
company's contractual joint venture with Edwards Lifesciences in Japan.
If an option holder over the age of 55 leaves the company before the option
becomes exercisable on the February 27, 2004 vesting date, the holder will have
the right to exercise the options during the three month period following the
vesting date. If the option holder dies, the option will be immediately
exercisable and will expire on the first anniversary of the holder's death.
Otherwise, the option terminates if the holder leaves Baxter prior to the
vesting date. If an option holder leaves Baxter after the vesting date, then
the option will expire three months after the holder leaves the company. In the
event of a change in control of Baxter (as specified in the 2000 Incentive
Compensation Program), all outstanding options will become exercisable
immediately. The options are not transferable during the holder's lifetime.
Other Stock Option Plans Not Approved by Stockholders
The company has made several stock option grants outside of the Programs
approved by stockholders. Although these grants were not made under the
Programs, the terms and conditions of each of these grants provide that the
provisions of either the 1994 Incentive Compensation Program or the 1998
Incentive Compensation Program, as the case may be, govern these stock option
grants (except for the limit on shares available under these Programs).
Accordingly, the terms and conditions of these grants are consistent with the
terms of the Programs previously approved by stockholders. Specifically, the
Compensation Committee has approved the following grants of non-qualified stock
options:
. Options to purchase a total of 1,685,538 shares granted in February
1997 to Baxter employees (the "February 1997 Grant");
. Options to purchase a total of 83,518 shares granted in March 1997 to
Baxter employees who joined the Company as a result of its acquisition
of Research Medical Inc. (the "March 1997 Grant");
. Options to purchase a total of 13,588 shares granted in November 1997
to members of Baxter's scientific advisory board (the "Scientific
Advisory Board Grant");
37
Equity Compensation Plan Information (continued)
. Options to purchase a total of 2,621,855 shares granted in November
1997 to Baxter employees (the "November 1997 Grant");
. Options to purchase a total of 4,305,501 shares granted in February
1998 to Baxter employees (the "February 1998 Grant"); and
. Options to purchase a total of 5,625,114 shares granted in February
2000 to Baxter employees (the "February 2000 Grant").
In addition, in February 1998, the company granted non-qualified options to
purchase a total of 1,985,934 shares to Vern Loucks, who served as Baxter's CEO
from 1980 through 1998, as further described under "1998 Stock Option Grant to
Former CEO" below.
Exercise Price
The exercise price of these stock options is equal to the fair market value
of Baxter Common Stock on the date of grant, which is the closing sale price of
the Common Stock as reported on the New York Stock Exchange on the grant date.
The exercise price of the options may be paid in cash or in shares of Baxter
Common Stock.
Vesting
The options vest as follows:
. The February 1997 Grant and the March 1997 Grant options are
exercisable five years after the grant date, subject to accelerated
vesting as follows: One hundred percent of the options become
exercisable on the first business day after the ninetieth consecutive
calendar day during which the average fair market value of the Common
Stock equals or exceeds $32.50 per share. Accordingly, these options
became exercisable in February 1999.
. The November 1997 Grant, February 1998 Grant and February 2000 Grant
options are exercisable three years after the grant date. These options
continue to vest for one year after termination of employment if, on
the employment termination date, the holder is age 50 or older and has
completed 15 or more years of employment.
. The Scientific Advisory Board Grant options are exercisable three years
after the grant date.
Change in Control
Pursuant to the terms of the 1994 and 1998 Incentive Compensation Programs
which govern these option grants, in the event of a change in control of Baxter
(as specified in the program), all outstanding options will become exercisable
immediately.
Expiration
. The February 1997 Grant and March 1997 Grant options expire on the
earlier of (1) one year after death or disability; (2) five years after
termination of employment by retirement at or after age 55; (3) three
months after termination of employment (except as provided in (1) and
(2) above), unless the holder dies or becomes disabled during the
three-month period in
38
Equity Compensation Plan Information (continued)
which case the option shall expire one year after termination of
employment; or (4) ten years after the grant date.
. The November 1997 Grant, February 1998 Grant and February 2000 Grant
options expire on the earlier of (1) one year after death or
disability; (2) five years after termination of employment if, on the
employment termination date, the holder is age 50 or older and has
completed 15 or more years of employment with the company; (3) three
months after termination of employment (except as provided in (1) and
(2) above), unless the holder dies or becomes disabled during the
three-month period in which case the option shall expire one year after
termination of employment; or (4) ten years after the grant date.
. The Scientific Advisory Board Grant options expire on the earlier of
(1) one year after death or disability; (2) three months after
termination of service for a reason other than death or disability,
unless the holder dies or becomes disabled during the three-month
period in which case the option shall expire one year after termination
of employment; or (3) ten years after the grant date.
1998 Stock Option Grant to Former CEO
As described in Baxter's Proxy Statement for its 1999 Annual Meeting of
Stockholders, on February 17, 1998, the company granted stock options to
purchase a total of 1,985,934 shares of Baxter Common Stock to Vern Loucks, who
served as Baxter's Chief Executive Officer from 1980 through 1998. These
options were granted for the specific purposes of motivating Mr. Loucks to
implement a smooth transition of his responsibilities as Baxter's CEO to Mr.
Kraemer, who assumed the position of CEO as of January 1, 1999, and to
recognize Mr. Loucks' past, current and future contributions to Baxter.
Although this grant to Mr. Loucks was not made under the 1994 Incentive
Compensation Program, the terms of the grant provide that the provisions of the
1994 Incentive Compensation Program which apply to stock options granted under
that program apply to these stock options granted to Mr. Loucks (other than the
limitations on the number shares available under the program and the number of
options which may be granted to any person within any calendar year).
Under the terms of the grant, the exercise price for 1,045,230 shares is
$26.8782, which was the closing price of Baxter Common Stock on February 17,
1998, the date of grant. The exercise price for 522,614 shares is $34.94, which
was the closing price on the date of grant plus 30 percent. The exercise price
for 209,044 shares is $37.63, which was the closing price on the date of grant
plus 40 percent. The exercise price for the remaining 209,046 shares is $40.32,
which was the closing price on the date of grant plus 50 percent. The stock
options vested in four installments as follows: 836,183 options vested on
December 31, 1999, 418,091 options vested on December 29, 2000, 365,830 options
vested on December 28, 2001, and the remaining 365,830 options vested on
December 27, 2002. The options vested in order of their exercise price, from
lowest to highest. All of these stock options granted to Mr. Loucks expire on
the seventh anniversary of the grant date. Of the 1,985,934 stock options
originally granted to Mr. Loucks, 940,704 were outstanding as of December 31,
2002. Under the terms of the grant, the stock options will be forfeited by Mr.
Loucks to the extent not previously exercised if Mr. Loucks fails to comply
with non-competition and other obligations to Baxter.
39
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 500 Health
Care Index. The comparison of total return for each of the years shown in the
table below assumes that $100 was invested on December 31, 1997 in each of
Baxter, the Standard & Poor's 500 Composite Index and the Standard & Poor's 500
Health Care Index, with investment weighted on the basis of market
capitalization. Total return is based on the change in year end stock price
plus reinvested dividends. 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.
[CHART]
Baxter S&P 500
International S&P 500 Health Care
Inc. Index Index
12/97 $100 $100 $100
12/98 $130 $129 $144
12/99 $129 $156 $129
12/00 $193 $142 $176
12/01 $237 $125 $155
12/02 $126 $ 97 $126
12/97 12/98 12/99 12/00 12/01 12/02
-------------------------------------------------------------
Baxter International Inc. $100 $130 $129 $193 $237 $126
-------------------------------------------------------------
S&P 500 Index $100 $129 $156 $142 $125 $ 97
-------------------------------------------------------------
S&P 500 Health Care Index $100 $144 $129 $176 $155 $126
40
Minority Stockholder Proposal
Stockholder Proposal Relating to Cumulative Voting in the Election of Directors
- Proposal 4 on the Proxy Card
Baxter has been informed that the following stockholder proposal will be
presented for a vote at the 2003 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 advised that Martin Glotzer, Suite 301, 7061 N. Kedzie,
Chicago, Illinois 60645, owner of 100 shares of Baxter common stock, will have
the following resolution presented at the annual meeting:
RESOLVED: That the stockholders of Baxter International, Inc., assembled in
annual meeting in person and by proxy, hereby request the Board of Directors to
take the steps necessary to provide for cumulative voting in the election of
directors, which means each stockholder shall be entitled to as many votes as
shall equal the number of shares he or she owns multiplied by the number of
directors to be elected, and he or she may cast all of such votes for a single
candidate, or any two or more of them as he or she may see fit.
Stockholder's Statement Supporting the Proposed Resolution
The late Mr. Joseph Medill, Publisher of the Chicago Tribune was in favor
of cumulative voting. Strong support along the lines we suggest were shown at
the 2002 annual meeting when 38.5%, owners of 165,777,930 shares, were cast in
favor of this proposal.
We believe the Board of Directors should adopt cumulative voting in the
election of Directors as part of its program of corporate governance.
If you agree . . . please "Vote For."
Board of Directors' Statement Opposing Stockholder Resolution
The Board believes that cumulative voting for the election of directors
would not serve the best interests of Baxter and its stockholders. Accordingly,
the Board recommends a vote AGAINST the proposed resolution for the reasons
explained below.
The Board firmly believes that cumulative voting would threaten to
undermine effective Board functioning in at least two important respects.
First, it is the Board's duty to represent the interests of all of the
stockholders. To do so, each director must feel a responsibility toward all
stockholders, without any special loyalty to any one group. From this
perspective, cumulative voting is undesirable since directors elected by a
particular group of stockholders may be primarily concerned with representing
the interests of the narrow constituency that elected them rather than
representing the interests of all stockholders. Directors should be elected
based on their ability and commitment to represent the best interests of Baxter
and its stockholders as a whole. This tenet is best served when each director
is elected by a plurality of the stockholders.
Second, cumulative voting introduces the possibility of partisanship among
Board members, which could undermine the ability of the Board members to work
together effectively. If narrow constituencies of stockholders were to elect
"special interest" directors through cumulative voting, the resulting inability
of those directors to exercise independent judgment could impair the Board's
sound analysis and timely conduct of Baxter's business, to the detriment of
Baxter and all of its stockholders. The variety and complexity of issues facing
Baxter require that no actual or apparent "special influence" bring into
question the objectivity of the Board's insight, perspective or counsel.
41
Minority Stockholder Proposal (continued)
The possibility of factionalism that cumulative voting presents has led to
a trend against its adoption. Many companies have eliminated cumulative voting
over the years and, overall, its presence has declined. The State of
California, considered among the most protective of stockholder interests,
amended its state laws in 1989 to permit the repeal of cumulative voting. In
supporting the change, the Committee on Corporations of the Business Law
Section of the State Bar of California argued:
"While a healthy diversity of opinion and experience, as represented by
independent directors, is desirable, factionalism is not appropriate in the
board's essential executive function. The principal objective of a business
enterprise should be profit and gain for its shareholders, not political
accommodation of competing interests . . . Practical experience has shown
that effective management of a corporation requires candor and consensus in
the Boardroom, [not] rancor and contention."
The Board believes that the present method of voting will continue to work
as successfully in the future as it has in the past. Ten of Baxter's eleven
current Board members are independent non-employee directors, and the Board's
Corporate Governance Committee, which assists and advises the Board in
connection with Board membership, consists solely of non-employee directors.
This ensures that the Board will continue to act independently and in the best
interests of all of Baxter's stockholders. A summary of the process by which
stockholders may present director candidates is included on page 44 of this
proxy statement.
Baxter's stockholders rejected this proposal at seven consecutive annual
meetings from 1994 to 2000 and for an eighth time in 2002. This proposal was
not submitted at the 2001 Annual Meeting.
The Board recommends a vote AGAINST cumulative voting in the election of
directors.
42
Other Information
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. If you
hold shares through a broker, bank or other nominee, your name will not appear
on the list of registered stockholders and you will be admitted only after
showing proof of ownership, such as your most recent account statement or a
letter from your broker or bank.
Reducing Mailing Expenses
Duplicates: If you received more than one copy of the 2002 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. A registered
stockholder may contact us at http://www.eproxyvote.com/bax to vote 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 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, 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 Georgeson Shareholder, 17 State Street,
New York, New York 10004 to assist in the distribution and solicitation of
proxies. Baxter has agreed to pay Georgeson Shareholder a fee of $10,000 plus
expenses for these services.
43
Other Information (continued)
Future Stockholder Proposals and Nominations
Any stockholder who intends to present a proposal at Baxter's annual
meeting to be held in 2004, 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 22, 2003 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 2004 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 6 and March 7, 2004. 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 and Associate General Counsel
Deerfield, Illinois
March 21, 2003
44
Other Information (continued)
EXHIBIT A
BAXTER INTERNATIONAL INC.
2003 INCENTIVE COMPENSATION PROGRAM
1. Purpose. The purpose of the Baxter International Inc. 2003 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
A-i
Other Information (continued)
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 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
25,000,000 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
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Other Information (continued)
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, 8.1 and 9 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.
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 (i)
the date provided by the option terms, which date shall be no later than
11 years after the date of grant or, (ii) if the option terms do not
provide for an expiration date, 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
1,000,000 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
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Other Information (continued)
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 eligible to receive a Stock Award may receive a
Stock Award representing more than 50,000 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 300,000
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.
A-iv
Other Information (continued)
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.
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 300,000 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
A-v
Other Information (continued)
incentives, including without limitation stock appreciation rights,
performance units and restricted stock units ("Other Incentives"),
payable in cash or in kind, under the Program as it determines to be in
the best interest of the Company. The total number of shares of Common
Stock with respect to which stock appreciation rights, restricted stock
units or any Other Incentive may be granted to any person under this
Section 9 shall not exceed 1,000,000 in the aggregate in any calendar
year, subject to adjustment as set forth in Section 4.4. The total amount
that may be awarded to any person under this Section 9 in the form of
performance unit and other cash-based awards shall not exceed $3,000,000
in the aggregate in any calendar year.
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. Except as otherwise determined by the Committee, 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 net income (before or
after taxes), stock price, total shareholder return, market share, sales,
net sales, earnings per share, cash flow (including without limitation
operational cash flow), gross margin, operating margin, gross profit
ratio, economic value added, and return measures (including without
limitation return on assets, capital, equity, and sales), 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 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
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Other Information (continued)
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 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.
A-vii
Other Information (continued)
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 Committee 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) 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 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
A-viii
Other Information (continued)
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).
11.12 Governing Law. The Program shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to its
conflicts of law doctrine.
A-ix
Other Information (continued)
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 (including the integrity of its financial statements), system
of internal control, internal and external audit process (including the
qualifications, independence and performance of the independent auditor) and
the process for monitoring compliance with laws and regulations. The Committee
will also issue the report required to be included in the Corporation's annual
proxy statement pursuant to the rules of the Securities and Exchange Commission
("SEC"). 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 is qualified to serve on the Committee pursuant
to the requirements of the New York Stock Exchange and each of whom shall
satisfy the independence requirements of the Corporation's Corporate Governance
Guidelines. 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. In addition, either (i) at least one member of
the Committee must qualify as an "audit committee financial expert" under the
SEC's rules or (ii) the Committee must advise the Corporation that none of its
members so qualifies.
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.
No director may serve as a member of the Committee if he or she serves on
the audit committee of more than two other public companies, unless the Board
determines that such simultaneous service would not impair the director's
ability to serve effectively on the Committee, with any such determination to
be disclosed in the annual proxy statement.
The Committee will have at least seven 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, and will cover
any issues that arise with respect to the independent auditors, the internal
audit function, the quality or integrity of the Corporation's financial
statements or the Corporation's compliance with legal or regulatory
requirements.
B-i
Other Information (continued)
The Committee may form subcommittees for any purpose that the Committee
deems appropriate and may delegate to such subcommittees (each of which shall
consist of one or more members) such power and authority as the Committee deems
appropriate; provided, however, that the Committee shall not delegate to a
subcommittee any power or authority required by any law, regulation or listing
standard to be exercised by the Committee as a whole.
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, including its
disclosure controls and procedures and its internal controls and
procedures for financial reporting, and recommend to the Board any
changes considered appropriate.
. 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
. Retain the independent auditor to audit Baxter's consolidated financial
statements. The Committee shall have the ultimate authority and
responsibility to select, evaluate, set compensation and, where
appropriate, replace the independent auditor, and the independent
auditor shall be ultimately accountable to the Committee.
. Pre-approve all permissible non-audit engagements to be undertaken by
the independent auditor, either explicitly or through pre-approval
policies and procedures to be approved by the Committee.
. 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) take appropriate action in response to the independent auditor's
report to satisfy itself of the independence of the independent
auditors.
B-ii
Other Information (continued)
. Assess the quality-controls of the independent auditor by reviewing, on
an annual basis, a report from the independent auditor delineating its
internal quality-control procedures, any material issues raised by the
most recent internal quality-control review or peer review of the firm,
or by any inquiry or investigation by governmental or professional
authorities, within the preceding five years, respecting one or more
independent audits carried out by the firm, and any steps taken to deal
with any such issues.
. Ensure that the independent auditor is registered with the Public
Company Accounting Oversight Board on a timely basis when required.
. 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.
. Evaluate the qualifications, performance and independence of the
independent auditor, including the lead audit partner, taking into
account the opinions of management and the Corporation's internal
auditors.
. Ensure regular rotation of the audit partners as required by law and
consider whether the independent auditor should be rotated.
. Review regularly with the independent auditor whether there have been
any difficulties encountered during the audit, including any
restrictions on the scope of the activities of the independent auditor
or on access to requested information and any significant disagreements
with management, and the responsibilities, budget and staffing of the
internal auditor.
. Approve and periodically review the Corporation's policy with respect
to hiring of employees and former employees of independent auditors.
Specifically, the Corporation will not hire any current or previous
employees of its independent auditor who are or have, within the last
two years, worked on the Corporation's account.
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.
B-iii
Other Information (continued)
Financial Reporting
. Review the Corporation's consolidated financial statements (including
Management's Discussion and Analysis of Financial Condition and Results
of Operations and any off-balance sheet arrangements) 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 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 SEC).
. Review with management, the independent auditor and the internal
auditor the interim consolidated financial statements of the
Corporation (including Management's Discussion and Analysis of
Financial Condition and Results of Operations and any off-balance sheet
arrangements) 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 SEC 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 (including all
critical accounting policies and practices to be used), and all
alternative treatments within GAAP for policies and practices related
to material items that have been discussed by the independent auditors
and management, ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the
auditors. 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. Review any
analyses prepared by management and/or the independent auditors setting
forth significant financial reporting issues and judgments made in
connection with the preparation of the financial statements. Review all
other material written communications between the independent auditors
and management, such as any management letter or schedule of unadjusted
differences, as provided to the Committee by the independent auditor.
. Discuss earnings press releases (particularly the use of any non-GAAP
financial information), as well as financial information and earnings
guidance provided to analysts and rating agencies, with the Chairman of
the Audit Committee to review such information prior to issuance of the
release.
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.
B-iv
Other Information (continued)
. 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.
. Address procedures for submission of complaints/concerns pursuant to
Section 301 of Sarbanes-Oxley.
Other Responsibilities
. Hold separate sessions during at least five Committee meetings per year
with each of the internal auditor, the independent auditor and
management to discuss any matters that the auditors, management or the
Committee believe should be discussed privately.
. Review with Baxter's Chief Executive Officer and Chief Financial
Officer the matters that are the subject of those officers'
certifications in the Corporation's quarterly and annual reports prior
to the filing thereof.
. Discuss guidelines and policies governing the process by which Baxter's
senior management and its relevant departments assess and manage risk,
as well as the Corporation's major financial risk exposures and the
steps taken to monitor and control them.
. Issue the report required by SEC rules to be included in the annual
proxy statement.
. Review with the General Counsel any legal matters that could have a
significant impact on the Corporation's financial statements.
. As appropriate, secure advice and assistance from outside legal,
accounting or other advisers, with or without prior Board approval, the
costs thereof to be borne by Baxter.
. If necessary, institute special investigations and, if appropriate,
hire special counsel or experts to assist in such investigations as
needed, the costs thereof to be borne by Baxter.
. 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.
. Conduct an annual performance assessment of the Committee and 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.
Revised and approved by the Baxter International Inc. Board of Directors
February 25, 2003
B-v
Directions to the Annual Meeting
[MAP]
From downtown Chicago From O'Hare Airport
Take I-290 West to Take I-190 East to
I-88 West, I-294 South,
Immediately after you Take I 294 South to I
pay the first toll on 88 West,
I-88, exit at Immediately after you
Cermak Road, pay the first toll on
Proceed straight at I-88, exit at
stop light on Spring Road, Cermak Road,
You will then pass Proceed straight at
through two stop stop light on Spring Road,
lights and will pass You will then pass
the Hyatt on your through two stop lights
right, and will pass the
After the second stop Hyatt on your right,
light, turn right onto After the second stop
Drury Lane, light, turn right onto
Turn left at Drury Drury Lane,
Lane Entrance sign. Turn left at Drury
Lane Entrance sign.
From the Western From Baxter Corporate
suburbs Headquarters in Deerfield
Take I-88 East, exit Take I-294 South to
at Midwest Road, I-88 West,
After paying toll, Immediately after you
turn right at stop light pay the first toll on
onto Midwest Road, I-88, exit at
Turn right at stop Cermak Road,
light onto 22nd Street, Proceed straight at
Turn left at stop stop light on Spring Road,
light onto Route 83 You will then pass
(Kingery Highway), through two stop lights
Proceed straight on and will pass
Route 83 (past Oak Brook the Hyatt on your
Shopping right,
Center) to After the second stop
Butterfield/Roosevelt light, turn right onto
Road, Drury Lane,
Exit to right onto Turn left to the Drury
Butterfield/Roosevelt Lane Entrance sign.
Road and proceed
to Drury Lane (South),
Turn right at Drury
Lane Entrance sign.
--------------------------------------------------------------------------------
P R O X Y
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 6, 2003
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 6, 2003, 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
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: Comments/Change of Address
__________________________
01 Walter E. Boomer __________________________
02 James R. Gavin III, M.D., Ph.D __________________________
03 Kees J. Storm __________________________
-------------------------------- __________________________
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 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 2003 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.
----------------------------
8552
[X] Please mark your 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 and 3 and AGAINST proposal 4.
--------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR proposals 1, 2 and 3.
--------------------------------------------------------------------------------
FOR WITHHOLD
1. Election of Directors
(See Reverse). [_] [_]
For, except vote
withheld from the
following nominee(s):
-------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification [_] [_] [_]
of independent
accountants.
3. Approval of Baxter's [_] [_] [_]
2003 Incentive
Compensation Program
--------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST proposal 4.
--------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
4. Proposal relating to [_] [_] [_]
cumulative voting in the
election of directors.
--------------------------------------------------------------------------------
Mark the box if you have more [_]
than one account and want to
discontinue receiving multiple
copies of future annual reports.
Please see instructions in the
proxy statement.
Mark the box if you [_] Mark the [_]
will attend box if you
the Annual Meeting. want your
votes
treated as
confidential.
SIGNATURE (S)____________________ DATE___________
The signer hereby revokes all
proxies heretofore given by
the signer to vote at said
meeting or any adjournment
thereof.
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.
--------------------------------------------------------------------------------
. 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 2003 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) toll free from any touch-tone telephone.
Stockholders in other countries may call collect at 201-536-8073. Telephone
voting is available 24 hours a day, 7 days a week until 12:00 a.m. Eastern
time on May 6, 2003. 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 envelope herein provided or otherwise return it to Baxter,
P.O. Box 8616, Edison, New Jersey 08818-8616.
Thank You For Your Vote
BAXTER
Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015-4633