Company Name: Baxter Int'l. Inc.
Public Availability Date: January 7, 2004
Document Sections: INQUIRY LETTER
APPENDIX
INQUIRY LETTER
STAFF REPLY LETTER [INQUIRY LETTER]
November 24, 2003 U. S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
450 Fifth Street, N.W.
Washington, DC 20549-0505 RE: Baxter International Inc. - Omission of Stockholder Proposal Pursuant to
Rule 14a-8 Ladies and Gentlemen: I am writing on behalf of Baxter International Inc., a Delaware corporation (the
"Company"), pursuant to Rule 14a-8(j) under the Securities Exchange Act of 1934,
as amended, to respectfully request that the Staff of the Division of
Corporation Finance (the "Staff") of the Securities and Exchange Commission (the
"Commission") concur with the Company's view that, for the reasons stated below,
the stockholder proposal (the "Proposal") submitted by Mr. Joseph M. Siegman
(the "Proponent") may properly be omitted from the proxy materials (the "Proxy
Materials") to be distributed by the Company in connection with its 2004 annual
meeting of stockholders (the "2004 Annual Meeting").
I. The Proposal Pursuant to Rule 14a-8(j)(2), the Company is enclosing six copies of each of the
following: (i) this letter, (ii) a letter dated May 13, 2003 from the Proponent
to the Company, with the Proposal attached thereto, (iii) a letter dated May 22,
2003 from the Company to the Proponent pursuant to Rule 14a-8(f) (the "Rule
14a-8(f) Letter") regarding the Proponent's failure to comply with Rule
14a-8(b); and (iv) a letter dated May 27, 2003 from the Proponent to the Company
(the "Proponent's Letter"). The Company is also enclosing a copy of an Airborne
Express tracking summary which demonstrates that the Proponent received the Rule
14a-8(f) Letter on May 23, 2003. In accordance with Rule 14a-8(j)(1), a copy of
this submission is being sent simultaneously to the Proponent.
The text of the resolution set forth in the Proposal is as follows:
"Resolved: As a shareholder of Baxter International (the "Company"), I urge the
Board of Directors (the "Board") to adopt a policy prohibiting future stock
option grants to senior executives. The Board shall implement this policy in a
manner that does not violate any existing employment agreement or equity
compensation plan." For the reasons set forth below, we respectfully request that the Staff concur
with the Company's view that the Proposal is properly excludable from the Proxy
Materials. II. Bases for Excluding the Proposal
A. The Proposal May be Omitted Because the Proponent Has Not Complied with Rule
14a-8(b) and Rule 14a-8(f) Rule 14a-8(b)(1) provides that, in order to be eligible to submit a proposal,
the proponent must have continuously held at least $2,000 in market value, or
1%, of the company's securities entitled to be voted on the proposal at the
meeting for at least one year by the date the proponent submits the proposal. In
addition, the proponent must continue to hold those securities through the date
of the meeting. Section C.1.a. of Division of Corporate Finance: Staff Legal
Bulletin No. 14 (July 13, 2001) provides in relevant part that, in order to
determine whether the shareholder satisfies the $2,000 threshold with respect to
a company listed on the New York Stock Exchange, "companies and shareholders
should determine the market value by multiplying the number of securities the
shareholder held for the one-year period by the highest selling price during the
60 calendar days before the shareholder submitted the proposal."
On May 22, 2003, the Company received a letter dated May 13, 2003 from the
Proponent, with the Proposal attached thereto. The Proponent's Letter stated
that "I am a current shareholder with my shares held by Morgan Stanley." The
Proponent provided no verification that he satisfied the minimum ownership
requirement for the one-year period as of the date he submitted the proposal as
required by Rule 14a-8(b). On the day the Proponent submitted the Proposal, the Proponent was the record
holder of 63.211 shares of Company common stock, according to the records of the
Company's transfer agent. During the 60 calendar days before the Proponent
submitted the Proposal, the highest selling price of the Company's common stock
on the New York Stock Exchange was $24.71 (on May 15, 2003). Accordingly, the
market value of the shares held of record by the Proponent, calculated using the
method described in Section C.1.a. of Staff Legal Bulletin No. 14, equals
$1,561.94, and therefore did not meet the $2,000 minimum ownership requirement.1
On May 22, 2003, the Company sent to the Proponent, by Airborne, the Rule
14a-8(f) Letter notifying the Proponent that he was required pursuant to Rule
14a-8(b)(2)(i) to provide the Company a written statement from the record holder
verifying that, at the time the Proponent submitted the Proposal, the Proponent
continuously held at least $2,000 in market value of Company stock for at least
one year. The Rule 14a-8(f) Letter further informed the Proponent that the
Proponent must also provide the Company with a written statement that the
Proponent intended to continue to hold sufficient Company stock through the date
of the 2004 Annual Meeting. The Rule 14a-8(f) Letter notified the Proponent that
if he did not provide the required statements in accordance with Rule 14a-8
within 14 days of his receipt of such letter, the Proposal would be excluded
from the proxy statement for the 2004 Annual Meeting. The Proponent responded to the Rule 14a-8(f) Letter with a letter dated May 27,
2003 stating that "I intend to continue to hold at least $2,000 worth of Baxter
stock beyond the date of Baxter's 2004 Annual Meeting, which I anticipate
attending on May 4, 2004." However, the Proponent has not provided the Company a
written statement from the record holder verifying that, at the time the
Proponent submitted the Proposal, the Proponent satisfied the minimum ownership
requirement for the one-year period required by Rule 14a-8(b).
The Staff has consistently permitted the omission of a stockholder proposal when
the proponent has failed to supply documentary support indicating that the
proponent has satisfied the minimum ownership requirement for the one-year
period required by Rule 14a-8(b). See, e.g., AT&T Corp. (March 20, 2003)
(permissible to "exclude the proposal under Rule 14a-8(f)" because "the
proponent failed to supply, within 14 days of receipt of AT&T's request,
documentary support evidencing that he satisfied the minimum ownership
requirement for the one-year period as of the date he submitted the proposal as
required by rule 14a-8(b)"); and Actuant Corporation (October 9, 2002) (proper
to omit proposal because "the proponent failed to supply, within 14 days of
receipt of Actuant's request, documentary support evidencing that he satisfied
the minimum ownership requirement for the one-year period as of the date he
submitted the proposal as required by rule 14a-8(b)"). See also Motorola, Inc.
(August 12, 2003); JDS Uniphase Corporation (July 18, 2003); Nextel Partners,
Inc. (March 3, 2003); Merrill Lynch & Co., Inc. (January 27, 2003); USEC Inc.
(July 19, 2002); Anthracite Capital, Inc. (March 29, 2002); Avaya Inc. (December
4, 2001); The McGraw-Hill Companies, Inc. (November 26, 2001); and Target
Corporation (March 12, 2001). Accordingly, we believe that the Proposal may be omitted from the Company's
Proxy Materials pursuant to Rule 14a-8(f) because the Proponent has failed to
comply with Rule 14a-8(b). B. The Proposal May be Omitted Pursuant to Rule 14a-8(i)(3) because it Violates
Rule 14a-9 In addition to the foregoing basis, the Company believes that the Proposal may
properly be omitted from the Proxy Materials pursuant to Rule 14a-8(i)(3). Rule
14a-8(i)(3) permits a proposal to be excluded if it is contrary to the proxy
rules, including Rule 14a-9. Rule 14a-9 prohibits false and misleading
statements in proxy material. In particular, Note (b) to Rule 14a-9 provides
that: "Material which directly or indirectly impugns character, integrity or
personal reputation, or directly or indirectly makes charges concerning
improper, illegal or immoral conduct or associations, without factual
foundation" may be false and misleading. The Proponent's supporting statement includes several statements which imply,
without factual foundation, that the grant of stock options to senior executives
of the Company would improperly motivate the senior executives and encourage
them to engage in improper, illegal and/or immoral conduct. For example, in the
first paragraph of the supporting statement, the Proponent states that "[c]ritics
of stock options have argued that they can be a powerful incentive for
executives to manipulate earnings or engage in accounting fraud" and that "[b]y
timing their stock option exercises, executives can also inappropriately trade
on inside information." In second paragraph of the supporting statement, the
Proponent states that "[i]n contrast to direct stock holdings, stock options
also discourage executives from increasing dividends because option holders are
not entitled to dividends." Furthermore, in the third paragraph of the
supporting statement, the Proponent states that "[b]anning stock options for
senior executives will decouple executive pay from short-term price movements
and the temptation for executives to inappropriately manipulate the Company's
stock price in order to exercise their stock options." Each of the sentences
cited above suggest that the grant of stock options to management would
encourage or lead to improper, illegal or immoral behavior on the part of
management. However, there is no factual basis upon which to form such a
conclusion or to otherwise call into question the character, integrity and
personal reputation of the Company's management. The Staff has found that a company may properly exclude entire shareholder
proposals where they contain false and misleading statements or omitted material
facts necessary to make such proposals not false and misleading. See, e.g.,
North Fork Bancorporation, Inc. (March 25, 1992); Wellman Inc. (March 25, 1992);
and National Distillers and Chemical Corporation (February 27, 1975).
In light of the false and misleading tone and content of the Proponent's
supporting statement, we believe that the Proposal may be omitted from the
Company's Proxy Materials pursuant to Rule 14a-8(i)(3). III. Conclusion
For the reasons and based on the authorities cited herein, the Company believes
that the Proposal may properly be omitted from its Proxy Materials (i) under
Rule 14a-8(b) and Rule 14a-8(f) and (ii) under Rule 14a-8(i)(3) because it
violates Rule 14a-9. Accordingly, the Company respectfully requests the Staff's
concurrence that the Proposal may be omitted from the Company's Proxy Materials.
Should the Staff disagree with the Company's conclusions regarding the omission
of the Proposal from the Proxy Materials, or should any additional information
be desired in support of the Company's position, we would appreciate an
opportunity to confer with the Staff concerning these matters prior to the
issuance of your response. If you should have any questions or require any further information regarding
this matter, please contact the undersigned at 847.948,2000.
Thank you for your prompt attention to this matter.
Very truly yours, /s/
Jan Stern Reed cc: Joseph M. Siegman
Enclosures -----FOOTNOTES-----
1 This analysis assumes that the date of submission is the date the Company
received the Proposal. However, the result is the same even if the date of
submission is the date on the Proponent's Letter, May 13, 2003, as the highest
selling price of the Company's common stock on the New York Stock Exchange
during the 60 calendar days before the May 13 date on the Proponent's Letter was
$23.64 (on May 2, 2003). Furthermore, the 63.211 shares of Company common stock
held of record by the Proponent represents far less than 1% of the Company's
outstanding common stock. [APPENDIX]
Stockholder Proposal "RESOLVED: As a shareholder of Baxter International (the "Company"), I urge the
Board of Directors (the "Board") to adopt a policy prohibiting future stock
option grants to senior executives. The Board shall implement this policy in a
manner that does not violate any existing employment agreement or equity
compensation plan. Supporting Statement
Since the accounting scandals of Enron, WorldCom, and other companies, the role
of stock options in executive compensation has become controversial. Critics of
stock options have argued that they can be a powerful incentive for executives
to manipulate earnings or engage in accounting fraud. By timing their stock
option exercises, executives can also inappropriately trade on inside
information. Stock options provide incentives to executives that significantly differ from
the interests of shareholders. Stock option grants promise executives all of the
gain of share price increases with none of the risk of share price declines. For
this reason, they can encourage excessive risk taking by executives. In contrast
to direct stock holdings, stock options also discourage executives from
increasing dividends because option holders are not entitled to dividends.
Banning stock options for senior executives will decouple executive pay from
short-term price movements and the temptation for executives to inappropriately
manipulate the Company's stock price in order to exercise their stock options.
In my opinion, cash compensation should prevailexecutives should get 30% of
their cash compensation in stock to focus senior executives on building the
sustained profitability of the Company. Leading investors and regulators have questioned the appropriateness of using
stock options in executive compensation. Portfolio Manager Bill Miller, whose
Legg Mason Value Trust is the only mutual fund to beat the S&P 500 Index 11
years in a row, as said `I support the banning of stock options because anything
that can be accomplished with options can be accomplished by giving stock
directly. And it has none of the downside of options.' [INQUIRY LETTER]
May 13, 2003 Baxter International
I Baxter Parkway
Deerfield, IL 60015 To whom it may concern:
Enclosed please find a stockholder proposal to adopt a policy prohibiting future
stock option grants to senior executives, Please include this in your proxy
material to be voted upon by your shareholders. I am a current shareholder with
my shares held by Morgan Stanley. I expect to be at your annual meeting next
year. Sincerely, /s/
Joseph M. Siegman
[STAFF REPLY LETTER]
January 7, 2004 Response of the Office of Chief Counsel Division of Corporation Finance
Re: Baxter International Inc.
Incoming letter dated November 24, 2003
The proposal relates to stock option grants. There appears to be some basis for your view that Baxter International may
exclude the proposal under rule 14a-8(f). We note that the proponent appears not
to have responded to Baxter International's request for documentary support
indicating that the proponent has satisfied the minimum ownership requirement
for the one-year period required by rule 14a-8(b). Accordingly, we will not
recommend enforcement action to the Commission if Baxter International omits the
proposal from its proxy materials in reliance on rules 14a-8(b) and 14a-8(f). In
reaching this position, we have not found it necessary to address the
alternative basis for omission upon which Baxter International relies.
Sincerely, /s/
Keir D. Gumbs
Special Counsel
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