<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant / /
Filed by a Party other than the Registrant /x/
Check the appropriate box:
/ / Preliminary Proxy Statement
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.142-12
BAXTER INTERNATIONAL INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
MERRILL CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / 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:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
Baxter International
Inc. 708.948.2000
One Baxter Parkway
Deerfield, Illinois 60015
[LOGO]
March 21, 1994
TO ALL BAXTER INTERNATIONAL INC. STOCKHOLDERS
The Board of Directors joins me in inviting you to attend the
1994 annual meeting of stockholders. The meeting will be held
in the Arthur Rubloff Auditorium of the Art Institute of
Chicago, Columbus Drive and Monroe Street, Chicago, Illinois,
on Friday, April 29, 1994. The meeting will begin at 10:00
a.m. CDT. Registration will begin at 9:00 a.m. Refreshments
will be served before the meeting.
In addition to the matters described in the attached proxy
statement, I will report on the business and progress of
Baxter during 1993 and Baxter's future. Baxter's performance
is discussed in the enclosed 1993 Annual Report to
Stockholders. The enclosed Annual Report will give you
greater insight into our plans for 1994 and beyond.
I hope you will be able to attend the meeting and look
forward to seeing you there.
Sincerely,
VERNON R. LOUCKS JR.
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
<PAGE>
Baxter International
Inc. 708.948.2000
One Baxter Parkway
Deerfield, Illinois 60015
[LOGO]
March 21, 1994
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The 1994 annual meeting of stockholders of Baxter
International Inc. ("Company") will be held in the Arthur
Rubloff Auditorium of the Art Institute of Chicago, Columbus
Drive and Monroe Street, Chicago, Illinois, on Friday, April
29, 1994 at 10:00 a.m. CDT., for the following purposes:
1. To elect four directors to hold office for three
years (page 3);
2. To ratify the appointment of Price Waterhouse as
independent accountant for the Company in 1994 (page
20);
3. To adopt the Company's 1994 Incentive Compensation
Program (page 20);
4. To act on the stockholder proposal relating to
cumulative voting in the election of directors (page
24);
5. To act on the stockholder proposal relating to
separating the offices of chairman of the board and
chief executive officer (page 26); and
6. To transact any other business which is properly
presented at the meeting.
Only holders of record of the Company's common stock at the
close of business on March 1, 1994 will be entitled to vote
at the meeting. A list of the stockholders entitled to vote
at the meeting will be kept at the stock transfer department
of The First National Bank of Chicago, Chicago, Illinois, for
the ten-day period before the meeting.
Please mark and sign the enclosed proxy card and return it
promptly in the enclosed envelope, even if you plan to attend
the meeting, to ensure that your vote is counted. If you
attend the meeting and vote by ballot at the meeting, your
proxy will be revoked automatically and only your vote at the
meeting will be counted.
By order of the Board of Directors,
ARTHUR F. STAUBITZ
SENIOR VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015,
708.948.2000
- --------------------------------------------------------------------------------
The Board of Directors of Baxter International Inc. ("Company") solicits
your proxy for the annual meeting of stockholders to be held on April 29, 1994.
This proxy statement and the accompanying proxy card are being mailed to
stockholders beginning approximately March 21, 1994.
Because many of the Company's stockholders are unable to attend the annual
meeting in person, the board solicits proxies by mail to give each stockholder
an opportunity to vote on all matters presented at the meeting. Stockholders are
urged to:
(1) read this proxy statement carefully;
(2) specify their choices on each matter by marking the appropriate box on
the enclosed proxy card; and
(3) sign, date and return the card in the enclosed envelope.
There is a place on the enclosed proxy card for stockholders to request
confidential treatment of their votes. If a stockholder requests, inspectors of
election and tabulators will keep the stockholder's vote permanently
confidential and not disclose the vote to anyone other than another inspector or
tabulator. Confidential treatment will not apply when it would not comply with
law or during a proxy contest (neither of which is applicable to this proxy
solicitation).
Only holders of record of the Company's common stock, $1 par value, ("Common
Stock") at the close of business on March 1, 1994, will be entitled to vote. On
that date, approximately 276,729,805 shares of Common Stock were outstanding.
The holders of the Common Stock are entitled to vote as a single class with each
share entitled to one vote. Any stockholder signing a proxy card may revoke or
revise it at any time before the meeting by submitting a new proxy card to the
secretary of the Company or by voting in person at the meeting. Either action
will automatically cancel any proxy card previously signed.
If no specific instructions are given and the proxy card is properly signed
and returned, all shares covered by the proxy card will be voted by the
Company's chairman of the board and chief executive officer or the senior vice
president, secretary and general counsel for the election of all of the board's
nominees for directors, for ratification of Price Waterhouse as independent
accountant for 1994, for adoption of the Company's 1994 Incentive Compensation
Program and against each of the two specified stockholder proposals. Unless
otherwise indicated by the stockholder, proxy cards also give the Company's
chairman and chief executive officer and senior vice president, secretary and
general counsel discretionary authority to vote all shares of Common Stock
represented by the proxy on any other matter that is properly presented for
action at the meeting.
Common Stock credited to a participant in either the Company's Stockholder
Investment Service (dividend reinvestment plan) or an uncertificated share
account of the employee stock purchase plans will be voted in the same manner as
the participant votes the Common Stock standing in his or her name. If a
participant is not a stockholder of record, the custodian, The First Chicago
Trust Company of New York, will vote shares of Common Stock held in such
accounts only in accordance with the participant's instructions.
Determination of whether a matter specified in the Notice of Annual Meeting
of Stockholders has been approved will be determined as follows. Those persons
will be elected directors who receive a plurality of the shares of Common Stock
present at the annual meeting in person or by proxy and entitled to vote on the
election. Accordingly, directions-to-withhold-authority will have no effect on
the outcome of the vote. For each other matter specified in the Notice of Annual
Meeting of Stockholders, the affirmative vote of a majority of the shares of
Common Stock present at the annual meeting in person or by proxy and entitled to
vote on such matter is required for approval. Abstentions will be
1
<PAGE>
- --------------------------------------------------------------------------------
considered shares present in person or by proxy and entitled to vote and will,
therefore, have the effect of a vote against the matter. Broker non-votes will
be considered shares not present for this purpose and will have no effect on the
outcome of the vote. Directions-to-withhold-authority to vote for directors,
abstentions and broker non-votes will be counted for purposes of determining if
a quorum is present for the annual meeting.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The Company's bylaws divide the Board of Directors into three classes. Each
year, the directors in one class are elected to serve a three-year term. The
Company's bylaws allow the directors to increase (and decrease) the size of the
board, to elect directors to fill the vacancies created by the increase and to
assign the elected directors to a class. Pursuant to that authority, in
September 1992 and February 1993 the Board of Directors elected Georges C. St.
Laurent, Jr. and Susan Crown, respectively, to serve as directors of the Company
until the 1994 annual meeting of stockholders.
The Board of Directors has nominated John W. Colloton, Susan Crown, Vernon
R. Loucks Jr. and Georges C. St. Laurent, Jr. for election as directors at the
1994 annual meeting. All of the nominees are currently directors of the Company.
Each director elected will serve a three-year term. If any nominee for director
becomes unavailable for election, the number of directors will be reduced.
Stockholders who want to nominate others must comply with procedures in the
Company's bylaws. A copy of the bylaws may be obtained from the secretary of the
Company.
The board expresses its appreciation for the contributions of several former
directors of the Company. In 1993, Dr. David Satcher and Wilbur H. Gantz
resigned as directors of the Company. Dr. Satcher's resignation was required by
the Clinton administration in connection with Dr. Satcher's appointment as the
Director of the Centers for Disease Control and Prevention. Mr. Gantz resigned
to devote more time to PathoGenesis Corporation, of which he is chief executive
officer, president and member of the board of directors. James R. Tobin also
resigned as a director of the Company in 1994 in connection with his termination
of employment as the Company's president and chief operating officer. Charles F.
Knight, the father of Lester B. Knight, executive vice president of the Company,
has decided not to stand for re-election as a director of the Company when his
term expires at the 1994 annual meeting.
The chairman and chief executive officer and the senior vice president,
secretary and general counsel intend to vote the shares represented by proxies
for all of the board's nominees except to the extent authority to vote for the
nominees is withheld.
Directors will be elected by a plurality of the votes cast for the election
of directors at the annual meeting. This means that the four individuals who
receive the largest number of votes cast will be elected as directors.
The Board of Directors recommends a vote FOR the election of all of the
nominees for directors.
2
<PAGE>
- --------------------------------------------------------------------------------
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
INFORMATION CONCERNING NOMINEES FOR ELECTION AS DIRECTORS
John W. Colloton--Age 63 Director since 1989
From 1971 to 1993, Mr. Colloton served as the director of the University of
Iowa Hospitals and Clinics, and since 1993 he has been vice president of the
University of Iowa for Statewide Health Services. Mr. Colloton also serves as a
director of Iowa State Bank & Trust, Premier Anesthesia, Iowa-Illinois Gas and
Electric Company and Iowa-South Dakota Blue Cross and Blue Shield (IASD).
Susan Crown--Age 35 Director since 1993
Since 1984, Ms. Crown has been a vice president of Henry Crown and Company,
which includes diversified manufacturing operations, real estate and securities.
Ms. Crown also serves as a director of Caribbean International News Corporation
and as a trustee of Northern Funds Mutual Fund.
Vernon R. Loucks Jr.--Age 59 Director since 1975
Mr. Loucks has been chairman of the Board of Directors since 1987 and chief
executive officer of the Company since 1980. Mr. Loucks was first elected an
officer of the Company in 1971. Mr. Loucks also serves as a director of
Anheuser-Busch Companies, Inc., The Dun & Bradstreet Corporation, Emerson
Electric Co. and The Quaker Oats Company.
Georges C. St. Laurent, Jr.--Age 57 Director since 1992
Since 1988, Mr. St. Laurent has been chairman of the board and chief
executive officer of Western Bank, a financial institution. He was first elected
a director of Western Bank in 1987.
- --------------------------------------------------------------------------------
INFORMATION CONCERNING DIRECTORS CONTINUING IN OFFICE
Silas S. Cathcart--Age 67 Director since 1990
Term expires 1996
Mr. Cathcart is a director of General Electric Company, Illinois Tool Works,
Inc. and The Quaker Oats Company. Mr. Cathcart is also a trustee of Northern
Funds Mutual Fund. From 1985 to 1987, Mr. Cathcart served as a director of the
Company; from 1970 to 1985 he served as a director of American Hospital Supply
Corporation. Mr. Cathcart served as chairman of the board and chief executive
officer of Kidder, Peabody Group Inc., an investment banking firm, from 1988 to
1989, and as president and chief executive officer from 1987 to 1988. From 1972
to 1986, he was chairman of Illinois Tool Works, Inc.
David C. K. Chin, M.D.--Age 44 Director since 1992
Term expires 1995
Dr. Chin is president and chief operating officer of Novalis Corporation,
which integrates software technology, health benefit designs and provider
organization models into turnkey managed care programs for health care
organizations. From 1987 to 1992, Dr. Chin was the president and medical
director of the Health Centers Division of the Harvard Community Health Plan,
Inc., a health maintenance organization. Since 1981, he has also been an
instructor in medicine at the Harvard Medical School.
3
<PAGE>
- --------------------------------------------------------------------------------
James D. Ebert--Age 72 Director since 1989
Term expires 1995
Dr. Ebert has been a professor of biology at The Johns Hopkins University
since 1992. From 1987 to 1992, he served as the director of the Chesapeake Bay
Institute of The Johns Hopkins University. Dr. Ebert previously was president of
the Carnegie Institution of Washington, an educational institution.
Mary Johnston Evans--Age 64 Director since 1986
Term expires 1995
Mrs. Evans is a director of Household International, Inc., Sun Company,
Delta Air Lines, Inc., The Dun & Bradstreet Corporation and Scudder New Europe
Fund.
Frank R. Frame--Age 64 Director since 1992
Term expires 1995
Mr. Frame is an adviser to the board of directors of HSBC Holdings plc., a
financial institution. Between 1976 and 1990, Mr. Frame held various senior
management positions in The Hongkong and Shanghai Banking Corporation Limited, a
financial institution from which he retired in 1990, including group legal
adviser, executive director and deputy chairman. Mr. Frame also serves as
chairman of Wallem Limited and deputy chairman of Time Products plc.
William B. Graham--Age 82 Director since 1945
Term expires 1995
Mr. Graham has been senior chairman of the Board of Directors since 1985.
Mr. Graham became president of the Company in 1953 and chief executive officer
in 1960 and continued in these positions until 1971. From 1971 to 1980 he was
chairman of the board and chief executive officer, and thereafter he served as
chairman until he became senior chairman.
David W. Grainger--Age 66 Director since 1990
Term expires 1996
Mr. Grainger is chairman of the board, president and chief executive officer
of W. W. Grainger, Inc., a nationwide distributor of equipment, components and
supplies. He joined W. W. Grainger, Inc. in 1952.
Martha R. Ingram--Age 58 Director since 1987
Term expires 1996
Ms. Ingram is the director of public affairs and member of the board of
directors of Ingram Industries Inc., a diversified transportation and energy
company and distributor of consumer products. Ms. Ingram also serves as a
director of First American Corporation.
Fred L. Turner--Age 61 Director since 1982
Term expires 1996
Mr. Turner is senior chairman of the board of directors and chairman of the
executive committee of McDonald's Corporation, a restaurant licensor. Mr. Turner
previously was chairman of the board and chief executive officer of McDonald's
Corporation. He joined McDonald's in 1956. Mr. Turner also serves as a director
of Aon Corporation and W. W. Grainger, Inc.
- --------------------------------------------------------------------------------
OPERATION OF THE BOARD OF DIRECTORS
Pursuant to Delaware law, under which the Company is organized, the
Company's business, property and affairs are managed under the direction of the
Board of Directors. During 1993, there
4
<PAGE>
- --------------------------------------------------------------------------------
were nine meetings of the board. Each current director attended 75% or more of
the meetings of the board held when he or she was a director and the board
committees to which he or she was assigned as a regular member.
COMMITTEES OF THE BOARD
The Board of Directors has six committees established in the Company's
bylaws.
The Executive Committee consists of three directors, a majority of whom are
not employees of the Company. The committee may exercise most of the powers of
the Board of Directors, except those reserved to the Board of Directors by the
Company's bylaws or Delaware law. The Executive Committee did not meet in 1993.
The current members of the Executive Committee are Vernon R. Loucks Jr.
(chairman), William B. Graham and Fred L. Turner.
The Audit Committee consists of four directors who are not employees of the
Company. The committee assists the Board of Directors in fulfilling its
responsibility for the Company's accounting and financial reporting practices
and provides a channel of communication between the Board of Directors and the
Company's independent auditors. The Audit Committee met eight times in 1993. The
current members of the Audit Committee are Charles F. Knight (chairman), Silas
S. Cathcart, Mary Johnston Evans and Frank R. Frame.
The Compensation Committee consists of five directors who are not employees
of the Company. The committee determines compensation for officers, and makes
recommendations to the Board of Directors concerning compensation for the
chairman of the board and chief executive officer. It also exercises the
authority of the Board of Directors relating to the Company's employee benefit
plans. The Compensation Committee met nine times in 1993. The current members of
the Compensation Committee are Silas S. Cathcart (chairman), John W. Colloton,
Mary Johnston Evans, David W. Grainger and Georges C. St. Laurent, Jr.
The Finance Committee consists of six directors who are not employees of the
Company. Within limits established in the Company's bylaws, the committee
exercises the authority of the Board of Directors in connection with financial
transactions and assists and advises the Board of Directors regarding the
financial affairs of the Company. The Finance Committee met seven times in 1993.
The current members of the Finance Committee are William B. Graham (chairman),
David C. K. Chin, Susan Crown, James D. Ebert, David W. Grainger and Charles F.
Knight.
The Planning and Organization Committee consists of five directors who are
not employees of the Company. The committee assists and advises the Board of
Directors in connection with board membership, board committee structure and
membership as well as general organization and planning matters. The Planning
and Organization Committee considers candidates for director recommended by
stockholders. Under guidelines followed by the committee, it seeks candidates
with high integrity, good judgment and breadth of experience, among other
criteria. Recommendations by stockholders may be forwarded to the secretary of
the Company and should identify the candidate by name and provide pertinent
information concerning his or her qualifications. To be considered for
nomination by the board, a stockholder recommendation must be received by
January 1 of the year of the annual meeting of stockholders for which the
candidate's name is being submitted. The Planning and Organization Committee met
three times in 1993. The current members of the Planning and Organization
Committee are Fred L. Turner (chairman), David C. K. Chin, Frank R. Frame,
Martha R. Ingram and Georges C. St. Laurent, Jr.
The Public Policy Committee consists of four directors who are not employees
of the Company. The committee reviews the policies and practices of the Company
to assure that they are consistent with its social responsibility to employees,
customers and society. The Public Policy Committee met three times in 1993. The
current members of the Public Policy Committee are Martha R. Ingram (chairman),
John W. Colloton, Susan Crown and James D. Ebert.
5
<PAGE>
- --------------------------------------------------------------------------------
COMPENSATION OF DIRECTORS
Compensation of non-employee directors consists of an annual retainer of
$25,000 plus a $1,000 fee for each board and each committee meeting attended.
Members of committees receive an additional annual retainer of $3,000, and
chairmen of committees receive an additional annual retainer of $4,000; except
that members of the Executive Committee do not receive the additional annual
retainer for their Executive Committee membership. Directors may elect to defer
payment of all or a part of their compensation. Employee directors are not
compensated separately for their board or committee activities.
Each non-employee director elected in 1993 received 1,000 restricted shares
of Common Stock pursuant to a restricted stock plan for non-employee directors
("Director Stock Plan"). Generally, grants of restricted stock awarded under the
Director Stock Plan vest over the director's term of office to which the grant
relates, unless specified corporate control changes occur. Until vested, the
restricted stock may not be transferred or sold by the director. During the
restriction period, the director has all of the other rights of a stockholder,
including the right to receive dividends and vote the shares. Under the Director
Stock Plan, upon election or re-election, directors receive grants of restricted
stock approximately equal in value to the $25,000 annual retainer for directors.
Each non-employee director, who retires at age 65 or after with at least
five years of board service, is entitled to an annual retirement benefit equal
to the annual retainer in effect at the time of the retirement. The retirement
benefit is payable for a period of time equal to the director's full years of
service as a non-employee director. Each non-employee director is also eligible
for medical benefits and life insurance benefits. Medical benefit payments in
1993 totaled $12,613 for all non-employee directors. No non-employee director
life insurance benefits were paid in 1993.
In lieu of the non-employee director cash compensation and retirement
benefits described above, the Company has consulting and pension agreements with
William B. Graham. Mr. Graham receives $250,000 per year under the consulting
agreement until it is terminated by either party. Under the pension agreement,
Mr. Graham receives a non-qualified supplemental retirement benefit equal to the
benefit he would have received under the Company's pension plan if he had ten
additional years of pension plan participation.
6
<PAGE>
- --------------------------------------------------------------------------------
COMPENSATION OF NAMED EXECUTIVE OFFICERS
GENERAL
The following table shows, for the years ended December 31, 1993, 1992 and
1991 the compensation provided by the Company and its subsidiaries to the
chairman and chief executive officer and the four next most highly compensated
executive officers in all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------
---------------------------------- AWARDS
OTHER ------------------- PAYOUTS ALL
ANNUAL RESTRICTED ------- OTHER
COMPEN- STOCK LTIP COMPEN-
SALARY BONUS SATION AWARD(S) OPTIONS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($)(1) ($)(2) ($)(3) (#)(4) ($)(5) ($)(6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
VERNON R. LOUCKS JR. 1993 $693,231 $500,000 $209,311 -0- 88,800 -0- $46,342
Chairman of the Board and Chief 1992 $751,000 $750,000 $218,880 $3,849,500 -0- -0- $50,071
Executive Officer 1991 $751,000 $800,000 -- -0- 47,800 -0- --
- -----------------------------------------------------------------------------------------------------------
1993 $311,908 $325,000 excluded -0- 27,000 -0- $19,557
TONY L. WHITE 1992 $287,746 $330,000 excluded $ 657,175 12,700 -0- $13,942
Executive Vice President 1991 $233,000 $160,000 -- $ 358,930 4,200 -0- --
- -----------------------------------------------------------------------------------------------------------
1993 $291,114 $250,000 excluded -0- 27,000 -0- $18,789
LESTER B. KNIGHT 1992 $264,308 $330,000 excluded $1,009,675 9,900 -0- $13,944
Executive Vice President 1991 $184,406 $190,000 -- -0- 6,500 -0- --
- -----------------------------------------------------------------------------------------------------------
JAMES R. TOBIN (7) 1993 $451,869 -0- $119,629 -0- 53,600 -0- $31,265
President and Chief 1992 $435,854 $570,000 $ 3,270 $1,965,250 13,400 -0- $23,243
Operating Officer 1991 $338,000 $310,000 -- -0- 30,000 -0- --
- -----------------------------------------------------------------------------------------------------------
1993 $264,200 $163,000 excluded -0- 16,500 -0- $14,975
MANUEL A. BAEZ 1992 $246,900 $220,000 excluded $ 985,454 2,200 -0- $13,972
Group Vice President 1991 $221,482 $198,000 -- -0- 8,400 -0- --
- -----------------------------------------------------------------------------------------------------------
<FN>
(1) Amounts shown include cash compensation earned by the named executive
officers during the year covered, including amounts deferred at the
election of those officers. Bonuses are paid in the year following the year
during which they are earned.
(2) As permitted by the Securities and Exchange Commission's (SEC) rules
regarding disclosure of executive compensation in proxy statements, this
column excludes perquisites and other personal benefits for the named
executive officer if their total cost in each of 1993 and 1992 did not
exceed the lesser of $50,000 or 10% of the total of annual salary and bonus
reported for the named executive officer for those years. Those rules do
not require the Company to calculate the amount of Other Annual
Compensation for any of the named executive officers for 1991. Of the 1993
amounts shown for Mr. Loucks and Mr. Tobin, $79,600 and $59,600
respectively, represent the approximate incremental cost to the Company of
their use of Company aircraft for personal travel, which the Company
required for security reasons. Mr. Loucks' 1993 total also includes
$33,450, which represents reimbursement of club membership fees. The
balance of the 1993 amounts shown for Mr. Loucks and Mr. Tobin include
reimbursement of taxes attributable to use of Company aircraft, a car
allowance, financial counseling allowance and maintenance of a home
security system. The amount for 1992 has been restated for Mr. Loucks to
exclude the Caremark International Inc. ("Caremark") stock dividend and the
regular quarterly cash dividends that he received in 1992 on the 65,000
shares of restricted stock he received in lieu of salary and cash bonus
increases for years 1992 through 1996 and on his restricted stock under the
Company's 1989 Long-Term Incentive Plan, both of which are discussed in the
Compensation Committee report beginning on page 12. The amounts for 1992
have also been restated for Messrs. White, Knight and Tobin to exclude the
Caremark stock dividend and the regular quarterly cash dividends that they
received in 1992 on their restricted stock under the Company's 1989
Long-Term Incentive Plan. The reason for the restatement is explained in
footnote 5 below.
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
(3) Amounts shown represent the market value at the date of grant, without
giving effect to the diminution in value attributable to the restrictions
on such stock. The amount shown for Mr. Loucks in 1992 has been restated to
include the 65,000 shares of restricted stock he received in lieu of salary
and cash bonus increases for years 1992 through 1996 and the grant he
received in 1992 under the Company's 1989 Long-Term Incentive Plan, both of
which are discussed in the Compensation Committee report beginning on page
12. The amounts shown for the other named executive officers for 1992 (and
for 1991 in the case of Mr. White) have been restated to include their
grants under the 1989 Long-Term Incentive Plan. The reason for the
restatement is explained in footnote 5 below. As of December 31, 1993, the
number and value of the aggregate restricted stock holdings of the named
executive officers are as follows: Mr. Loucks--196,943 shares ($4,800,486);
Mr. White--36,832 shares ($897,780); Mr. Knight-- 35,750 shares ($871,406);
Mr. Tobin--80,422 shares ($1,960,286); Mr. Baez--38,867 shares ($947,383).
Dividends are payable on all outstanding shares of restricted stock held by
all Company executives at the same rate and time and in the same form in
which dividends are payable on all outstanding shares of Common Stock, as
required by the Company's 1987 Incentive Compensation Program.
(4) No Stock Appreciation Rights (SARs) were granted by the Company in 1993,
and there are no outstanding SARs held by any employee or director of the
Company. The number shown represents the number of shares of Common Stock
for which options were granted to the named executive officer.
(5) The SEC rules regarding disclosure of executive compensation in proxy
statements allow awards of restricted stock that are subject to
performance-based conditions on vesting, in addition to lapse of time
and/or continued service with the Company, to be reported as awards under a
long-term incentive plan ("LTIP"), instead of as restricted stock awards.
The rules define a LTIP as a plan providing compensation intended to serve
as incentive for performance to occur over a period longer than one fiscal
year. Pursuant to these rules, last year the Company elected to report, as
LTIP awards, the 65,000 shares of restricted stock Mr. Loucks received in
1992, in lieu of salary and cash bonus increases for years 1992 through
1996 as well as the restricted stock grants he and Messrs. White, Knight
and Tobin received in 1992 under the Company's 1989 Long-Term Incentive
Plan. Under these rules, once the restricted stock vests, it must be
reported as an LTIP payout in this column. In addition, the rules require
the dividends paid on LTIP awards to be reported under the Other Annual
Compensation column. The Company elected to report the restricted stock
grants described in this footnote as LTIP awards because it provides a more
accurate description of the compensation paid to each named executive
officer over the plan period. In August, 1993, the SEC issued general
guidance relating to these rules. That guidance specifies that restricted
stock awards which are earned based on annual financial performance should
not be reported as LTIP awards, even if, as in the case of the restricted
stock awards identified in this footnote, the stock may not be earned and
vested until the end of at least two years. Based on this guidance, the
Company has restated the amounts for 1992 (and 1991 in the case of Mr.
White) in this column as well as the Other Annual Compensation and
Restricted Stock Awards columns.
(6) Amounts shown represent the Company matching contributions in the Company's
Incentive Investment Plan, a qualified section 401(k) profit sharing plan,
additional matching contributions in the Company's deferred compensation
plan and the dollar value of split-dollar life insurance benefits . Those
three amounts for 1993, expressed in the same order as identified above,
for the named executive officers are as follows: Mr. Loucks-- $7,075,
$36,222 and $3,045; Mr. White--$7,075, $12,182, and $300; Mr.
Knight--$7,075, $11,558 and $156; Mr. Tobin--$7,075, $23,581, and $609; Mr.
Baez--$7,075, $7,451 and $449. The rules identified in footnote 2 above do
not require the Company to calculate the amount of All Other Compensation
for any of the named executive officers for 1991.
(7) Mr. Tobin ceased to be a director, officer and employee of the Company
effective January 4, 1994. In connection with Mr. Tobin's termination of
employment, he and the Company negotiated a separation agreement. Mr.
Tobin's agreement is described on page 10 of this proxy statement.
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
STOCK OPTION GRANTS
The following table contains information relating to the stock option grants
made in 1993 under the Company's 1987 Incentive Compensation Program to the
named executive officers.
OPTION GRANTS TABLE
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------
% OF
TOTAL
OPTIONS POTENTIAL REALIZABLE VALUE
NUMBER OF GRANTED AT ASSUMED ANNUAL RATES OF
SECURITIES TO EXERCISE STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES OR BASE FOR OPTION TERM
OPTIONS IN FISCAL PRICE EXPIRATION --------------------------------------
NAME GRANTED(#)(2) YEAR(3) ($/SH)(4) DATE 0%($) 5%($)(5) 10%($)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Mr. Loucks 88,800 2.5% $26.00 8/1/03 $ -0 - $ 1,451,880 $ 3,679,872
Mr. White 27,000 .8% $26.00 8/1/03 $ -0 - $ 441,450 $ 1,118,880
Mr. Knight 27,000 .8% $26.00 8/1/03 $ -0 - $ 441,450 $ 1,118,880
Mr. Tobin 53,600 1.5% $26.00 8/1/03 $ -0 - $ 876,360 $ 2,221,184
Mr. Baez 16,500 .5% $26.00 8/1/03 $ -0 - $ 269,775 $ 683,760
All Stockholders N/A N/A N/A N/A $ -0 - $4,528,950,000 $11,478,880,000
All Optionees 3,400,000 100% $26.00 8/1/03 $ -0 - $ 55,590,000 $ 140,896,000
Optionee Gain as % of
All Stockholders'
Gain N/A N/A N/A N/A N/A 1.2% 1.2%
- -------------------------------------------------------------------------------------------------------------------
<FN>
(1) No Stock Appreciation Rights (SARs) were granted by the Company in 1993.
(2) The options were granted to the named executive officers and to other
employees on August 2, 1993.
(3) In 1993, the Company granted options on approximately 3.5 million shares of
Common Stock to approximately 5,500 employees.
(4) The exercise price shown is the closing price of the Common Stock on the
date of grant.
(5) The amounts shown in these two columns represent the potential realizable
values using the options granted and the exercise price. The assumed rates
of stock price appreciation are set by the SEC proxy statement disclosure
rules and are not intended to forecast the future appreciation of the
Common Stock.
(6) All options shown in this table become exercisable in three equal
installments on the first, second and third anniversaries of the grant
date. The exercise price may be paid in cash or shares of Common Stock. The
1987 Program provides that if specified corporate control changes occur,
all outstanding options will become exercisable immediately.
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
STOCK OPTION EXERCISES
The following table contains information relating to the exercise of stock
options by the named executive officers in 1993 as well as the number and value
of their unexercised options as of December 31, 1993.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END#(2) FISCAL YEAR END$(3)
SHARES ACQUIRED -------------------------- --------------------------
NAME ON EXERCISE(#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Mr. Loucks 104,873 $ 670,733 55,177 105,482 $ 327 $ -0 -
Mr. White -0 - N/A 40,343 37,330 $ 112,811 $ -0 -
Mr. Knight -0 - N/A 19,578 36,179 $ 24,282 $ -0 -
Mr. Tobin -0 - N/A 100,161 73,004 $ 227,975 $ -0 -
Mr. Baez -0 - N/A 29,139 20,968 $ 23,973 $ -0 -
- ------------------------------------------------------------------------------------------------------
<FN>
(1) No Stock Appreciation Rights (SARs) were exercised by any Company employee
in 1993, and there are no outstanding SARs held by any employee or director
of the Company.
(2) The sum of the numbers under the Exercisable and Unexercisable columns of
this heading represents each named officer's total outstanding options.
(3) The dollar amounts shown under the Exercisable column of this heading
represent the number of exercisable options multiplied by the difference
between the closing price of the Common Stock on December 31, 1993, which
was $24.38 per share, and the exercise price of the options. There is no
value shown under the Unexercisable column of this heading because each
named officer's unexercisable options have an exercise price above $24.38
per share.
</TABLE>
- --------------------------------------------------------------------------------
LONG-TERM INCENTIVE PLANS
No long-term incentive plan table is included in this proxy statement
because no long-term incentive plan awards were made to any of the named
executive officers during 1993.
MR. TOBIN'S SEPARATION AGREEMENT
Mr. Tobin ceased to be a director, officer and employee of the Company
effective January 4, 1994. In connection with Mr. Tobin's termination of
employment, he and the Company negotiated a separation agreement. Under the
agreement, Mr. Tobin will receive $396,800 of severance pay in installments at
regular payroll intervals between January 4 and December 31, 1994, subject to
increase if the senior officers of the Company have their salaries restored to
their pre-September 1993 levels. (See the Compensation Committee report
beginning on page 12 for information about the September 1993 salary
reductions.) Mr. Tobin's monthly perquisite allowances, equal to a total of
$1700 per month, will be paid to him until June 30, 1994.
His outstanding stock options will expire on April 4, 1994, in accordance
with the terms of the original option grants. Mr. Tobin's agreement includes a
provision that gives him the opportunity to receive a cash payment based on the
amount he could have realized if the expiration date and vesting of his stock
options extended to September 30, 1994. The provision operates as follows. If
the highest composite closing price of the Common Stock between April 5, 1994
and September 30, 1994 (Post-expiration price) exceeds the highest composite
closing price between January 4, 1994 and April 4, 1994
10
<PAGE>
- --------------------------------------------------------------------------------
(Pre-expiration price), the Company will make a cash payment to Mr. Tobin. The
payment will equal the amount by which the Post-expiration price exceeds the
Pre-expiration price, multiplied by the number of shares for which Mr. Tobin
could have exercised the options if the expiration date and vesting extended to
September 30, 1994. The cash payment calculation does not include any options
with an option price above the Post-expiration price. Mr. Tobin has six
outstanding option grants. The number of shares of Common Stock covered by this
provision and the option prices are as follows; 21,149 and $15.89, 22,196 and
$22.21, 31,410 and $24.36, 31,410 and $34.15, 4,466 and $33.88, 17,866 and
$26.00, respectively. Accordingly, unless the Post-expiration price exceeds
$33.88, this provision will apply to a maximum of 92,621 shares.
The agreement also provides Mr. Tobin with 10 additional years of Pension
Plan participation through a non-qualified and unfunded supplemental pension
benefit. The additional years of Pension Plan participation are shown in the
information reported for Mr. Tobin under the Pension Plan Table on page 16. The
other compensation and benefit elements of Mr. Tobin's separation agreement are
the same as those provided to all salaried employees of the Company and its
subsidiaries in the U.S. who receive separation agreements. In exchange for the
negotiated compensation and benefits described in this paragraph, Mr. Tobin has
given the Company a general waiver and release of all claims he may have against
the Company and its subsidiaries as well as their directors, officers and
employees. Mr. Tobin's agreement also confirms his obligations under his
non-compete and confidentiality agreements with the Company.
11
<PAGE>
- --------------------------------------------------------------------------------
COMPANY FINANCIAL PERFORMANCE
The following graph compares the performance of the Common Stock with the
Standard & Poor's 500 Composite Index and the Standard & Poor's Medical Products
and Supplies Index. The comparison of total return (change in year end stock
price plus reinvested dividends) for each of the years assumes that $100 was
invested on December 31, 1988 in each of the Company, the Standard & Poor's 500
Index and the Standard & Poor's Medical Index with investment weighted on the
basis of market capitalization. The 1992 Company dividend includes the Caremark
stock dividend distributed on November 30, 1992.
FIVE YEAR CUMULATIVE TOTAL RETURN
[GRAPHIC 1]
- --------------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation of the Company's executive officers is determined by the
Compensation Committee of the Board of Directors. The committee currently has
five members. As required by the Company's bylaws, the committee consists solely
of non-employee directors.
COMPENSATION PHILOSOPHY FOR EXECUTIVE OFFICERS
The committee's compensation philosophy is to provide forms and levels of
compensation which are competitive when compared to other health-care companies
and to companies of similar size. These companies are reported in surveys whose
participants include most companies within the Standard & Poor's Medical
Products and Supplies Index, as well as other companies with which the Company
and its subsidiaries compete for executive talent ("comparable companies"). This
philosophy is intended to assist the Company in attracting, retaining and
motivating executives with superior leadership and management abilities.
Consistent with this philosophy, the committee determines a total compensation
structure for each officer, including Mr. Loucks, consisting primarily of
salary, cash bonus, restricted stock and stock options. The proportions of these
elements of compensation vary among the officers depending upon their levels of
responsibility. The senior executive officers ordinarily receive a larger
portion of their total compensation through performance-based incentive plans,
which place a greater percentage of their compensation at risk while more
closely aligning their interests with the interests of the Company's
stockholders.
The committee's philosophy with respect to the cap on the tax-deductibility
of executive compensation is to maximize the benefit of the new tax law for the
Company's stockholders by seeking
12
<PAGE>
- --------------------------------------------------------------------------------
performance-based exemptions where consistent with the Company's compensation
policies and practices. The committee has adopted 1994 performance goals for the
Company's cash bonus plan and 1989 Long-Term Incentive Plan which are expected
to satisfy the deductibility requirements with respect to any payments under
those plans in 1995.
COMPENSATION ELEMENTS
The committee establishes salaries each year at a level primarily intended
to be competitive at the 50th percentile with salaries of executive officers in
comparable companies. In addition, officer salaries are based on the officers'
individual performance. Actual salaries in a number of cases are under the 50th
percentile due to specific executives' relatively short tenure in their
positions and the Company's practice of adjusting salaries over time rather than
immediately when there are promotions into senior executive positions.
Additionally, in September 1993 the eight most senior executive officers of the
Company agreed to salary reductions of 15 percent to 25 percent. The salary
reductions were not related to the non-attainment of any specific Company
performance measures. Rather, these reductions demonstrate the officers'
commitment to controlling costs and improving the Company's operating
performance.
Bonuses are intended to provide executive officers with an opportunity to
receive additional cash compensation (which when combined with salary provides
total cash compensation between the 50th and 75th percentile of total cash
compensation paid to executives in comparable companies), but only if they earn
it through Company and individual performance. Each year, the committee
establishes a bonus range for each executive officer. After year-end results are
reported, the committee determines each officer's bonus based on its assessment
of the Company's performance against the earnings-per-share and return-on-equity
goals it established for the year as well as each executive's individual
performance during the year. The Company did not achieve its earnings-per-share
and return-on-equity goals for 1993. However, many executive officers
individually performed exceptionally well during a particularly challenging
year, positioning the Company for improved performance in 1994 and beyond.
Individual performance was measured against individual performance objectives
which were established for 1993, and the individual performance was given equal
weight when determining bonuses for 1993. With the exception of Mr. Tobin,
actual bonuses for 1993 ranged from 63 percent to 86 percent of the high end of
the named executive officers' respective bonus ranges. Mr. Tobin received no
bonus for 1993, as agreed in connection with the negotiation of the compensation
and benefits provided in his separation agreement, which is described on page
10.
Restricted stock is granted, under the Company's 1989 Long-Term Incentive
Plan, from time to time and to the extent necessary to maintain a four-to
five-year plan period. This plan was established as part of the Company's 1987
Incentive Compensation Program ("1987 Program"), which was approved by the
Company's stockholders. Restricted stock grants are intended to be a mechanism
for aligning management's and stockholders' interests. The plan provides
participants the opportunity to build equity in the Company if the Company
achieves strong operating results as measured by return on equity. The committee
establishes the annual return-on-equity goal. Each participant has a targeted
number of restricted shares which can be earned annually if the Company achieves
its goal. The stock ordinarily vests one year after it is earned, provided the
participant remains employed by the Company or one of its subsidiaries. Because
the Company did not achieve its return-on-equity goals for 1993, no restricted
shares were earned under the plan for 1993. Under the 1989 Long-Term Incentive
Plan, shares of restricted stock which are unearned because of any one year's
performance shortfall remain outstanding and restricted for each participant who
remains employed by the Company or one of its subsidiaries. The unearned shares
remain available to be earned in subsequent plan years, either as part of the
targeted number of restricted shares which can be earned annually, or in
addition to the targeted number to the extent the Company's return-on-equity
performance exceeds the return-on-equity target.
13
<PAGE>
- --------------------------------------------------------------------------------
Stock options also are granted under the 1987 Program. They represent an
additional vehicle for aligning management's and stockholders' interests,
specifically motivating executives to remain focused on the market value of the
Common Stock in addition to earnings-per-share and return-on-equity goals. If
there is no price appreciation in the Common Stock, the option holders receive
no benefit from the stock options because options are granted with an exercise
price equal to the fair-market value of the Common Stock on the day of the
grant. Normally, stock options are granted annually. In 1993, the committee
granted stock options on approximately 3.5 million shares of Common Stock to
approximately 5,500 employees of the Company and its subsidiaries.
The number of restricted shares and options granted to executive officers is
formula-driven. The formula is designed to provide an opportunity to earn
stock-based compensation (half in restricted stock, half in options) at a
third-quartile level compared to executives in comparable companies. The grants
of restricted stock are based on the value of the Common Stock on the date of
grant. The grants of stock options are based on an estimated appreciation in the
Common Stock over time discounted to a present value. When the Company grants
restricted stock under the 1989 Long-Term Incentive Plan and stock options, it
considers approaches taken by comparable companies, to the extent those
approaches are consistent with the Company's total compensation philosophy and
its performance against established goals. Restricted shares granted under the
1989 Long-Term Incentive Plan have been subject solely to annual
return-on-equity performance. The number of restricted shares granted is
determined based upon the number of restricted shares which each executive
officer would earn if the Company achieved its annual return-on-equity target.
MR. LOUCKS' 1993 COMPENSATION
Mr. Loucks participates in the same compensation plans provided to other
executive officers. The committee's general approach to setting Mr. Loucks'
compensation is to be competitive with comparable companies--and to have a
majority of his compensation dependent on achievement of performance criteria
established by the committee. All compensation actions relating to Mr. Loucks
are subject to the approval of the Board of Directors. The actions described in
this report have been approved.
Mr. Loucks' salary had most recently been established in 1991, based upon an
analysis of competitive compensation data. In February 1992, the committee
capped Mr. Loucks' salary at $751,000, its 1991 level, and capped his bonus at
$800,000, its 1990 level, for the five-year period beginning in 1992. Mr.
Loucks' salary and bonus were capped for the five-year period, and the committee
granted Mr. Loucks 65,000 shares of restricted stock in lieu of the salary and
cash bonus increases he might have otherwise received over that five-year
period, because of the committee's continuing emphasis on aligning management's
and stockholders' interests. This stock is targeted to be earned in equal
increments over that five-year period. All earned shares are scheduled to vest
on December 31, 1997, if he remains employed by the Company or one of its
subsidiaries on that date.
In September 1993, Mr. Loucks requested and was granted a 25 percent salary
reduction as a demonstration of his personal commitment to controlling costs and
improving the Company's operating performance. In early 1994, the committee
determined that Mr. Loucks earned none of the 65,000 shares of restricted stock
for 1993, based on the Company's operating performance. The committee also
determined that Mr. Loucks earned a $500,000 bonus for 1993 because of his
continued commitment to the strategic direction of the Company toward an
objective of leadership in health-care and in recognition of his guidance of the
Company through a particularly turbulent and challenging environment in U.S.
health-care. Although the Company did not achieve its earnings-per-share and
return-on-equity goals for 1993, the committee based its determination of Mr.
Loucks' 1993 bonus on the value of both his efforts in developing the Company's
strategic direction and his guidance through the changing U.S. health-care
environment.
14
<PAGE>
- --------------------------------------------------------------------------------
Under the Company's 1987 Program, Mr. Loucks received a stock option grant
in 1993 for 88,800 shares of Common Stock. As described above, options granted
to Mr. Loucks and other executive officers are determined by formula and
reinforce the link between management's and stockholders' interests.
Mr. Loucks, like other participants in the 1989 Long-Term Incentive Plan,
was deemed not to have earned any portion of his annual target award of
restricted stock in 1993, based on the Company's return-on-equity performance.
RELATIONSHIP OF EXECUTIVE COMPENSATION TO COMPANY PERFORMANCE
The committee believes that management should be motivated, and compensated,
based on the Company's financial performance. For this reason, the committee has
emphasized return-on-equity and earnings-per-share achievements when determining
cash bonus and long-term incentive compensation for all executive officers, as
explained above. The committee believes that strong financial performance, as
expressed by return-on-equity and earnings-per-share, were the appropriate focus
for 1993. The relatively low common stock returns during the past five years are
in part attributable to the pressure on health-care costs, uncertainty over the
direction of U.S. health-care reform and in part to the fact that the Company
has not yet realized the full benefits of strategic initiatives implemented over
the past few years.
Since 1985, the Company has made several difficult but critical decisions
intended to establish and advance a position as the leading health-care company.
Those decisions include the merger with American Hospital Supply Corporation in
1985, the restructuring of manufacturing operations initiated in 1990 and the
spin-off of Caremark International Inc. in 1992. Each had significant short-term
costs and benefits--and broad long-term implications. Although each had
different specific objectives, they all advanced the Company's drive for
leadership. Through a series of strategic initiatives announced in November 1993
and being implemented now, the Company is intensively focused on providing
unmatched service to customers, enhancing technological innovation and expanding
its global reach.
When determining the 1993 cash bonus and stock option grant for Mr. Loucks,
the committee was mindful of the leadership and vision he has provided in
positioning the Company over the past several years, but it is also committed to
assuring that executive compensation track with Company performance.
1994 INCENTIVE COMPENSATION PROGRAM
Based on the recommendation of the committee, the Board of Directors
adopted, on February 14, 1994, the 1994 Incentive Compensation Program ("1994
Program"), subject to approval by the Company's stockholders. The material
provisions of the 1994 Program are described beginning on page 20. The complete
text of the 1994 Program is included as Exhibit A to this proxy statement. All
of the incentive grants described in this report were made under the Company's
1987 Program, which was previously approved by the Company's stockholders.
Incentives granted under the 1987 Program will continue to be subject to the
terms and conditions of the 1987 Program. Because the 1994 Program was not in
effect during 1993, it had no effect on incentives granted under the 1987
Program. Furthermore, if the 1994 Program had been in effect during 1993, it
would have had no effect on incentives granted under the 1987 Program.
<TABLE>
<S> <C>
Silas S. Cathcart (Chairman)
John W. Colloton David W. Grainger
Georges C. St.
Mary Johnston Evans Laurent, Jr.
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
PENSION PLAN AND EXCESS PLANS
The following table shows estimated annual retirement benefits payable to
participants in the Company's United States pension plan ("Pension Plan") whose
employment terminates at normal retirement (age 65). The normal retirement
benefit equals 1.75% of the average of an employee's five highest consecutive
calendar years of earnings out of his or her last ten calendar years of earnings
("Final Average Pay"), multiplied by the employee's years of Pension Plan
participation. 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 and under the Company's related defined
benefit supplemental and excess pension benefit plans. 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 primary Social Security amount used in the calculations
is that payable for an individual attaining age 65 in 1993.
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 65 points, and who wait to begin
receiving their Pension Plan benefits until they have 85 points, receive the
same Pension Plan benefits they would otherwise receive at age 65, regardless of
their actual age when they begin receiving their Pension Plan benefits.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
------------------------------------------------------
YEARS OF PENSION PLAN PARTICIPATION(1)
FINAL AVERAGE ------------------------------------------------------
PAY(1) 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
$ 400,000 $ 101,300 $135,100 $168,800 $202,600 $236,600
500,000 127,600 170,100 212,600 255,100 297,800
600,000 153,800 205,100 256,300 307,600 359,100
700,000 180,100 240,100 300,100 360,100 420,300
800,000 206,300 275,100 343,800 412,600 481,600
900,000 232,600 310,100 387,600 465,100 542,800
1,000,000 258,800 345,100 431,300 517,600 604,100
1,100,000 285,100 380,100 475,100 570,100 665,300
1,200,000 311,300 415,100 518,800 622,600 726,600
1,300,000 337,600 450,100 562,600 675,100 787,800
1,400,000 363,800 485,100 606,300 727,600 849,100
1,500,000 390,100 520,100 650,100 780,100 910,300
1,600,000 416,300 555,100 693,800 832,600 971,600
- ----------------------------------------------------------------------------------------------------------
<FN>
(1) As of January 1, 1994, 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.
Loucks--27 years and $1,339,175; Mr. White--23 years and $410,072; Mr.
Knight--11 years and $356,100; Mr. Tobin--31 years and $651,211; Mr.
Baez--19 years and $413,842.
</TABLE>
The 31 years of Pension Plan participation shown for Mr. Tobin includes the
10 additional years which he received through the non-qualified pension
supplement incorporated in his separation
16
<PAGE>
- --------------------------------------------------------------------------------
agreement described on page 10. As of January 1, 1994, Mr. Tobin was age 49 and,
accordingly, has 80 points. Mr. Tobin will have 85 points in August 1997. Mr.
Tobin's pension supplement is payable at the same time and in the same form as
his benefit under the Pension Plan.
- --------------------------------------------------------------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1993, Mr. Loucks served as chairman of the compensation and human
resources committee of the board of directors of Emerson Electric Co., of which
Charles F. Knight is chairman of the board and chief executive officer.
- --------------------------------------------------------------------------------
SECTION 16 REPORTING
Section 16 of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to report to the Securities and Exchange
Commission their Common Stock ownership when they are first elected, and to
report subsequent changes in their Common Stock ownership. Three executive
officers amended reports which were filed timely in 1993. Brian P. Anderson, who
was elected an officer in 1993, filed an amendment to his initial statement of
Common Stock ownership (Form 3) to report an employee stock option grant for 732
shares of Common Stock. J. Robert Hurley, who was elected an officer of one of
the Company's principal subsidiaries in 1993, filed an amendment to his Form 3
to report 243 shares of Common Stock which he holds in the Company's dividend
reinvestment plan. James H. Taylor, Jr. filed an amended report of a change in
beneficial ownership (Form 4) to report three additional shares of Common Stock
sold in an open-market transaction. Mr. Colloton filed a late Form 4 reporting
the purchase by his spouse of 500 shares of Common Stock. Mr. Frame filed a late
Form 4 reporting the acquisition of 10 shares of Common Stock in the Company's
dividend reinvestment plan. In all cases, the omissions were inadvertent.
- --------------------------------------------------------------------------------
LEGAL PROCEEDINGS RELATING TO DIRECTORS AND OFFICERS
Most of the individuals who served as directors of American Hospital Supply
Corporation ("American") in 1985, including Mr. Cathcart and Ms. Evans, who
currently are directors of the Company, are defendants in a pending lawsuit
filed as a derivative action. HARRY LEWIS V BAYS, ET AL. was filed on March 23,
1990 in the Circuit Court of Cook County, Illinois. The plaintiffs allege breach
of fiduciary duty claims relating to American's buyout of an agreement with
Hospital Corporation of America ("HCA") in connection with the Company's merger
with American in 1985. In November 1992, the Board of Directors appointed a
special litigation committee consisting of three current directors of the
Company who were neither directors of the Company nor American at the time of
the merger. The special litigation committee was appointed to determine the best
interests of the Company relating to this lawsuit, which seeks $200 million in
damages from the individual defendants and HCA as well as other relief. On
August 9, 1993, counsel for the special litigation committee filed a motion with
the Court to dismiss this case on the basis that there is no merit to the claims
against any defendant and that pursuing this litigation is not in the best
interests of the Company or its stockholders. The proceedings on this motion
have been stayed.
On January 14, 1994, the parties filed with the court a Memorandum of
Understanding which provides a basis for resolving this litigation. The parties
have undertaken proceedings necessary to demonstrate the fairness of the
proposed settlement. It is anticipated that these actions will be completed by
April 30, 1994, following which the parties expect to sign a settlement
agreement and present it to the court for approval.
17
<PAGE>
- --------------------------------------------------------------------------------
On August 13, 1993, the Company received a notice from the Department of
Veterans Affairs ("DVA") suspending it from competing for, or receiving, new
contracts with any agency within the Executive Branch of the Federal Government
on the basis of the Company's guilty plea to an information charging it with one
count of violating the Anti-boycott Statute by providing information to Arab
League Boycott Officials. On the same day, the Company's subsidiary, Baxter
Healthcare Corporation ("BHC"), received a notice from the DVA suspending it on
the basis of the Company's plea, its commonality of management with, and its
ownership by, the Company, and its alleged misrepresentation concerning the
status of products on its Federal Supply Schedule Contracts with the government.
On the same day Mr. Loucks and Mr. Tobin each received notices from the DVA
proposing their individual debarments from competing for, or receiving,
contracts on the basis of the Company's plea and on the assertion that each knew
or should have known of the actions of the Company and its former senior vice
president, secretary, and general counsel, G. Marshall Abbey, recited in the
plea agreement.
On December 21, the Company and the DVA reached an agreement to settle these
proceedings. As a result, the Company and BHC were immediately reinstated as
federal contractors by the DVA, and the suspensions imposed in August 1993, were
lifted. The settlement agreement among the Company, BHC, Messrs. Loucks and
Tobin, and the DVA resolved all civil and administrative disputes involved in
the suspension proceeding. The DVA also terminated debarment proceedings against
Messrs. Loucks and Tobin. As a part of the settlement, BHC agreed to provide the
agency with $2.8 million in financial consideration over three years for past,
present and future costs associated with the suspension proceedings, and
establish a service center dedicated exclusively to federal accounts and staffed
by customer-service representatives who will receive training emphasizing
government-contracting regulations and federal procurement requirements. The
payment and actions agreed to by the Company, BHC, Messrs. Loucks and Tobin, and
the DVA did not constitute an admission of liability or wrongdoing.
All of the individuals who served as directors of the Company as of
September 1, 1993, as well as Lester B. Knight, executive vice president of the
Company, are named as defendants in a pending lawsuit ostensibly filed as a
"demand excused" derivative action. SEIGEL V. LOUCKS, ET AL, was filed on
September 15, 1993, in the Court of Chancery in New Castle County, Delaware Cir.
Ct., New Castle Co., Del., C.A. No. 13130. On October 23, 1993, a substantially
identical complaint was filed in the same court by Bartholomew J. Millano. The
two complaints have been consolidated. The plaintiffs allege that the directors
failed to oversee management in connection with actions which were the basis for
a dispute between the Company and the DVA concerning sales and pricing
practices, failed to prevent such actions, and failed to create a compliance
program to prevent or detect such actions. The complaint seeks to recover
alleged damages incurred by the Company as the result of lost sales due to the
proposed debarment, as well as the compensation paid to Messrs. Gantz, Knight,
Loucks, and Tobin since 1991. The Company and its directors have filed motions
to dismiss the suit, have answered the complaint and have filed a counterclaim
seeking to permanently bar and enjoin the plaintiff from prosecuting this case
because her claims have been disposed of and barred in a prior suit against the
Company.
- --------------------------------------------------------------------------------
OWNERSHIP OF COMPANY SECURITIES
The following tables and footnotes show information as to the Common Stock
beneficially owned by each director and named executive officer and by all
directors and executive officers of the Company as a group as of February 18,
1994. The information is furnished by the respective directors and officers. For
purposes of this disclosure, the Securities and Exchange Commission has defined
"beneficial ownership" to include securities over which the individual has sole
or shared investment or
18
<PAGE>
- --------------------------------------------------------------------------------
voting power regardless of the economic incidents of ownership. The amounts
shown indicate the number of outstanding shares of Common Stock beneficially
owned by each director and named executive officer and all directors and
executive officers as a group, and include shares of Common Stock beneficially
owned under the Company's Incentive Investment Plan, a qualified Section 401(k)
profit sharing plan. There are no outstanding equity securities of the Company
other than its Common Stock. No director or named executive officer beneficially
owned more than 1.0% of the outstanding Common Stock. All directors and
executive officers as a group own less than 1.0% of the outstanding shares of
Common Stock. Where a director or executive officer has the right to acquire
shares of Common Stock within 60 days after February 18, 1994, through the
exercise of stock options or participation in the Company's employee stock
purchase plans, these shares of Common Stock are treated as beneficially owned
by the individual and as outstanding for purposes of computing the percentages
owned by the individual and the group.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY RIGHT TO
NAME OR GROUP OWNED ACQUIRE (2)
<S> <C> <C>
- --------------------------------------------------------------
Manuel A. Baez 82,233 29,359
Silas S. Cathcart 2,334 --
David C. K. Chin 424 --
John W. Colloton 547 --
Susan Crown 8,900 (3) --
James D. Ebert 600 --
Mary Johnston Evans 3,134 --
Frank R. Frame 313 --
William B. Graham 295,795 --
David W. Grainger 31,500 --
Martha R. Ingram 31,000 --
Charles F. Knight 8,800 --
Lester B. Knight 73,623 19,578
Vernon R. Loucks Jr. 323,580 55,477
Georges C. St. Laurent, Jr. 5,418 --
James R. Tobin 113,390 27,157
Fred L. Turner 4,539 --
Tony L. White 113,287 40,523
All directors and executive
officers as a group (1) 2,219,631 603,917
- --------------------------------------------------------------
<FN>
(1) Adjustments are made to avoid double counting of shares as to which more
than one beneficial owner is listed.
(2) The shares indicated under Right to Acquire are included in the figures
under Shares of Common Stock Beneficially Owned.
(3) Ms. Crown disclaims beneficial ownership of 4,000 shares.
</TABLE>
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
Except as indicated in the following table, the shares of Common Stock shown
above are held with sole power over both investment and voting.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
VOTING POWER INVESTMENT POWER
NAME SHARED SHARED
- -------------------------------------------------------------------
<S> <C> <C>
Manuel A. Baez 10,548 10,548
Susan Crown 4,000 4,000
Lester B. Knight 7,351 7,351
Tony L. White 20,688 20,688
All directors and executive
officers as a group 168,146 168,146
- -------------------------------------------------------------------
</TABLE>
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT ACCOUNTANT
(ITEM 2 ON PROXY CARD)
The Board of Directors has reappointed Price Waterhouse as independent
accountant for the Company in 1994. The board recommends that the appointment be
ratified. If the resolution is not adopted, the board will consider the
selection of another public accounting firm for 1994 and future years.
Fees for services performed by Price Waterhouse during 1993 related to the
audit of the consolidated annual financial statements, including statutory
audits of foreign subsidiaries, aggregated approximately $3.3 million. In
addition to the audit of the consolidated financial statements, Price Waterhouse
performed other audit related services including: audits of employee benefit
plans, limited reviews of quarterly financial information, reviews of officers'
compensation, assistance with regulatory filings and consultations in connection
with various financial reporting and accounting matters. Fees for these other
audit related services aggregated approximately $500,000 while fees for tax
assistance and other consulting services aggregated approximately $400,000.
A representative of Price Waterhouse will attend the annual meeting and will
be prepared to respond to questions. The representative may make a statement at
the meeting if he or she so desires.
The Board of Directors recommends a vote FOR ratification of the selection
of Price Waterhouse as independent accountant for 1994.
- --------------------------------------------------------------------------------
PROPOSAL TO ADOPT THE 1994 INCENTIVE COMPENSATION PROGRAM
(ITEM 3 ON PROXY CARD)
On February 14, 1994, the Board of Directors adopted the 1994 Incentive
Compensation Program ("Program"), subject to approval by the Company's
stockholders. The complete text of the Program is included as Exhibit A to this
proxy statement. The following summary of the Program is qualified in its
entirety by reference to the complete text.
- --------------------------------------------------------------------------------
GENERAL
The purpose of the Program is to increase stockholder value and to advance
the interests of the Company by providing a variety of economic incentives
("Incentives") designed to attract, retain and motivate employees of the
Company.
The Program will be administered by the Compensation Committee of the Board
of Directors ("Committee"). The Committee must consist of two or more directors
who qualify as disinterested persons under Rule 16b-3 of the Securities Exchange
Act of 1934 and as outside directors under
20
<PAGE>
- --------------------------------------------------------------------------------
Section 162(m) of the Internal Revenue Code of 1986. 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 of the Company (including directors of the Company who
are also full-time employees of the Company) selected from time to time by the
Committee. As of December 31, 1993, the Company had approximately 60,400
employees.
The number of shares of Common Stock which may be issued under the Program
may not exceed 15,000,000 shares. This represents approximately 5% of the
outstanding shares of Common Stock on March 1, 1994.
- --------------------------------------------------------------------------------
STOCK OPTIONS
Under the Program, the Committee may grant non-qualified and incentive stock
options to eligible employees to purchase shares of Common Stock from the
Company. 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 less than the fair market
value of the shares subject to the option on the date of grant. The term of a
non-qualified option may not exceed 10 years and one day from the date of grant.
No person may receive, in any calendar year, stock options which, in the
aggregate, represent more than 500,000 shares of Common Stock.
- --------------------------------------------------------------------------------
RESTRICTED STOCK
Restricted stock consists of the sale or transfer by the Company to an
eligible employee of one or more shares of Common Stock which are subject to
restrictions on their sale or other transfer by the employee. The price, if any,
at which restricted stock will be sold will be determined by the Committee, and
it may vary from time to time and among employees and may require no payment or
be less than the fair market value of the shares at the date of sale. All shares
of restricted stock will be subject to the attainment of performance goals under
Section 162(m) of the Internal Revenue Code and other restrictions as the
Committee may determine. Subject to these restrictions and the other
requirements of the Program, a participant receiving restricted stock will have
the rights of a stockholder (including voting and dividend rights) as to those
shares only to the extent the Committee designates such rights at the time of
the grant.
- --------------------------------------------------------------------------------
STOCK AWARDS
Stock awards consist of the transfer by the Company to an eligible employee
of shares of Common Stock, without payment, as additional compensation for his
or her services to the Company or a subsidiary of the Company. Stock awards are
subject to the following limitations. No person subject to section 16(a) of the
Exchange Act (executive officers of the Company and its principal subsidiaries)
may receive a Stock Award, and no person eligible to receive a Stock Award may
receive a Stock Award representing more than 2,500 shares of Common Stock in any
calendar year.
- --------------------------------------------------------------------------------
PERFORMANCE SHARES
Performance shares consist of the grant by the Company to an eligible
employee of a contingent right to receive payment of shares of Common Stock. The
performance shares will be paid in shares of Common Stock to the extent
performance goals set forth in the grant are achieved. All grants of
21
<PAGE>
- --------------------------------------------------------------------------------
performance shares will be subject to the attainment of performance goals under
Section 162(m) of the Internal Revenue Code. The number of shares granted and
the performance goals will be determined by the Committee.
- --------------------------------------------------------------------------------
OTHER INCENTIVES
Other incentives may consist of a payment in cash or in kind by the Company
to an eligible employee as additional compensation for his or her services to
the Company or a subsidiary of the Company. The form, amount and the terms and
conditions of other incentives will be determined by the Committee. All grants
of other incentives will be subject to the attainment of performance goals under
Section 162(m) of the Internal Revenue Code.
- --------------------------------------------------------------------------------
SECTION 162(M) PERFORMANCE GOALS
Under the Program, all grants of restricted stock, performance shares, and
other incentives (as defined in the Program) will be subject to the attainment
of performance goals under Section 162(m) of the Internal Revenue Code. The
proposed regulations under Section 162(m) would require the performance goals
related to grants under the Program to be approved separately by the Company's
stockholders. If Section 162(m) and the related regulations, when finalized,
require such separate approval, the Company expects to submit, for stockholder
approval, the performance goals related to grants under the Program. No grants
have been made under the Program.
- --------------------------------------------------------------------------------
NON-TRANSFERABILITY OF MOST INCENTIVES
No stock option, restricted stock, performance share or other incentive
granted under the 1994 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.
During an employee's lifetime, an Incentive may be exercised only by the
employee or the employee's guardian or legal representative.
- --------------------------------------------------------------------------------
AMENDMENT OF THE PROGRAM
The Board of Directors may amend or discontinue the Program at any time.
However, no amendment or discontinuance may (a) alter or impair, without the
consent of the recipient, an Incentive previously granted, (b) increase the
maximum number of shares of Common Stock which may be issued to all employees
under the Program, or (c) result in a change which would disqualify the Program
from the exemption provided by Rule 16b-3 of the Securities Exchange Act of
1934. In addition, the Board of Directors may not amend the Program without
approval of the Company's stockholders to the extent such approval is required
by law, agreement or any exchange on which the Common Stock is traded.
- --------------------------------------------------------------------------------
ACCELERATION OF INCENTIVES
In the event of a change in control of the Company (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. The change in control provision in the Program is essentially
identical to the change in control provision in the 1987 Incentive Compensation
Program.
22
<PAGE>
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX CONSEQUENCES
Under existing federal income tax provisions, an employee 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 the Company normally receive any deduction for federal
income tax purposes in the year such Incentive is granted. An employee 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 the Company will be entitled to a deduction equal to the amount
the employee is required to treat as ordinary income. An employee who receives a
cash award will realize ordinary income in the year the award is paid equal to
the amount received, and the amount of the cash is expected to be deductible by
the Company.
When a non-qualified stock option granted pursuant to the Program is
exercised, the employee will realize ordinary income measured by the difference
between the aggregate purchase price of the shares of Common Stock as to which
the option is exercised and the aggregate fair market value of shares of the
Common Stock on the exercise date, and the Company will be entitled to a
deduction in the year the option is exercised equal to the amount the employee
is required to treat as ordinary income.
Options which qualify as incentive stock options are entitled to special tax
treatment. Because the capital gains rate is currently lower than the highest
individual rate, there are income tax advantages to receiving incentive stock
options rather than non-qualified options. 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 (i) the optionee recognizes no income upon the
exercise of the option; (ii) 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; (iii) the optionee's basis in the shares purchased will equal the
amount of cash paid for such shares; and (iv) the Company will not be entitled
to a federal income tax deduction in connection with the exercise of the option.
The Company understands that the difference between the option price and the
fair market value of the shares acquired upon exercise of an incentive stock
option will be treated as an "item of tax preference" for purposes of the
alternative minimum tax. In addition, incentive stock options exercised more
than three months after retirement are treated as non-qualified options.
The Company 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, the Company
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 nonstatutory 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 the
Company'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.
An employee who receives restricted stock or performance shares will
normally realize taxable income on the date the shares become transferable or no
longer subject to a substantial risk of forfeiture or on the date of their
earlier disposition. The amount of such taxable income will equal the amount by
which the fair market value of the shares of Common Stock on the date such
restrictions lapse (or any earlier date on which the shares are disposed of)
exceeds their purchase price, if any. An
23
<PAGE>
- --------------------------------------------------------------------------------
employee 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. The Company expects to be entitled to a deduction for compensation paid
in the same year and in the same amount as income is realized by the employee.
The Board of Directors recommends a vote FOR adoption of the 1994 Incentive
Compensation Program.
- --------------------------------------------------------------------------------
CURRENT STOCKHOLDER PROPOSALS
The Company has been informed that the following stockholder proposals will
be presented, each by a separate beneficial owner of the Company's Common Stock,
for a vote at the 1994 annual meeting of stockholders. The Board of Directors
recommends a vote AGAINST each proposal; its reasons follow the stockholder's
proposal and supporting statement.
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSAL RELATING TO CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS
(ITEM 4 ON PROXY CARD)
Lewis D. Gilbert and John J. Gilbert, 1165 Park Avenue, New York, New York
10128-1210, as co-trustees under the will of Minnie D. Gilbert and as beneficial
owners of 100 shares of Common Stock, have advised the Company that they intend
to 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
A law enacted in California provides that all state pension holdings, as
well as state college funds, invested in shares must be voted in favor of
cumulative voting proposals, showing increasing recognition of the importance of
this democratic means of electing directors.
Also, the National Bank Act has provided for cumulative voting.
Unfortunately, in so many cases companies get around it by forming holding
companies without cumulative voting. Thus, with so many banking failures the
result is that tax payers have to make up the losses. Banking authorities have
the right to question the capability of directors to be on banking boards.
Unfortunately, in so many cases authorities come in after and say the director
or directors were not qualified. So there is no reason why this could not be
done for corporations under the SEC and banking authorities.
It has increasingly been recognized that fair and equitable distribution of
voting power is best secured when all the stockholders have the right of
cumulative voting. This is the purpose of cumulative voting it protects
everyone, in our opinion.
Because of the normal need to find new directors and the need for directors
on the compensation committee, we think cumulative voting is the answer. In
addition, some recommendations have been made to carry out the Valdez 10 points.
The 11th in our opinion, should be to have cumulative voting and to end the
stagger system of electing directors.
24
<PAGE>
- --------------------------------------------------------------------------------
Alaska took away cumulative voting, over our objections, when it became a
state. Perhaps, if the citizens had insisted on proper representation the
disastrous Valdez oil spill might have been prevented if environmental directors
were elected through cumulative voting.
Many successful corporations have cumulative voting. For example, Pennzoil
having cumulative voting defeated Texaco in that famous case. Another example,
in spite of still having a stagger system of electing directors, Ingersoll-Rand,
which has cumulative voting, won two awards. In FORTUNE magazine it was ranked
second as "America's Most Admired Corporations" and the WALL STREET TRANSCRIPT
noted "on almost any criteria used to evaluate management, Ingersoll-Rand
excels." We believe Baxter International should follow their example.
Perhaps all the troubles Baxter has been having could have been prevented by
having the election of more independent directors through cumulative voting.
If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS' STATEMENT OPPOSING STOCKHOLDER RESOLUTION
For the reasons explained below, the Board of Directors believes that
cumulative voting for directors would not serve the best interests of the
Company and its stockholders. The board recommends a vote AGAINST the proposed
resolution.
Directors should be elected based on their ability and commitment to
represent the best interests of the Company and its stockholders as a whole.
This tenet is best served when each director is elected by a majority vote of
the stockholders. Cumulative voting can enable, and indeed encourage, a
relatively small special-interest group to elect one or more directors.
Directors so elected might feel compelled to act in the interest of the group
that elected them rather than in the interest of all stockholders.
Cumulative voting introduces the possibility of partisanship among board
members, which could undermine the ability of the board to work together
effectively. The variety and complexity of issues facing the Company
necessitates that no actual or apparent influence bring into question the
objectivity of the board's insight, perspective or counsel.
The board encourages stockholders to present director candidates to the
board's Planning and Organization Committee, which assists and advises the board
in connection with board membership. Notably, the Planning and Organization
Committee consists solely of non-employee directors. It is also important to
note that the Company's chairman and chief executive officer is the only Company
employee on the Board of Directors. A summary of the process by which
stockholders may present director candidates is included in the description of
the Planning and Organization Committee on page 5 of this proxy statement.
In the board's opinion, the present method of electing directors, where each
director is elected by majority vote of all stockholders, best assures that the
directors will guide the affairs of the Company for the benefit of all
stockholders.
The board recommends a vote AGAINST cumulative voting in the election of
directors.
25
<PAGE>
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSAL RELATING TO SEPARATING THE OFFICES OF
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
(ITEM 5 ON PROXY CARD)
The New York City Employees Retirement System, the beneficial owner of
922,567 shares of Common Stock, has advised the Company through Elizabeth
Holtzman, former Comptroller of the City of New York, 1 Centre Street, New York,
New York, 10007-2341, that it intends to have the following resolution presented
at the annual meeting:
WHEREAS, the board of directors is meant to be an independent body elected
by shareholders and charged by law and shareholders with the duty, authority and
responsibility to formulate and direct corporate policies, and
WHEREAS, the chairperson of the board is responsible for, among other
things, the smooth functioning of the board by setting the agenda, presiding at
board meetings and ensuring that directors are given adequate information, and
the chair should have a central role in the board's evaluation of management's
performance, and
WHEREAS, the position of chairperson should be a nonexecutive role, whose
basic responsibilities should include working with the directors to direct
management operations and overseeing corporate strategy, compliance with laws,
accounting principles and ethical standards applicable to our company,
NOW THEREFORE, BE IT RESOLVED, that the shareholders request that the
company's board of directors adopt and implement a policy that the positions of
chairperson of the board and chief executive officer not be held by the same
individual and that the chairperson not be a former CEO of this company, but be
elected from among the outside, independent directors.
- --------------------------------------------------------------------------------
STOCKHOLDER'S STATEMENT SUPPORTING THE PROPOSED RESOLUTION
We believe that shareholders will best be served when the board includes a
chairperson who is chosen from among the independent, outside directors. Such a
person will bring objectivity and unique perspectives to issues facing our
company.
As matters stand, the chief executive officer is an employee of the company
who reports to our board of directors. However, he or she also acts as the
chairperson of the very same board he or she is accountable to. There is an
appearance of a conflict of interests each time matters concerning executive
compensation policies, possible takeover offers and corporate performance issues
arise. How can one person who serves as both chairperson and CEO evaluate his or
her own performance?
Clearly, shareholders have no role to play in the day-to-day operations of
our company. We rely on management to run, direct, and operate the company and
we expect the directors to oversee management. We believe this on-going dynamic,
and the resolution of our company's disappointing performance, can best be
served by having different individuals serve as chairperson and chief executive
officer.
We urge you to vote FOR this proposal.
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS' STATEMENT OPPOSING STOCKHOLDER RESOLUTION
For the reasons explained below, the Board of Directors believes that
separating the positions of chairman of the board and of chief executive officer
is neither necessary nor desirable. The board recommends a vote AGAINST the
proposed resolution.
Combining the positions of chairman of the board and chief executive officer
facilitates the ability of the board to operate effectively and efficiently. A
principal role of the chairman is to propose the general agenda for board
meetings from among the many operational, administrative and strategic
26
<PAGE>
- --------------------------------------------------------------------------------
issues facing the Company on a day-to-day basis. The agenda provides a framework
for discussion, without limiting consideration of other matters by the board.
The chairman also participates in board and board committee meetings, in an
advisory capacity as a resource about all aspects of the Company and its
operations. The chairman does not serve on any board committees except the
Executive Committee. The Company and its stockholders benefit by permitting the
board to interact directly and consistently with the person among them most
knowledgeable about the Company and about management's vision for the Company's
future: the chief executive officer.
The board believes its independence is not compromised by having a single
person serve as chairman and chief executive officer. The functions of the board
are carried out at the full board and board committee level. Each of the
directors is a full and equal participant in the major strategic and policy
decisions of the Company. The insight, advice, and counsel that each
non-employee director makes available to the Company is not likely to differ in
any respect should one of those directors be the chairman.
As described earlier in this proxy statement, the Company's bylaws provide
for six standing committees of the board to assist the directors in carrying out
their responsibilities. The duties of three of the committees, each of which is
composed solely of non-employee directors as required by the Company's bylaws,
make a non-executive chairman unnecessary. The Compensation Committee recommends
executive compensation policies. The Planning and Organization Committee assists
and advises the board in connection with board membership, committee structure,
and general organization and planning matters; this committee also considers
director candidates recommended by stockholders. The Audit Committee assists the
board in fulfilling its responsibility for the Company's accounting and
financial reporting practices and provides a channel of communication between
the board and the Company's independent auditors. With the exception of the
Executive Committee, the other two committees currently consist solely of
non-employee directors.
The board believes that no meaningful additional measure of independence and
stockholder access would be provided by a non-executive chairman. In fact, in
the board's view, the separation of offices would undermine the effectiveness of
the chief executive officer and create confusion, both within and outside the
Company, regarding the corporate direction. The board believes that the
interests of the Company and its stockholders are best served by the experience,
consistent direction and ability for decisive action afforded by a single
full-time person serving as chairman and chief executive officer, subject to
oversight by the Company's non-employee directors.
The board recommends a vote AGAINST separating the offices of chairman of
the board and chief executive officer.
- --------------------------------------------------------------------------------
FUTURE STOCKHOLDER PROPOSALS
From time to time stockholders present proposals which may be proper
subjects for inclusion in the proxy statement and for consideration at the
annual meeting. To be included in the proxy statement for the 1995 annual
meeting, proposals must be received by the Company no later than November 21,
1994.
Stockholders may present proposals which 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 the Company's bylaws. The Company's
bylaws require all stockholders who intend to make proposals at an annual
stockholders meeting to submit their proposals to the Company 60 to 90 days
before the anniversary date of the previous year's annual meeting. To be
eligible for consideration at the 1995 annual meeting, proposals which have not
been submitted by the deadline for inclusion in the proxy statement must be
received by the Company between January 28 and February 28, 1995. The provision
is intended to allow all stockholders to have an opportunity to consider
business expected to be raised at the meeting.
27
<PAGE>
- --------------------------------------------------------------------------------
COST OF PROXY SOLICITATION
The Company will bear the costs of soliciting proxies. In addition to use of
the mails, proxies may be solicited by directors, officers and employees of the
Company personally, by telephone or by telegram. Such persons will not be
specially compensated for such solicitation. The Company will request banks and
brokers to solicit their customers who have Common Stock registered in their
names or the names of their nominees and will reimburse such banks and brokers
for their reasonable out-of-pocket costs.
In addition, the Company has retained Georgeson & Co. Inc., 88 Pine Street,
New York, New York 10005 to aid in soliciting proxies from brokers, bank
nominees and other institutional owners by personal interview, telephone,
telegram or mail. The Company will pay Georgeson & Co. Inc. $12,500 for
stockholder solicitation and distribution of proxy materials and will reimburse
it for expenses.
- --------------------------------------------------------------------------------
OTHER BUSINESS
The Company is not aware of any business to be presented at the annual
meeting other than the matters described above. If a stockholder vote is
necessary to transact any other business at the meeting, the proxyholders intend
to vote their proxies in accordance with their best judgment related to such
business.
By order of the Board of Directors,
ARTHUR F. STAUBITZ
SENIOR VICE PRESIDENT, SECRETARY
AND GENERAL COUNSEL
Deerfield, Illinois
March 21, 1994
28
<PAGE>
EXHIBIT A
BAXTER INTERNATIONAL INC.
1994 INCENTIVE COMPENSATION PROGRAM
1. PURPOSE. The purpose of the Baxter International Inc. 1994 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 employees. As used in this Program, the
term "subsidiary" means any business, whether or not incorporated, in which
Baxter has a direct or indirect ownership interest.
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 disinterested persons 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. The Board of Directors may 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 made to or held by
persons who, at the time of the exercise of such authority, are not subject
to section 16(a) of the Exchange Act.
2.2 AUTHORITY. Subject to the provisions of the Program, the Committee
shall have the authority to (a) manage the operation of the Program, (b)
interpret the provisions of the Program, and prescribe, amend and rescind
rules and procedures relating to the Program, (c) grant incentives under the
Program, in such forms and amounts and subject to such restrictions,
limitations 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 contempo-raneously granted) or compensation
or in lieu of current or deferred compensation, (d) modify the terms of,
cancel and reissue, or repurchase outstanding incentives, subject to
subsection 11.9(b), (e) prescribe the form of agreement, certificate or
other instrument evidencing any incentive under the Program, (f) correct any
defect or omission and reconcile any inconsistency in the Program or in any
incentive hereunder, and (g) make all other determinations and take all
other actions as it deems necessary or desirable for the implementation and
administration of the Program; provided, however, that in no event shall the
Committee cancel any outstanding stock option for the purpose of reissuing
an additional 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.
3. PARTICIPATION. Subject to the terms and conditions of the Program, the
Committee shall determine and designate from time to time the employees of the
Company (including employees who are directors of Baxter) who shall receive
incentives under the Program ("Participants"). All officers of the Company are
eligible to receive incentives under the Program. All other full-time employees
of the Company are eligible to receive incentives under the Program.
Participation, the grant of incentives and any related performance goals for
persons subject to section 16(a) of the Exchange Act must be approved by the
Committee. The Committee's authority with respect to participation, the grant of
incentives and related performance objectives for others (persons not subject to
section 16(a)) may be delegated.
A-1
<PAGE>
- --------------------------------------------------------------------------------
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 15,000,000
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 with respect to which the Participant has
received the benefits of ownership (other than voting rights), either in
the form of dividends or otherwise, except to the extent that such
reissuance is permitted by Rule 16b-3 of the Exchange Act; (2) shares
which are withheld from any award or payment under the Program to satisfy
tax withholding obligations (as described in subsection 11.5(e)); (3)
shares which are surrendered to fulfill tax obligations (as described in
subsection 11.5(e)); and (4) shares which are surrendered in payment of
the Option Price (as defined in subsection 5.1) upon the exercise of a
Stock Option.
4.4 ADJUSTMENTS TO SHARES RESERVED. In the event of any merger,
consolidation, reorganization, recapitalization, spinoff, stock dividend,
stock split, reverse stock split, exchange, or other distribution with
respect to shares of Common Stock or other change in the corporate structure
or capitalization affecting the Common Stock, the type and number of shares
of stock which are or may be subject to incentives under the Program and the
terms of any outstanding incentives (including the price at which shares of
stock may be issued pursuant to an outstanding incentive) 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 the earlier of the
date provided by the option terms or the date which is 10 years and one day
after the date of grant. The option price
A-2
<PAGE>
- --------------------------------------------------------------------------------
per share ("Option Price") for any Stock Option awarded shall not be less
than the greater of par value or the Fair Market Value of a share of Common
Stock on the date the Stock Option is awarded. Each Stock Option awarded
under the Program shall be a "nonqualified stock option" for tax purposes
unless the Stock Option satisfies all of the requirements of section 422 of
the Internal Revenue Code of 1986, as amended, and the Committee designates
such Stock Option as an "Incentive Stock Option". No person shall receive,
in any calendar year, Stock Options which, in the aggregate, represent more
than 500,000 shares of Common Stock.
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.
6. STOCK AWARDS. Subject to the terms and conditions of the Program, the
Committee shall designate the employees who shall be awarded shares of Common
Stock without restrictions ("Stock Awards"), under the Program and shall
determine the number and terms of the Stock Awards to be awarded to each of
them. Stock Awards are subject to the following specific limitations. No person
subject to section 16(a) of the Exchange Act may receive a Stock Award, and no
person eligible to receive a Stock Award may receive a Stock Award representing
more than 2,500 shares of Common Stock in any calendar year.
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.
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-3
<PAGE>
- --------------------------------------------------------------------------------
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. Each Performance Share awarded pursuant to this Section 8
shall entitle the Participant to a payment in the form of one share of
Common Stock upon the attainment of such performance goals and other terms
and conditions as may be specified by the Committee.
8.2 NO ADJUSTMENTS. Except as otherwise provided by the Committee, no
adjustment shall be made in Performance Shares awarded on account of cash
dividends which may be paid or other rights which may be provided to the
holders of Common Stock prior to the end of any period for which performance
goals were established.
8.3 SUBSTITUTION OF CASH. The Committee may, in its sole discretion,
substitute cash equal to the Fair Market Value (determined as of the date of
the issuance) of shares of Common Stock otherwise required to be issued to a
Participant in accordance with this Section 8.
9. OTHER INCENTIVES. In addition to the incentives described in Sections 5
through 8 above and subject to the terms and conditions of the Program, the
Committee may grant other incentives ("Other Incentives"), payable in cash or in
kind, under the Program as it determines to be in the best interest of the
Company.
10. PERFORMANCE GOALS AND APPLICATION OF TAX DEDUCTION
LIMITATIONS. Compensation attributable to a Stock Option awarded to a
Participant is intended to satisfy the requirements of the exception for
qualified performance-based compensation within the meaning of section 162(m)
and the related regulations under the Internal Revenue Code of 1986, as amended.
All awards of Restricted Stock, Performance Shares and Other Incentives under
the Program shall be made subject to the attainment
A-4
<PAGE>
- --------------------------------------------------------------------------------
of performance goals relating to one or more of the business criteria within the
meaning of section 162(m) identified above, including but not limited to, stock
price, market share, sales, earnings per share, return on equity, costs and cash
flow, as determined by the Committee from time to time.
11. GENERAL
11.1 EFFECTIVE DATE. The Program will become effective upon its
approval by the affirmative vote of the holders of a majority of the voting
stock of Baxter at a meeting of its 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 Stock Option, share of
Restricted Stock, Performance Share or Other Incentive under the Program may
be transferred, pledged or assigned by the holder thereof (except, in the
event of the holder's death, by will or the laws of descent and distribution
to the limited extent provided in the Program or in the terms of the
incentive), and the Company shall not be required to recognize any attempted
assignment of such rights by any Participant. During a Participant's
lifetime, awards may be exercised only by the Participant or by the
Participant's guardian or legal representative.
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
A-5
<PAGE>
- --------------------------------------------------------------------------------
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.
11.6 NO CONTINUED EMPLOYMENT. The Program does not constitute a
contract of employment or continued service, and participation in the
Program will not give any employee or Participant the right to be retained
in the employ of the Company or the right to continue as a director of the
Company or any right or claim to any benefit under the Program unless such
right or claim has specifically accrued under the terms of the Program or
the terms of any incentive under the Program.
11.7 TREATMENT AS A STOCKHOLDER. No incentive granted to a Participant
under the Program shall create any rights in such Participant as a
stockholder of Baxter until shares of Common Stock related to the incentive
are registered in the name of the Participant.
11.8 DEFERRAL PERMITTED. Payment of cash to a Participant or
distribution of any shares of Common Stock to which a Participant is
entitled under any incentive shall be made as provided in the terms of the
incentive. Payment may be deferred at the request of the Participant to the
extent provided in the incentive.
11.9 AMENDMENT OF THE PROGRAM. The Board may, at any time and in any
manner, amend, suspend or terminate the Program or any incentive outstanding
under the Program; provided, however, that no such amendment or
discontinuance shall:
(a) be made without stockholder approval to the extent such approval
is required by law, agreement or the rules of any exchange or automated
quotation system upon which the Common Stock is listed or quoted;
(b) alter or impair the rights of Participants with respect to
incentives previously made under the Program without the consent of the
holder thereof; or
(c) make any change that would disqualify 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
A-6
<PAGE>
- --------------------------------------------------------------------------------
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 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) the stockholders of Baxter approve a merger or consolidation of
Baxter with any other corporation, 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) the stockholders of Baxter approve a plan of complete liquidation
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).
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).
A-7
<PAGE>
[Logo]
Baxter International, Inc.
One Baxter Parkway
Deerfield, IL 60016
708.948.2000
PROXY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS -- APRIL 29, 1994
SOLICITED BY THE BOARD OF DIRECTORS OF BAXTER INTERNATIONAL INC.
The undersigned hereby appoint(s) Vernon R. Loucke Jr. and Arthur F. Staubitz
or either of them, with full power of substitution, as proxyholders to
represent and to vote, as designated on the reverse hereof, the common stock
of the undersigned (including any shares of common stock credited under the
Company's Stockholder Investment Service or uncertificated share account of the
employee stock purchase plans) at the annual meeting of the stockholders of the
Company to be held on April 29, 1994 and at any adjournment thereof.
Election of Directors, Nominees:
John W. Colloton
Susan Crown
Vernon R. Loucke Jr.
Georges C. St. Laurent, Jr.
Comments/Change of Address
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
- --------------------------------------------
You are encouraged to specify your choices by marking the appropriate boxes. SEE
REVERSE SIDE. You need not mark any boxes if you wish to Vote in accordance
with the Board of Directors' recommendations. The proxyholders named above
cannot vote your shares unless you sign and return this card. Please mark,
sign and date this proxy card and mail it in the envelope provided.
SEE REVERSE SIDE
<PAGE>
/x/ Please mark your votes as in this example.
This proxy when properly executed will be voted in the manner directed hereon.
If no direction is made, this proxy will be voted FOR the election of directors,
FOR proposals 2 and 3, and AGAINST proposals 4 and 5.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Election of Directors
FOR WITHHELD
/ / / /
For, exempt vote withheld from the following nominee(s):
- --------------------------------------------
2. Ratification of independent accountants.
FOR AGAINST WITHHELD
/ / / / / /
3. Adoption of 1994 Incentive Compensation Program.
FOR AGAINST WITHHELD
/ / / / / /
In their discretion, on such other matters as may properly come before the
meeting.
Treat votes as confidential. / /
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST PROPOSALS 4 AND 5.
4. Proposal relating to cumulative voting in the election of directors.
FOR AGAINST WITHHELD
/ / / / / /
5. Proposal relating to separating the offices of chairman and CEO.
FOR AGAINST WITHHELD
/ / / / / /
- --------------------------------------------------------------------------------
SIGNATURE(S) DATE
----------------------------------------- --------------------
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing at attorney, executor, administrator, trustee or guardian, please
give full title as such.
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.
