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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

Filed by the Registrant [X]

Filed by a Party other than the Registrant [  ]

Check the appropriate box:

BAXTER INTERNATIONAL INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

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Notice of Annual Meeting

				Baxter International Inc. One Baxter Parkway    Deerfield, Illinois 60015		847.948.2000

March 21, 2005

Notice of Annual Meeting of Stockholders

The 2005 Annual Meeting of Stockholders of Baxter International Inc. will be held at the Chicago Cultural Center, 78 East Washington Street, Chicago, Illinois, on Tuesday, May 3, 2005 at 10:30 a.m. Central time, for the following purposes:

Registration will begin at 9:00 a.m. Central time. Stockholders of record at the close of business on March 4, 2005 will be entitled to vote at the meeting. A list of these stockholders will be made available to any stockholder, for any purpose germane to the meeting, at Baxter’s Corporate Headquarters located at One Baxter Parkway, Deerfield, Illinois for the 10-day period prior to the meeting.

Even if you plan to attend the Annual Meeting in person, please read these proxy materials and cast your vote on the matters that will be presented at the meeting. You have the option of voting your shares through the Internet, by telephone or by mailing the enclosed proxy card. Instructions for our registered stockholders are described under the question “How do I vote?” on page 1 of the proxy statement.

Finally, if you receive more than one of these mailings at the same address, or if you wish to receive future mailings electronically, please follow the instructions on page 49 of the proxy statement under the heading “Reducing Mailing Expenses.”

By order of the Board of Directors,

ROBERT L. PARKINSON, JR.

Chairman of the Board,

Chief Executive Officer

and President

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Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015, 847.948.2000

This Proxy Statement and the accompanying proxy card are being mailed, beginning on or about March 21, 2005, to owners of shares of Baxter common stock in connection with the solicitation of proxies by the Board of Directors for the 2005 Annual Meeting of Stockholders.

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Questions and Answers about Voting

Your shares can be voted at the Annual Meeting only if you vote by proxy or if you are present and vote in person. Even if you expect to attend the Annual Meeting, we encourage you to vote by proxy to ensure that your shares will be represented. If you wish to attend the Annual Meeting, please follow the instructions on page 49 of this proxy statement under the heading “Attending the Annual Meeting.”

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Questions and Answers about Voting (continued)

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Questions and Answers about Voting (continued)

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Management Proposals

Election of Directors—Proposal 1 on the Proxy Card

Baxter’s Board of Directors currently consists of twelve members and is divided into three classes. The directors in each class serve terms of three years. At the Annual Meeting, four directors are nominated for election to a three-year term to the class of directors with terms expiring in 2008 and one director is nominated for election to a two-year term to the class of directors with terms expiring in 2007.

Fred E. Turner, whose current term expires on May 3, 2005, will not run for re-election because he has reached the mandatory retirement age under Baxter’s Corporate Governance Guidelines. The Board and management would like to thank Mr. Turner for his dedicated service to Baxter and its stockholders over the past 23 years. The Board appointed Robert L. Parkinson, Jr. in April 2004, Albert P.L. Stroucken in September 2004 and Blake E. Devitt in March 2005 to serve as directors until the 2005 Annual Meeting of Stockholders. The Board has nominated the following persons for election, all of whom are current directors of Baxter:

Term to Expire 2008

Joseph B. Martin, M.D., Ph.D.

Robert L. Parkinson, Jr.

Thomas T. Stallkamp

Albert P.L. Stroucken

Term to Expire 2007

Blake E. Devitt

Information regarding each of the nominees is presented on pages 7-9 of this proxy statement. All of the nominees have indicated their willingness to serve if elected, but if any should be unable or unwilling to stand for election, proxies may be voted for a substitute nominee designated by the Board of Directors. No nominations for directors were received from stockholders, and no other candidates are eligible for election as directors at the 2005 Annual Meeting.

The Proxyholders intend to vote the shares represented by proxy in favor of all of the Board’s nominees, except to the extent a stockholder withholds authority to vote for the nominees.

The Board of Directors recommends a vote FOR the election of all of the nominees for director.

Ratification of Appointment of Independent Registered Public Accounting Firm—Proposal 2 on the Proxy Card

The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers LLP (PwC) as the independent registered public accounting firm for Baxter in 2005. The Audit Committee requests that the stockholders ratify the appointment.

The Audit Committee carefully considered the firm’s qualifications as an independent registered public accounting firm. This included a review of the qualifications of the engagement team, the quality control procedures the firm has established, the issues raised by the most recent quality control review, the coordination of the firm’s efforts with Baxter’s internal audit and its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee’s review also included matters required to be considered under the SEC’s rules on auditor independence, including the nature

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Management Proposals (continued)

and extent of non-audit services, to ensure that the provision of such services will not impair the independence of the auditors. The Audit Committee expressed its satisfaction with PwC in all of these respects.

Although ratification by stockholders is not required by law, the Audit Committee has determined that it is desirable to request ratification of this selection by stockholders. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interests of Baxter and its stockholders. If the stockholders do not ratify the appointment of PwC, the Audit Committee will consider the selection of another independent registered public accounting firm for 2005 and future years.

One or more representatives of PwC will be present at the Annual Meeting to respond to appropriate questions and to make a statement if they so desire.

The table set forth below lists the fees billed to Baxter by PwC for services rendered during fiscal years 2004 and 2003 (in thousands):

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Management Proposals (continued)

The Audit Committee has carefully considered proposed and actual tax-related services provided by PwC to the company. The Audit Committee believes that it is in the best interests of the stockholders to engage the company’s auditors to perform certain tax services because it results in efficiencies and decreased costs for the company. Moreover, certain efficiencies are realized as a result of the auditor’s expertise and familiarity with the company’s financial statements, systems and income tax matters that also result in cost savings. The Public Company Accounting Oversight Board and the Securities and Exchange Commission both recognize that the provision of certain tax-related services to a company by its outside auditors, does not, in and of itself, impair an auditor’s independence.

Pre-approval of Audit and Permissible Non-Audit Services

The Audit Committee must separately pre-approve the engagement of the independent registered public accounting firm to audit the company’s consolidated financial statements. Prior to the engagement, the Audit Committee reviews and approves a list of services, including estimated fees, expected to be rendered during that year by the independent registered public accounting firm. Reports on projects and services are presented to the Audit Committee on a regular basis.

In addition, the Audit Committee has established a pre-approval policy for engaging the independent registered public accounting firm for other audit and permissible non-audit services. Under the policy, the Audit Committee has identified specific audit, audit-related, tax and forensic services that may be performed by the independent registered public accounting firm. The engagement for these services specified in the policy requires the further, separate pre-approval of the chairman of the Audit Committee or the entire Audit Committee, if specific dollar thresholds set forth in the policy are exceeded. Any project approved by the chairman under the policy must be reported to the Audit Committee at the next meeting. Services not specified in the policy as well as the provision of internal control-related services by the independent registered public accounting firm require separate pre-approval by the Audit Committee. In approving non-audit services, the Audit Committee carefully considers the nature of the services to be provided and determines whether such services are prohibited under applicable rules or would otherwise impair the auditor’s independence in auditing Baxter’s financial statements.

The audit, audit-related, tax and other services provided by PwC in 2004 described on page 5 of this proxy statement were pre-approved by the Audit Committee in accordance with its pre-approval policy.

The Proxyholders intend to vote the shares represented by proxy in favor of the ratification of the appointment of PwC as the company’s independent registered public accounting firm, except to the extent a stockholder votes against or abstains from voting on this proposal.

The Audit Committee of the Board of Directors recommends a vote FOR the ratification of the appointment of PwC as independent registered public accounting firm for Baxter in 2005.

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Board of Directors

Director Biographies

Nominees for Election as Directors (Term Expires 2008)

		Joseph B. Martin, M.D., Ph.D., age 66, has served as a Director of Baxter since 2002. Dr. Martin has been the Dean of the Harvard Faculty of Medicine since July 1997. He was Chancellor of the University of California, San Francisco from 1993 to 1997 and Dean of the UCSF School of Medicine from 1989 to 1993. From 1978 to 1989, he was chief of the neurology department of Massachusetts General Hospital and Professor of Neurology at Harvard Medical School. Dr. Martin also serves as a Director of Cytyc Corporation and Scientific Learning Corp.
		Robert L. Parkinson, Jr., age 54, is Chairman of the Board, Chief Executive Officer and President of Baxter International, having served in that capacity since April 2004. Prior to joining Baxter, Mr. Parkinson was Dean of Loyola University Chicago’s School of Business Administration and Graduate School of Business from 2002 to 2004. He retired from Abbott Laboratories in 2001 following a 25-year career, serving in a variety of domestic and international management and leadership positions, including as President and Chief Operating Officer. Mr. Parkinson also serves on the boards of directors for Chicago-based Northwestern Memorial Hospital and the Northwestern Memorial Foundation.
		Thomas T. Stallkamp, age 58, has served as a Director of Baxter since 2000 and was appointed lead director in January 2004. Mr. Stallkamp has been an Industrial Partner in Ripplewood Holdings L.L.C., a New York private equity group, since July 2004. From 2003 to 2004, he served as Chairman of MSX International, Inc., a global provider of technology-driven engineering, business and specialized staffing services and from 2000 to 2003, he served as Vice Chairman and Chief Executive Officer. From 1980 to 1999, Mr. Stallkamp held various positions with DaimlerChrysler Corporation and its predecessor Chrysler Corporation, the most recent of which were Vice Chairman and President. Mr. Stallkamp also serves as a Director of Visteon Corporation and MSX International, Inc.
		Albert P.L. Stroucken, age 57, has served as a Director of Baxter since September 2004. Since April 1998, Mr. Stroucken has served as President and Chief Executive Officer of H.B. Fuller Company, a manufacturer of adhesives, sealants, coatings, paints and other specialty chemicals. Mr. Stroucken was named Chairman of the Board of H.B. Fuller Company in October 1999. From 1997 to 1998, he was General Manager of the Inorganics Division of Bayer AG. From 1992 to 1997, Mr. Stroucken was Executive Vice President and President of the Industrial Chemicals Division of Bayer Corporation.

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Board of Directors (continued)

Nominee for Election as Director (Term Expires 2007)

Directors Continuing in Office (Term Expires 2007)

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Board of Directors (continued)

Directors Continuing in Office (Term Expires 2006)

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Board of Directors (continued)

Committees of the Board

The Board of Directors has five committees: Audit, Compensation, Corporate Governance, Finance and Public Policy. Each committee consists solely of independent directors, as defined by the rules of the New York Stock Exchange as well as Baxter’s Corporate Governance Guidelines. Each committee is required by its charter on an annual basis to conduct a performance evaluation of the committee and to review the adequacy of its charter. The company believes that these committee charters comply with the rules of the New York Stock Exchange and the requirements of the Sarbanes-Oxley Act of 2002. All committee charters are available on Baxter’s website at www.baxter.com under “Corporate Governance–Board of Directors–Committees of the Board” and in print upon request by writing to: Corporate Secretary, Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015.

The table below provides membership and meeting information for each of the Board committees.

* Chair

† Appointed in March 2005. As of the date of this proxy statement, Mr. Devitt has not yet been named to Board committees.

The Audit Committee reviews the company’s financial reporting process and the integrity of its financial statements, Baxter’s system of internal accounting controls, the internal and external audit process, and the process for monitoring compliance with laws and regulations. Common recurring activities of the Audit Committee in carrying out its oversight function include:

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Board of Directors (continued)

The Audit Committee also establishes Baxter’s policy with respect to the hiring of employees and former employees of its independent registered public accounting firm. The current policy is that Baxter will not hire any current or previous employees of its independent registered public accounting firm who have, within the last two years, worked on the company’s audit.

The Compensation Committee exercises the authority of the Board relating to employee benefit plans and the compensation of Baxter’s executives. The Compensation Committee’s responsibilities include:

The Corporate Governance Committee assists and advises the Board on director nominations, corporate governance and general Board organization and planning matters. The Corporate Governance Committee’s responsibilities include:

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Board of Directors (continued)

The Finance Committee assists the Board in fulfilling its responsibilities in connection with the company’s financial affairs. The Finance Committee reviews and, subject to the limits specified in its charter, approves or makes recommendations or reports to the Board regarding:

The Public Policy Committee reviews the policies and practices of Baxter to ensure that they are consistent with its social responsibility to act with integrity as a global corporate citizen to employees, customers and society. The Public Policy Committee has a wide range of responsibilities, including:

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Board of Directors (continued)

Nomination of Directors

Director Candidates Recommended by Stockholders

Baxter’s Corporate Governance Committee will consider director candidates recommended by stockholders. To recommend a candidate for consideration by the Corporate Governance Committee, a stockholder must submit the recommendation in writing to Baxter’s Corporate Secretary at the following address:

Corporate Secretary

Baxter International Inc.

One Baxter Parkway

Deerfield, Illinois 60015

Baxter’s Corporate Governance Guidelines require that the recommendation must include the following:

For a candidate to be considered by the Corporate Governance Committee as a nominee for election at the next annual meeting of stockholders, the stockholder’s recommendation must be received by the Corporate Secretary not less than 120 days before the anniversary date of the company’s most recent annual meeting of stockholders.

In addition, Baxter’s Bylaws permit stockholders to nominate directors. For information regarding the deadlines and procedures for director nominations by stockholders, please see “Future Stockholder Proposals and Nominations” on page 50 of this proxy statement.

Membership Criteria for Non-Employee Directors

The membership criteria for non-employee directors set forth in Exhibit A to Baxter’s Corporate Governance Guidelines provide that each director nominee should:

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Board of Directors (continued)

In addition, Baxter’s Corporate Governance Guidelines provide that directors will be selected on the basis of talent and experience. The company seeks a Board with diversity of background among its members, including diversity of gender, race, ethnic or national origin, age and experience in business, government and education and in healthcare, science, technology and other areas relevant to the company’s activities. At least a majority of the Board must consist of individuals who are independent.

Process for Identifying and Evaluating Director Nominees

The Corporate Governance Committee has retained a search firm to help identify and evaluate potential director nominees. Director nominees are identified through recommendations from members of the Board, management and the company’s search firm. As described above, the Corporate Governance Committee will also consider candidates recommended by stockholders.

The Corporate Governance Committee regularly undertakes a review of the composition of the Board for succession planning purposes, as well as to ensure that the skills and expertise deemed necessary are well represented on the company’s Board. The Committee takes into consideration a number of factors, including the election cycle of directors, mandatory retirement ages, any changed circumstances of the individual directors and results from the Board and committee self-assessment questionnaires. The Committee reviews the expertise and background of current Board and committee members against the criteria described above, seeks to identify any gaps in the composition of the Board and its committees, and uses this analysis to inform its search for and selection of director nominees. In evaluating individual director candidates, the Corporate Governance Committee applies the membership criteria described above while taking into account the current make-up of the Board and the business direction of the company.

Once a candidate has been identified, the Corporate Governance Committee may collect and review publicly available information regarding the individual to assess whether he or she should be considered further. If the Corporate Governance Committee or its chairman determines that the candidate warrants further consideration, the Corporate Governance Committee and the external search firm retained by the Committee will engage in a process that includes a thorough investigation of the candidate, an examination of his or her business background and education, research on the individual’s accomplishments and qualifications, an in-person interview and extensive reference checking. If this process generates a positive indication, the lead director, the members of the Committee and the Chairman of the Board will meet separately with the candidate and then confer with each other regarding their respective impressions of the candidate. If the individual was positively received, and if the individual possesses the skills, talent and/or level and degree of expertise being sought by the Board at that time, the Committee will then recommend the individual to the full Board for election. If the full Board agrees, the Chairman of the Board is then authorized to extend an offer to the individual. This process is dependent upon the receipt of positive feedback and responses at each step, and includes frequent reports to the Corporate Governance Committee and the full Board. The Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder.

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Compensation of Directors

Under Baxter’s non-employee director compensation plan (the “Director Compensation Plan”), non-employee director compensation consists of a combination of cash compensation, stock options and restricted stock, as described below.

Cash Compensation

Under the Director Compensation Plan, each non-employee director receives a $45,000 annual cash retainer. In addition, each non-employee director also receives a $1,000 fee for each Board and each committee meeting attended, and each non-employee director who acts as the chairperson of any committee meeting receives an additional $1,000 for each meeting chaired by him or her. Non-employee directors are eligible to participate in a deferred compensation plan which allows deferral of all or any portion of cash payments until Board service ends.

Each non-employee director is eligible for life insurance benefits. Life insurance premiums of $1,125 in the aggregate were paid in 2004 for the benefit of non-employee directors.

In recognition of his exemplary service as the Board’s lead director during Baxter’s transition to a new chief executive officer, in July 2004 the Board approved a discretionary cash award of $10,000 for Thomas T. Stallkamp.

Stock Options

Each non-employee director is entitled to receive a grant of stock options annually on the date of the annual meeting of stockholders. Under the Director Compensation Plan, the annual stock option grant to each non-employee director has a target value on the grant date based on a Black-Scholes valuation of $60,000. The stock options become exercisable on the date of the next annual meeting of stockholders, and may become exercisable earlier in the event of death, disability, or a change in control of Baxter.

Restricted Stock

Each non-employee director also receives an annual grant of restricted stock on the date of the annual meeting of stockholders. The number of shares of restricted stock to be granted to each non-employee director each year equals the quotient of $60,000 divided by the closing sale price for a share of Baxter Common Stock on the date of the annual meeting. The restricted stock vests on the date of the next annual meeting of stockholders, and will be forfeited if the non-employee director leaves the Board for any reason other than death or disability prior to that date. In the event of a change in control of Baxter, all restrictions on the shares will terminate. Until vested, the restricted stock cannot be transferred or sold. During the restriction period, the directors have all of the other rights of a stockholder, including the right to receive dividends and vote the shares.

Director Stock Ownership Guidelines

In February 2003, the Board of Directors amended Baxter’s Corporate Governance Guidelines to establish recommended stock ownership guidelines for directors. The current stock ownership guideline recommended for each director, after five years of Board service, is to hold five times the annual cash retainer provided to directors.

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Certain Relationships

Certain Relationships and Related Transactions

Carlos Arturo del Salto, Jr., son of Carlos del Salto, Corporate Vice President, President, Intercontinental/Asia, is employed by Baxter in a non-officer position as a sales representative. For his services, Mr. del Salto, Jr. earned $72,155 in total compensation in 2004, which was comparable to other employees at a similar level. In addition to the foregoing relationship, disclosure of which is required under the rules of the Securities and Exchange Commission, Magdalena Nemer, sister-in-law of Mr. del Salto (spouse of his brother), serves as Baxter’s Country Managing Director for Mexico. Ms. Nemer is on expatriate assignment from the United States to Mexico. For her services, Ms. Nemer earned $185,875 in total compensation in 2004. Ms. Nemer’s compensation included a base salary of $167,731 and a bonus of $18,144. Ms. Nemer also received normal expatriate benefits related to her assignment in the amount of $383,310, which primarily included tax equalization, housing assistance, a cost of living allowance, a company car and educational assistance for her children. The compensation paid to and benefits received by Ms. Nemer are consistent with the compensation paid to and benefits received by other Baxter expatriate employees in similar positions.

Although there are no other relationships or transactions requiring disclosure under the rules of the Securities and Exchange Commission, Baxter has been a party to the following transactions with entities of which a member of the Board serves or has served in an executive or similar capacity during 2004.

In 2004, Baxter paid $75,500 in membership dues and program attendance fees to The Conference Board, a tax-exempt organization. The total payments represent less than 0.5% of The Conference Board’s consolidated gross revenues for 2004. Ms. Fosler, a member of Baxter’s Board, serves as Executive Vice President and Chief Economist of The Conference Board.

Baxter has agreed to make a $1.5 million donation to Loyola University Chicago over a three-year period. These funds will support certain capital improvements to the School of Business Administration and the development of new curricular initiatives in the Graduate School of Business. The pledge was made as a condition to Mr. Parkinson’s employment with Baxter and while Mr. Parkinson was Dean of Loyola University Chicago’s School of Business Administration and Graduate School of Business. Mr. Parkinson left Loyola University Chicago in April 2004. Furthermore, in 2004, Baxter received $2,335,888 in payments for products sold to Loyola University Medical Center, a tax-exempt, academic healthcare institution owned by Loyola University Chicago. The total payments received represent less than 0.5% of Loyola University Chicago’s consolidated gross revenues for 2004.

Compensation Committee Interlocks and Insider Participation

Mr. Forsyth (Chairman), Mr. Boomer, Ms. Shapazian and Mr. Stallkamp served as members of the Compensation Committee in 2004. Each of the members is an independent director. During 2004, no executive officer of Baxter served as a director or as a member of the compensation committee of another company who had an executive officer that served as a member of Baxter’s Compensation Committee or as a director of Baxter.

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Corporate Governance

The Board of Directors recognizes the importance of good corporate governance as a means of addressing the needs of Baxter’s stockholders, employees, customers and community. Pursuant to the Delaware General Corporation Law, under which Baxter is organized, the business, property and affairs of Baxter are managed under the direction of the Board of Directors. Members of the Board are kept informed of Baxter’s business through discussions with the Chairman and management, by reviewing materials prepared for them by management and by participating in meetings of the Board and its committees. During 2004, the Board held 11 meetings and the Board committees held a total of 35 meetings. During the period for which they served in 2004, each incumbent director attended at least 89 percent of the aggregate number of Board meetings and Board committee meetings for committees on which they served. The average attendance of these directors at all such meetings during the year was over 95 percent. Baxter’s Corporate Governance Guidelines, which are described below, provide that directors are expected to attend the annual meeting of stockholders. In May 2004, nine out of the ten directors then continuing in office attended the annual meeting of stockholders.

Corporate Governance Guidelines

Baxter first adopted formal corporate governance principles in 1995. Baxter’s Corporate Governance Guidelines (the “Guidelines”) serve as principles addressing the role of the Board of Directors in areas such as fiduciary oversight, strategic planning, social responsibility, succession planning and board elections. The Guidelines also set standards relating to the composition and operation of the Board of Directors and its committees, including standards relating to the selection, qualification and evaluation of directors as described on pages 13-14 of this proxy statement under the heading “Board of Directors—Nomination of Directors.” The Guidelines address director independence criteria, the recommendation of director candidates by stockholders, other company directorships, membership criteria for non-employee directors, director attendance, director access to management, the authority of the Board and its committees to hire outside advisors, the appropriateness of continued Board membership in the event of a change in a director’s employment or other circumstances, the mandatory retirement age for directors, executive and director compensation, selection and responsibilities of the lead director, director continuing education, recommended stock ownership for directors and a number of other matters.

Rules adopted by the New York Stock Exchange require listed companies to adopt governance guidelines covering various matters. The company believes that Baxter’s Guidelines comply with the New York Stock Exchange rules and, in certain areas, are ahead of the trends. The Corporate Governance Committee of the Board reviews, at least annually, the adequacy of the Guidelines and recommends any proposed changes to the Board for approval.

The Guidelines, amended as of February 22, 2005, as well as other information on corporate governance, are available on Baxter’s website at www.baxter.com under “Corporate Governance–Guidelines” and in print upon request by writing to: Corporate Secretary, Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015.

Director Independence

The Board of Directors has determined, after careful review, that all directors except for Robert L. Parkinson, Jr. are independent, as defined by Baxter’s Corporate Governance Guidelines and the rules of the New York Stock Exchange. Baxter’s Guidelines require that a majority of Baxter’s directors

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qualify as independent. To be considered independent, the Board must affirmatively determine that a director does not have any direct or indirect material relationship with Baxter.

Baxter’s Guidelines include the following standards for determining director independence:

For relationships not covered by these Guidelines, the determination of whether the director is independent or not will be made by the directors who satisfy the independence guidelines.

Executive Sessions

Baxter’s Guidelines require the Board to meet in executive session without management or any employee director present at every regularly scheduled meeting. The Audit Committee is required by

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its charter to hold separate executive sessions during at least five committee meetings per year with the internal auditor, the independent auditor and management. The other committees of the Board also have the authority to hold executive sessions without management present.

Lead Director

Baxter’s lead director is currently Thomas T. Stallkamp. Baxter’s Corporate Governance Guidelines provide that the lead director is responsible for presiding at all executive sessions of the Board and acting as the liaison between the non-management directors and the Chairman of the Board. In addition, the lead director serves as the contact person to facilitate communications by Baxter employees and stockholders directly with the non-management members of the Board. The Corporate Governance Committee recommends a lead director to the full Board for approval on an annual basis.

Contacting the Lead Director and Other Members of the Board

Baxter’s Corporate Governance Committee has established a process for sending communications to members of the Board, including the lead director. Specifically, stockholders and other interested parties may contact any of Baxter’s directors, including the lead director, by mail or e-mail as described below.

All communications will be forwarded by Baxter’s Corporate Secretary directly to the lead director, unless a different director is specified.

Annual Assessment of Board and Committee Performance

The Board has annually reviewed its own performance, structure and processes for the past eleven years in order to assess how effectively it is functioning. This assessment is implemented and administered by the Corporate Governance Committee through an annual Board self-evaluation survey. In addition, each committee of the Board conducts an annual performance evaluation of the committee, as required by its charter, through a self-evaluation survey. The views of individual directors are collected by the Corporate Secretary and summarized for consideration by the full Board or committee, as appropriate.

Global Business Practice Standards and Corporate Responsibility Office

Baxter’s ethics policies can be found in its Global Business Practice Standards, which are designed to promote honest and ethical conduct and compliance with applicable laws and to serve as a guide for making business decisions. The Global Business Practice Standards are applicable to members of Baxter’s Board of Directors and all employees of the company, including the Chief Executive Officer, Chief Financial Officer and other senior financial officers. These standards include

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policies on a number of topics, such as protection and use of company assets, accurate recordkeeping, competitive and confidential information, insider trading, bioethics, conflicts of interest, gifts, trade compliance and other aspects of business ethics. These standards address Baxter’s commitment to full, fair, accurate, timely, and understandable disclosure in all public communications, including reports that the company files with, or submits to, the Securities and Exchange Commission and other government agencies. The standards also address the consequences of failure to comply with applicable law or Baxter’s policies and procedures and require prompt internal reporting of wrongdoing.

Baxter’s Global Business Practice Standards include procedures for employees to seek guidance or report concerns about business practices, including concerns regarding accounting, internal accounting controls, auditing, or other matters. These procedures have been reviewed by the Board’s Public Policy and Audit Committees and approved by the full Board of Directors. Questions and concerns can be submitted confidentially or anonymously. Employees may raise issues or concerns through any one of ten different channels, including calling the toll-free Business Practice Standards Helpline, communicating with Business Practices through the question prompts on a form accessed on the Business Practices website, writing to the Corporate Responsibility Office’s post office box, sending an e-mail to the Corporate Responsibility Office at corporate_responsibility_office_deerfield@baxter.com, or contacting the members of Business Practices, the Corporate Responsibility Office and/or its regional committees directly.

The Corporate Responsibility Office, which was established by the Board in 1993, is responsible for communicating the company’s Business Practice Standards, maintaining multiple channels for employees to report concerns, providing guidance and training to employees and directors (including, for directors, both one-on-one orientation to Baxter’s business practice processes as well as the same on-line Business Practice Standards Awareness Training course for employees), and monitoring compliance. Permanent members of the Corporate Responsibility Office include the company’s Vice President of Business Practices, who reports to the Public Policy Committee, and the Vice President of Corporate Audit, who reports to the Audit Committee.

Baxter’s Global Business Practice Standards are available on Baxter’s website at www.baxter.com under “Corporate Governance–Business Practices” and in print upon request by writing to: Business Practices, Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015.

Disclosure Controls and Procedures

The company has established disclosure controls and procedures designed to ensure that financial and non-financial information required to be disclosed by Baxter in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported on a timely basis. These controls and procedures are designed to ensure that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow for timely disclosure decisions. Each quarter, the company carries out an evaluation of the effectiveness of the company’s disclosure controls and procedures, under the supervision and with the participation of the company’s Disclosure Committee and other members of the company’s management team, including the Chief Executive Officer and Chief Financial Officer.

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Audit Committee Report

The Audit Committee of the Board of Directors of Baxter assists the Board in fulfilling its oversight responsibilities. The Audit Committee consists of five independent directors, as defined by the rules of the New York Stock Exchange as well as Baxter’s Corporate Governance Guidelines. The Board of Directors has determined that Thomas T. Stallkamp, who is the Chairman of the Audit Committee, K. J. Storm and Albert P.L. Stroucken each qualify as an “audit committee financial expert” as defined by the rules of the Securities and Exchange Commission. The Audit Committee’s duties and responsibilities are set forth in a written charter. The charter is available on Baxter’s website at www.baxter.com under “Corporate Governance–Board of Directors–Committees of the Board–Audit” and in print upon request by writing to: Corporate Secretary, Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015.

Management is responsible for Baxter’s internal control over financial reporting. A professional staff of in-house corporate auditors reviews the design of, and compliance with, Baxter’s internal control systems and the accounting policies and procedures supporting the financial reporting process. PricewaterhouseCoopers LLP (PwC) is responsible for performing independent audits of Baxter’s consolidated financial statements and its internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). The Audit Committee’s responsibility is to monitor and oversee these processes.

In the course of fulfilling its responsibilities, the Audit Committee has:

Based on the foregoing, the Audit Committee recommended to the Board of Directors that Baxter’s audited financial statements referred to above be included in Baxter’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 for filing with the Securities and Exchange Commission.

Thomas T. Stallkamp (Chairman)

Gail D. Fosler

K. J. Storm

Albert P.L. Stroucken

Fred L. Turner

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Compensation Committee Report

The Compensation Committee of the Board of Directors (the “Committee”) makes recommendations to the independent directors of the Board concerning compensation for the Chief Executive Officer and determines compensation for other officers. The Committee also exercises the authority of the Board with respect to Baxter’s employee benefit plans. The Committee is comprised of four independent directors, as discussed above under “Board of Directors–Committees of the Board” and “Corporate Governance–Director Independence.”

Compensation Philosophy for Officers

The Committee’s compensation philosophy provides a framework for aligning compensation with business objectives. The Committee’s philosophy is to provide compensation opportunities that are structured to: (i) recognize performance by basing compensation on the achievement of pre-established performance goals for the company as well as individual performance and (ii) be competitive when compared to healthcare and non-healthcare companies of similar size and scope. This philosophy is intended to assist Baxter in attracting, retaining and motivating executives with superior leadership and management abilities. The company’s philosophy with respect to the $1 million cap on the tax-deductibility of executive compensation is to maximize the benefit of tax laws for Baxter’s stockholders. The Committee has reviewed the total annual compensation received by the officers, including salary, cash bonuses, long-term incentives and perquisites, and has determined the amount to be competitive and reasonable.

Relationship of Executive Compensation to Performance

To promote a pay-for-performance philosophy, employee compensation is based on company as well as individual performance. The Committee believes that management should be motivated and compensated based on both financial and non-financial measures. For this reason, the Committee emphasizes the financial measures of sales growth, earnings per share, cash flow, and total stockholder return when determining compensation for all officers. In terms of non-financial measures, the Committee focuses on such areas as quality, leadership, building customer loyalty, product development, innovation, talent management, operational excellence, and adherence to Baxter’s shared values of respect, responsiveness and results. The Committee believes that a combination of financial and non-financial measures were the appropriate focus for 2004.

In order to appropriately reward individual performance in a manner which differentiates among the members of management, a performance differentiation framework is used to determine each officer’s compensation, including salary, cash bonus and long-term incentives. This approach is designed to strengthen the link between an individual’s compensation and his or her personal performance as measured by select talent management data points, such as individual performance reviews, future potential performance, achievement of key business strategies, feedback from colleagues, and adherence to Baxter’s shared values of respect, responsiveness and results. Using these measurements, adjustments are made to each officer’s compensation which differentiate individual compensation based on relative performance.

Market Competitive Compensation

The Committee reviews compensation survey data from selected companies in the pharmaceutical, medical device, and biotech industries included in the Standard & Poor’s 500 Health Care Index, as well as other large non-healthcare companies of similar size and scope (the “comparable companies”). Based on the survey data from the comparable companies, the Committee determines the competitiveness of the total compensation structure for each officer, including Mr. Parkinson, who has served as Baxter’s Chairman of the Board and Chief

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Executive Officer since April 2004. The Committee engages independent compensation consultants to assist in obtaining survey data from the comparable companies and determining the competitiveness of Baxter’s total compensation structure. The consultants report to the Committee and work closely with both the Committee and management.

Compensation Elements

The company’s compensation structure consists primarily of salaries, cash bonuses, stock options, and starting with the March 2005 Long-Term Incentive grant, restricted stock units. The company’s officers ordinarily receive the majority of their total compensation through performance-based incentive plans, which place a greater percentage of their compensation at risk while more closely aligning their interests with the interests of Baxter’s stockholders.

Salaries

The Committee has established salaries each year based on each officer’s individual performance within a structure intended to be competitive with the 50th percentile of salaries paid to officers in the comparable companies. The Committee approved increases in officer salaries at its meeting in February 2005, to reflect individual performance relative to the 50th percentile of salaries paid to their counterparts in the comparable companies.

Cash Bonuses

Cash bonuses are intended to provide officers with an opportunity to receive additional cash compensation, but only if it is earned through achievement of specified performance goals. Cash bonus targets for 2004 are intended to be competitive with the 60th percentile of cash bonuses paid to officers in the comparable companies. The Committee establishes annual and quarterly performance goals for the company under the officer cash bonus plan. The Committee also establishes annual and quarterly bonus targets for each officer by utilizing the market data from the comparable companies. After year-end results are reported, the Committee determines each officer’s bonus based on the achievement of the specified annual and quarterly performance goals and the officer’s individual performance. Individual performance is assessed using the performance differentiation framework discussed above.

Baxter overachieved the cash flow goal and partially achieved the target sales goal established by the Committee as the performance measures under the officer cash bonus plan for 2004. It did not achieve the earnings per share goal. Based on the financial results, the Committee approved officer cash bonus funding of 64% of each officer’s target bonus. Actual bonus amounts for 2004 were adjusted to reflect each officer’s individual performance and ranged from 45% to 100% of bonus targets. Officers did not receive any bonuses based on the quarterly performance criteria. On December 22, 2004, the Committee approved the elimination of the quarterly bonus program beginning with the 2005 performance period.

Long-Term Incentives

To further align management and stockholder interests and to continue to promote a pay-for-performance philosophy, Baxter maintains a Long-Term Incentive (LTI) Plan for its senior managers, including the Chief Executive Officer and the other officers. In the Fall of 2003, the Committee completed a full review of the LTI Plan as part of its continuous efforts to benchmark Baxter’s programs to the market comparator group in order to keep them aligned to best practices and remain market competitive. As a result of this review, the Committee decided to add a restricted stock unit component to the plan. The plan is now structured to provide a mix of stock options (70%) and restricted stock units (30%). The Committee also decided to adjust downward the competitive positioning of the plan from the 75th percentile of the long-term incentive opportunities provided to LTI participants’ counterparts in the comparable companies to the

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60th percentile. These changes were made to align the plan’s design with best practices in the market comparator group, while maintaining a competitive plan.

As part of this review, the Committee also decided to maintain the total shareholder return (TSR) performance feature of the LTI Plan. To motivate participants to achieve superior total shareholder return (TSR) compared to Baxter’s competitors, the LTI Plan contains a TSR Multiplier that increases or decreases a participant’s stock option target and, under the new LTI structure, a participant’s stock option and restricted stock unit targets, depending on Baxter’s relative performance. The TSR Multiplier measures the annual percentage change in Baxter’s TSR compared to the TSR for the Standard & Poor’s 500 Health Care Index. Based on this comparison, a participant’s target LTI award could increase up to a maximum of 150% or decrease to a minimum of 75% of target. Actual awards are based on a combination of the participant’s target award, the Stock Performance Multiplier and the participant’s individual performance.

The new LTI Plan is effective for the March 2005 grant. In 2004, no long-term incentive grants were made under the LTI Plan to senior management, the Chief Executive Officer or the other officers. The year 2004 was a transition year to the new plan design. To better align grants for senior management with the broad-based employee population, who have traditionally received stock option grants in March, the timing of the LTI Plan grants was moved from November to March. In 2005, grants made to senior management were made in March 2005, and, in future years, grants to senior management will continue to be made in March of each year.

Mr. Parkinson’s 2004 Compensation

In April 2004, Mr. Parkinson became Chairman of the Board and Chief Executive Officer of Baxter. At such time, the Board of Directors entered into an agreement with him with respect to his 2004 compensation. Mr. Parkinson participated in the same compensation programs provided to the company’s other officers as described above. All compensation actions relating to Mr. Parkinson are subject to the approval of the independent directors of the Board.

By the terms of his agreement, Mr. Parkinson’s salary was established at $1,100,000 annually, with his actual 2004 salary paid as a prorated amount in relation to the amount of time he served as Chairman of the Board and Chief Executive Officer.

Under the agreement, Mr. Parkinson was guaranteed a prorated bonus amount for 2004 of $916,666. This amount represents 125% of Mr. Parkinson’s actual salary earned for the year. Since Mr. Parkinson joined the company in late April 2004, the Committee established 2004 performance criteria for Mr. Parkinson under the cash bonus plan to ensure compliance with Internal Revenue Code 162(m). Mr. Parkinson’s 2004 performance period was May through December 2004. The performance criteria were the same as that used for other officers – sales, earnings per share, and cash flow. However, the targets were based on the performance period described above. Based on the company’s performance against these targets, Mr. Parkinson was eligible to receive a bonus award above his target. However, the Committee recommended, and the independent directors of the Board approved, that for 2004 Mr. Parkinson should be paid a bonus of $916,666, which represented his guarantee under his employment agreement. Mr. Parkinson did not receive any bonus based on the quarterly performance criteria.

In addition, under the agreement, Mr. Parkinson received on April 19, 2004 an option to purchase 650,000 shares of Baxter Common Stock at an exercise price of $31.72. The option fully vests after three years.

John D. Forsyth (Chairman)

Walter E. Boomer

Carole Uhrich Shapazian

Thomas T. Stallkamp

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Executive Compensation

Summary Compensation Table

The following table shows, for the years ended December 31, 2004, 2003, and 2002, the compensation provided by Baxter and its subsidiaries to its Chief Executive Officer, the former Chief Executive Officer and the four next most highly compensated executive officers in all capacities in which they served. The six individuals identified in the Summary Compensation Table are referred to as the “named executive officers” throughout this proxy statement.

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Executive Compensation (continued)

The amount for Mr. Kraemer in 2004 also includes $4,162,500 in post-employment separation compensation and $14,585 in paid COBRA coverage for 18 months under the company’s medical plan.

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Executive Compensation (continued)

Stock Option Grants

The following table contains information relating to the stock option grants made in 2004 to the named executive officers.

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Executive Compensation (continued)

Stock Option Exercises

The following table contains information relating to the exercise of stock options by the named executive officers in 2004, as well as the number and value of their unexercised options as of December 31, 2004.

Pension Plan, Excess Plans and Supplemental Plans

The table on the following page shows estimated annual retirement benefits payable to participants in Baxter’s United States pension plan (“Pension Plan”) whose employment terminates at normal retirement (age 65). The normal retirement benefit equals (i) 1.75 percent of a participant’s Final Average Pay multiplied by the employee’s number of years of Pension Plan participation, minus (ii) 1.75 percent of a participant’s estimated primary social security benefit, multiplied by the employee’s years of Pension Plan participation. The Final Average Pay is equal to the average of a participant’s five highest consecutive calendar years of earnings out of his or her last ten calendar years of earnings. In general, the compensation considered in determining the pension payable to the named executive officer includes salary and cash bonuses. The figures shown include benefits payable under the Pension Plan, Baxter’s related defined benefit excess pension plan and supplemental plans for certain individuals. The estimates assume that benefit payments begin at age 65 under a single life annuity form. The figures are net of the Social Security offset specified by the Pension Plan’s benefit formula and therefore do not include Social Security benefits payable from the federal government. The estimated primary Social Security benefit used in the calculations is that payable for an individual attaining age 65 in 2004.

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Executive Compensation (continued)

Although age 65 is the normal retirement age under the Pension Plan, the Pension Plan has early retirement provisions based on a point system. Under the point system, each participant is awarded one point for each year of Pension Plan participation and one point for each year of age. Participants who terminate employment after accumulating at least 65 points, and who wait to begin receiving their Pension Plan benefits until they have 85 points, receive an unreduced Pension Plan benefit regardless of their actual age when they begin receiving their Pension Plan benefits.

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Executive Compensation (continued)

Executive Employment Arrangements

Employment Agreement with Robert L. Parkinson, Jr.

On April 19, 2004, Baxter entered into an employment agreement with Robert L. Parkinson, Jr. Mr. Parkinson was appointed Chief Executive Officer and was elected as Chairman of the Board.

Term. The agreement provides for Mr. Parkinson’s employment through April 19, 2007, subject to an automatic day-to-day extension after April 19, 2005, such that at any time after April 19, 2005, the agreement term shall be two years (subject to earlier termination as described below).

Salary and Incentive Bonus. Under the agreement, Mr. Parkinson is to receive an annual base salary of not less than $1,100,000, subject to possible increase by the independent directors of the Board of Directors. On February 22, 2005, the independent directors of the Board set Mr. Parkinson’s 2005 base salary at $1,140,000. Mr. Parkinson is also eligible to participate in the annual officer bonus program which provides for payment of a cash bonus amount equal to up to 200% of Mr. Parkinson’s annual salary if maximum performance levels are achieved for the performance period, 125% of Mr. Parkinson’s annual salary if target performance levels are achieved for the performance period and such lesser amounts as provided in the program document. For performance periods in 2004 and 2005, Mr. Parkinson shall be paid a bonus of not less than the target level for each performance period. For the 2004 performance period, Mr. Parkinson’s bonus target was subject to a pro-rata reduction to reflect the fact that the performance period was less than 12 months. On February 22, 2005, the independent directors of the Board of Directors approved Mr. Parkinson’s 2004 annual bonus at $916,666, which represented his prorated target level for the 2004 performance period. On the same date, the independent directors of the Board of Directors set Mr. Parkinson’s 2005 target bonus at 130% of his 2005 annual salary for the 2005 performance period. In addition to the annual bonus program, the agreement provided for Mr. Parkinson’s eligibility to participate in the quarterly bonus program. For 2004, no quarterly bonuses were earned. On December 22, 2004, the Compensation Committee approved the elimination of the quarterly bonus program beginning with the 2005 performance period.

Options and Restricted Stock. Under the agreement, Mr. Parkinson is eligible for equity awards including a non-qualified option to purchase 650,000 shares of stock of the company granted as of the date of the agreement, and for calendar year 2005, an option for a minimum of 455,000 shares of company stock and a restricted stock award for a minimum of 48,750 shares. After 2005, all such awards to Mr. Parkinson shall be commensurate with his position as Chief Executive Officer as determined by the independent directors of the Board of Directors.

Benefits and Perquisites. The agreement also provides for benefits to the same extent and on the same terms as those benefits provided by the company to its other senior executives including, but not limited to, health, disability, insurance and retirement benefits. Under the agreement, if Mr. Parkinson remains employed for at least three years, his pension benefit will be determined as if he had completed an additional two years of service. If Mr. Parkinson remains employed for at least five years, his pension benefit will be determined as if he had completed an additional four years of service. Mr. Parkinson is also entitled to perquisites that are customarily provided in connection with his position.

Termination of Employment. Upon written notice, the agreement may be terminated by either Baxter or Mr. Parkinson.

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The agreement with Mr. Parkinson provides for termination in the event of his death, permanent disability, termination for “Cause” (as defined in the agreement), or “Constructive Discharge” (as defined in the agreement). The agreement also allows for termination by the company or by Mr. Parkinson, including in the event of a “Change in Control” as defined in the company’s 2003 Incentive Compensation Program.

In the event of termination, Mr. Parkinson is entitled to his salary for the period ending on his termination date, payment for any unused vacation days as determined in accordance with company policy, any other payments or benefits due from the company in accordance with the terms of any employee benefit plans or arrangements, and any pension benefit earned.

In the event of termination due to death or disability, in addition to the payments and benefits previously described, all restricted stock awards and stock options shall fully vest immediately, with the stock options remaining exercisable for the lesser of five years or the term of the grant. Mr. Parkinson and his family members will be entitled to 18 months (36 months in the case of death) of paid COBRA coverage. In the case of disability, Mr. Parkinson will be entitled to the payment of his salary through the commencement of any payments to him under the company’s long-term disability plan.

In the event of termination of employment without Cause, or due to Constructive Discharge, Change in Control or non-renewal of the employment agreement, Mr. Parkinson is entitled to his salary for the period ending on his termination date, payment for any unused vacation days as determined in accordance with company policy, any other payments or benefits due from the company in accordance with the terms of any employee benefit plans or arrangements, and any pension benefit earned. Mr. Parkinson would be eligible for an annual bonus payment for the performance period in which such termination of employment occurs. In addition, Mr. Parkinson shall receive severance payments from the company equal to his annual salary in effect on the date immediately prior to the date of his termination of employment plus the target annual bonus amount for the year in which the termination occurs for a period of at least two years from his date of termination or the last day of his agreement, whichever is greater. All exercise restrictions with respect to stock options would lapse and all stock options would become fully vested and fully exercisable as of the date of the termination of employment, and all restricted stock awards would fully vest immediately and all restrictions would lapse. The stock options would remain exercisable for the greater of five years after his termination date or the number of days that Mr. Parkinson was employed prior to his termination. However, in no event will the exercise period be greater than the original expiration date of the grant. Mr. Parkinson and his family members would be entitled to 18 months of paid COBRA coverage.

Non-Competition and Non-Solicitation. Mr. Parkinson has agreed that he will not, directly or indirectly, for a period of two years after the termination of his employment, render services to any competing organization in connection with any competing product within such geographic limits as the company and such competing organization are, or would be, in actual competition when such rendering of services might potentially involve the disclosure or use of confidential information or trade secrets. Similarly, Mr. Parkinson may not provide advice as to investment in a competitive business. During his employment, and for a period of two years after the termination of his employment, Mr. Parkinson may not solicit or attempt to solicit any party who is then, or during the twelve-month period prior to such solicitation was, a customer or supplier of the company, nor may Mr. Parkinson solicit, entice, persuade or induce any individual who is employed by the company or subsidiaries to terminate or

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refrain from renewing or extending such employment or to become employed by or enter into contractual relations with any other individual or entity other than the company.

Donation to Loyola University Chicago. As an additional condition of his employment, the company agreed to make a $1.5 million donation to Loyola University Chicago over a three-year period. These funds will support certain capital improvements to the School of Business Administration and the development of new curricular initiatives in the Graduate School of Business.

Employment Arrangement with David F. Drohan

On February 21, 2005, the Compensation Committee approved a one-time, discretionary cash bonus for David F. Drohan, Corporate Vice President, President, Medication Delivery in consideration for Mr. Drohan’s agreement to postpone his retirement from Baxter until March 31, 2005. The amount of the discretionary cash bonus is $100,000, which approximates Mr. Drohan’s prorated target bonus for the first quarter of 2005, and would be paid in April 2005.

Separation Agreement with Harry M. J. Kraemer, Jr.

On June 30, 2004, Baxter entered into a separation agreement with Harry M. J. Kraemer, Jr., formerly Chief Executive Officer and Chairman of the Board of Directors.

Separation Payment, Benefits, and Equity Awards. Under the separation agreement with Mr. Kraemer, he received $4,162,500 as a separation payment and $578,125 in lieu of an annual bonus payment for 2004, which was one-half of his annual target bonus for 2004. The company also paid $44,471 of an accrued vacation benefit to Mr. Kraemer in accordance with the company’s vacation policy. Mr. Kraemer is eligible to receive retirement benefits under the company’s Pension Plan and the company’s non-qualified Supplemental Pension Plan. Mr. Kraemer will be given an additional two years credit to both his age and years of service in calculating his benefits under the non-qualified Supplemental Pension Plan. The company will pay for COBRA coverage under the company’s medical plan for 18 months, as if Mr. Kraemer had remained employed. Thereafter, Mr. Kraemer will be eligible for retiree medical coverage under the company’s Retiree Medical Plan. Mr. Kraemer will be given an additional two years credit to his years of service in calculating his benefits under the Retiree Medical Plan. Under the agreement, Mr. Kraemer’s stock options will continue to vest as though he remained employed (that is, they will vest on the earliest of the regularly scheduled vesting date assuming no termination of employment, change in control, or death), and will remain exercisable until the earlier of June 30, 2009 or the remainder of the option term. However, the option covering 300,000 shares of company stock granted November 13, 2000 shall expire in accordance with its original terms at the close of business on November 13, 2010.

Reimbursement and Indemnification. Mr. Kraemer is also entitled to reimbursement for reasonable outplacement services provided by a professional outplacement service and for legal and consulting fees incurred in connection with the negotiation of the agreement, not to exceed $200,000 in the aggregate. The indemnification agreement between Mr. Kraemer and the company dated November 15, 1993 shall continue in full force and effect in accordance with its terms, and Mr. Kraemer shall be entitled to coverage under the directors’ and officers’ liability insurance coverage maintained by the company to the same extent as current directors and officers of the company.

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Non-Competition. Mr. Kraemer agreed that for a period of two years following his termination date, he will not render certain services to competing organizations where the rendering of such services might potentially involve the disclosure or use of confidential information or trade secrets. Mr. Kraemer also agreed not to provide any advice as to investment in a competitive business. Under the agreement, Mr. Kraemer agreed to not solicit or attempt to solicit customers or suppliers of the company or any individual employed by the company for a period of two years after his termination date.

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Ownership of Baxter Stock

Stock Ownership of Directors and Officers

On February 28, 2005, there were approximately 619,674,710 shares of Baxter Common Stock outstanding. The following table sets forth information as of that date, unless otherwise specified, regarding beneficial ownership of Baxter’s Common Stock by the named executive officers and all directors, each of whom owned less than one percent of the outstanding Common Stock. The table also sets forth the total number of shares of Baxter Common Stock beneficially owned by all executive officers and directors, as a group, which amounted to less than one percent of the outstanding Common Stock. Except as otherwise noted, each individual has sole investment and voting power with respect to the shares listed opposite his or her name.

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Ownership of Baxter Stock (continued)

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Ownership of Baxter Stock (continued)

Stock Ownership of Largest Stockholder

As of February 14, 2005, the following entity was the beneficial owner of more than five percent of Baxter’s Common Stock:

Baxter is not aware of any other stockholder owning in excess of five percent of Baxter’s outstanding Common Stock.

Section 16(a) Beneficial Ownership Reporting Compliance

The rules of the Securities and Exchange Commission require that we disclose late filings of reports of stock ownership (and changes in stock ownership) by our directors and executive officers. To the best of our knowledge, all of the required filings for our directors and executive officers were made on a timely basis in 2004.

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Equity Compensation Plan Information

The following table provides information relating to shares of Common Stock that may be issued under Baxter’s existing equity compensation plans as of December 31, 2004.

Share numbers and per share amounts have been adjusted in this proxy statement to reflect the stock dividend paid pursuant to the spin-off of Edwards Lifesciences Corporation in March 2000 and the two-for-one split of Baxter’s Common Stock in May 2001.