IBM
Notice of 1994 Annual Meeting and Proxy Statement
Dear Stockholders,
You are cordially invited to attend the Annual Meeting of Stockholders on
Monday, April 25, at 10 a.m., in the Metro Toronto Convention Centre, Toronto,
Ontario, Canada.
We are very pleased that Mr. Charles F. Knight, chairman of the board and chief
executive officer, Emerson Electric Co., who was elected to the Board in July
1993, is a nominee for the first time.
Mr. Stephen D. Bechtel, Jr., Mr. Jack D. Kuehler, Dr. Richard W. Lyman, Mr. J.
Richard Munro, and Dr. Helmut Sihler retired from the Board during 1993 and Mr.
Thomas F. Frist, Jr., Mrs. Judith Richards Hope, and Mr. John R. Opel have
decided not to stand for reelection this year. We are grateful for their many
contributions during their years of service. We especially thank Mr. Opel for
his dedicated service as a Board member for 21 years and his stewardship as
chairman from 1983 to 1986.
Please sign, date and return the enclosed Proxy Card in the envelope provided
as soon as possible so that your shares can be voted at the meeting in
accordance with your instructions. If you plan to attend the meeting, please
mark the box on the Proxy Card. If you will need special assistance at the
meeting because of a disability, please contact the Office of the Secretary,
Armonk, N.Y. 10504.
A summary of the proceedings of the meeting will be mailed to all stockholders
of record.
Very truly yours,
Louis V. Gerstner, Jr.
Chairman of the Board
Your vote is important.
Please sign, date, and return your Proxy Card.
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International Business Machines Corporation
Armonk, New York 10504
March 14, 1994
Notice of Meeting
The Annual Meeting of Stockholders of International Business Machines
Corporation will be held on Monday, April 25, 1994, at 10 a.m., in the Metro
Toronto Convention Centre, Toronto, Ontario, Canada. The items of business are:
1. Election of directors for a term of one year.
2. Ratification of the appointment of auditors.
3. Adoption of the IBM 1994 Long-Term Performance Plan.
4. Such other matters, including one stockholder proposal, as may properly
come before the meeting.
These items are more fully described in the following pages, which are hereby
made a part of this Notice. Only stockholders of record at the close of
business on March 7, 1994, are entitled to vote at the meeting. Stockholders
are reminded that shares cannot be voted unless the signed Proxy Card is
returned or other arrangements are made to have the shares represented at the
meeting.
John E. Hickey
Secretary
The IBM 1993 Annual Report, which includes financial statements, is being
mailed with this proxy statement. Kindly notify First Chicago Trust Company of
New York, Mail Suite 4688, P.O. Box 2530, Jersey City, N.J. 07303-2530,
telephone 201-324-0405, if you have not received it, and a copy will be sent to
you.
IBM Notice of 1994 Annual Meeting and Proxy Statement 1
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1. Election of Directors
The Board proposes the election of the following directors of the Company for a
term of one year. Following is information about each nominee, including
biographical data for at least the last five years. Should one or more of these
nominees become unavailable to accept nomination or election as a director, the
Proxy Committee named on the enclosed Proxy Card will vote the shares that they
represent for the election of such other persons as the Board may recommend,
unless the Board reduces the number of directors.
Harold Brown, 66, is a counselor, Center for Strategic and International
Studies, Washington, D.C., and a general partner in Warburg, Pincus & Company.
He is a member of IBM's Executive Compensation and Management Resources
Committee. He is a former U.S. Secretary of the Air Force. He is a director of
Alumax Inc., CBS Inc., Cummins Engine Company, Inc., Philip Morris Companies
Inc., and Mattel, Inc.; a member of the National Academy of Sciences and the
National Academy of Engineering; a trustee and president emeritus of the
California Institute of Technology; and chairman of the Arnold and Mabel
Beckman Foundation. Dr. Brown was an IBM director from 1972 to 1977. After
serving as U.S. Secretary of Defense, he became an IBM director again in 1981.
James E. Burke, 69, is retired chairman of Johnson & Johnson, which he
joined in 1953. He is chairman of IBM's Directors and Corporate Governance
Committee and a member of IBM's Executive Committee. He is chairman of the
Partnership for a Drug-Free America; a director of The Prudential Insurance
Company of America and The Washington Post Company; and a member of The
Business Council and The Council on Foreign Relations. Mr. Burke became an IBM
director in 1980.
Fritz Gerber, 65, is chairman and chief executive officer of Roche Holding
Ltd. and executive chairman of Zurich Insurance Company. He joined Zurich
Insurance Company in 1958, became chief executive officer in 1969 and chairman
of the board of directors in 1977. He is a member of IBM's Directors and
Corporate Governance Committee. He is a director of Nestle S.A. and Credit
Suisse. He is a member of the International Advisory Council of The Chase
Manhattan Bank and of the European Advisory Council of Tenneco Europe, Limited,
and he holds membership in various economic and cultural organizations such as
the European Round Table. Mr. Gerber became an IBM director in 1989.
IBM Notice of 1994 Annual Meeting and Proxy Statement 2
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Louis V. Gerstner, Jr., 52, is chairman of the Board and chief executive
officer of IBM and chairman of IBM's Executive Committee. From 1989 until
joining IBM, he was chairman of the board and chief executive officer of RJR
Nabisco Holdings Corp. From 1985 to 1989, he was president of American Express
Company, and from 1983 to 1989, he was chairman and chief executive officer of
American Express Travel Related Services Co., Inc. He is a member of the board
of directors of Bristol-Myers Squibb Company, The New York Times Company, and
RJR Nabisco Holdings Corp. Mr. Gerstner is a member of the board of Lincoln
Center for the Performing Arts and the New American School Development Corp. He
is also a member of The Council on Foreign Relations. Mr. Gerstner became an
IBM director in 1993.
Nannerl O. Keohane, 53, is president and professor of political science at
Duke University. She is a member of IBM's Directors and Corporate Governance
Committee. She was formerly president of Wellesley College, and a former
faculty member at Swarthmore College and Stanford University. She is a member
of The Council on Foreign Relations and the American Academy of Arts and
Sciences; and a trustee of the Colonial Williamsburg Foundation. Dr. Keohane is
a member of the MIT Corporation and has served as vice president of the
American Political Science Association. Dr. Keohane became an IBM director in
1986.
Charles F. Knight, 58, is chairman and chief executive officer of Emerson
Electric Co., and a member of IBM's Directors and Corporate Governance
Committee. He joined Emerson Electric in 1972 as vice chairman and was elected
chief executive officer in 1973 and chairman in 1974. Prior to joining Emerson,
he was president of Lester B. Knight & Associates, Inc., a consulting
engineering firm. He is a director of Southwestern Bell Corporation,
Caterpillar Inc., Anheuser Busch Companies, Inc., and The British Petroleum
Company p.l.c. Mr. Knight became an IBM director in 1993.
Thomas S. Murphy, 68, is chairman and chief executive officer of Capital
Cities/ABC, Inc. and is chairman of IBM's Executive Compensation and Management
Resources Committee and a member of IBM's Executive Committee. Mr. Murphy
joined Capital Cities in 1954. He was elected president in 1964 and chairman
and chief executive officer in 1966. From June 1990 to February 1994, he served
as chairman of the board only. He is a director of Johnson & Johnson and Texaco
Inc. He is chairman of the New York University Medical Center Board and a
member of the board of overseers of Harvard College. Mr. Murphy became an IBM
director in 1987.
IBM Notice of 1994 Annual Meeting and Proxy Statement 3
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Paul J. Rizzo, 66, is vice chairman of the Board of IBM and a member of
IBM's Executive Committee. Mr. Rizzo served as dean of the Kenan-Flagler
Business School at the University of North Carolina-Chapel Hill from 1987 to
1992. He then became a partner in Franklin Street Partners, a Chapel Hill
investment firm. He is also a director of Johnson & Johnson and McGraw-Hill,
Inc. Mr. Rizzo served as an IBM director from 1972 to 1987 and became an IBM
director again in 1993.
John B. Slaughter, 60, is president of Occidental College. He is a member
of IBM's Audit Committee. He is a former chancellor of the University of
Maryland and a former director of the National Science Foundation. He is a
director of the Atlantic Richfield Company, Avery Dennison Corporation,
Monsanto Company, and Northrop Corporation. He is a member of the National
Academy of Engineering, a fellow of the American Association for the
Advancement of Science, and a fellow of the Institute of Electrical and
Electronics Engineers. Dr. Slaughter became an IBM director in 1988.
Lodewijk C. van Wachem, 62, is chairman of the supervisory board of Royal
Dutch Petroleum Company. He is a member of IBM's Audit Committee. In 1992, Mr.
van Wachem retired as president of Royal Dutch Petroleum, a post he had held
since 1982. He is a director of ATCO Ltd., Credit Suisse Holding, and Zurich
Versicherungs-Gesellschaft; and a member of the supervisory boards of AKZO N.V.
and Philips Electronics N.V. Mr. van Wachem became an IBM director in 1992.
Edgar S. Woolard, Jr., 59, is chairman and chief executive officer of E.
I. du Pont de Nemours and Company. He is chairman of IBM's Audit Committee and
a member of IBM's Executive Committee. Mr. Woolard joined Du Pont in 1957 and
was elected to Du Pont's board in 1983. He was elected vice chairman in 1985,
president in 1987, and to his present position in 1989. He also serves as a
member of Du Pont's finance committee. He is a director of Citicorp, the North
Carolina Textile Foundation, Inc., The Seagram Company Ltd., and The National
Council on Economic Education. He is a trustee of the Winterthur Museum, North
Carolina State University, and the Protestant Episcopal Theological Seminary of
Virginia. Mr. Woolard became an IBM director in 1988.
IBM Notice of 1994 Annual Meeting and Proxy Statement 4
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General Information
Board of Directors
The Board of Directors is responsible for supervision of the overall affairs of
the Company. To assist it in carrying out its duties, the Board has delegated
certain authority to several committees.
Consistent with the Company's long-standing practice, the majority of the
Board, twelve of the fourteen directors, are outside directors who are neither
officers nor employees of IBM or its subsidiaries. In the opinion of the Board,
each of the outside directors is independent of management and free of any
relationship with the Company that would interfere with his or her exercise of
independent judgment in performing the duties of a director.
In addition, the Audit Committee, the Directors and Corporate Governance
Committee, and the Executive Compensation and Management Resources Committee
are composed entirely of outside directors. The committees of the Board, as
well as the full Board, have access to outside consultants and experts as
needed in connection with their deliberations.
The Board of Directors held thirteen meetings during 1993. Overall attendance
at Board and committee meetings was 92 percent. Individual attendance was at
least 83 percent except for Mr. Knight whose attendance, 37 percent, was
affected by previously outstanding commitments at the time of his election to
the Board in July. On the date of the Annual Meeting, the Board will consist of
eleven directors. In the interim between Annual Meetings, the Board has the
authority under the By-laws to increase the size of the Board and fill
vacancies.
Committees of the Board
The Executive Committee, the Audit Committee, the Directors and Corporate
Governance Committee, and the Executive Compensation and Management Resources
Committee are the standing committees of the Board of Directors.
Executive
Directors Compensation and
and Corporate Management
Executive Audit Governance Resources
L.V. Gerstner, Jr.* E.S. Woolard, Jr.* J.E. Burke* T.S. Murphy*
J.E. Burke J.R. Hope F. Gerber H. Brown
T.S. Murphy J.B. Slaughter N.O. Keohane T.F. Frist, Jr.
P.J. Rizzo L.C. van Wachem C.F. Knight
E.S. Woolard, Jr. J.R. Opel
* Chairman
Prior to a reorganization of the Board's committee structure in June, functions
now under the jurisdiction of the Directors and Corporate Governance Committee
and the Executive Compensation and Management Resources Committee were handled
by the former Nominating and Executive Compensation Committee, which met seven
times in 1993.
IBM Notice of 1994 Annual Meeting and Proxy Statement 5
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Executive Committee
The Executive Committee is empowered to act for the full Board in intervals
between Board meetings, with the exception of certain matters that by law may
not be delegated. The committee meets as necessary, and all actions by the
committee are reported at the next Board of Directors meeting. The committee
held four meetings in 1993.
Audit Committee
The Audit Committee is responsible for reviewing reports of the Company's
financial results, audits, internal accounting controls, and adherence to its
Business Conduct Guidelines in compliance with federal procurement laws and
regulations. The committee recommends to the Board of Directors the selection
of the Company's outside auditors and reviews their procedures for ensuring
compliance with the Company's policies on conflicts of interest.
The Audit Committee is composed of outside directors who are not officers or
employees of IBM or its subsidiaries. In the opinion of the Board, these
directors are independent of management and free of any relationship that would
interfere with their exercise of independent judgment as members of this
committee. The committee held five meetings in 1993.
Directors and Corporate Governance Committee
The Directors and Corporate Governance Committee is responsible for
recommending qualified candidates to the Board for election as directors of the
Company, including the slate of directors that the Board proposes for election
by stockholders at the Annual Meeting.
The committee advises and makes recommendations to the Board on all matters
concerning directorship practices, including retirement policies and
compensation for non-employee directors, and recommendations concerning the
functions and duties of the committees of the Board.
The committee reviews and considers the Company's position and practices on
significant issues of corporate public responsibility, such as equal employment
opportunity, protection of the environment, and philanthropic contributions,
and it reviews and considers stockholder proposals dealing with issues of
public or social interest. Members of this committee are outside directors who
are not officers or employees of IBM or its subsidiaries. In the opinion of the
Board, these directors are independent of management and free of any
relationship that would interfere with their exercise of independent judgment
as members of this committee. The committee held three meetings in 1993.
Stockholders wishing to recommend director candidates for consideration by the
committee may do so by writing to the Secretary of the Corporation, giving the
recommended nominee's name, biographical data, and qualifications, accompanied
by the written consent of the recommended nominee.
Executive Compensation and Management Resources Committee
The Executive Compensation and Management Resources Committee has
responsibility for administering and approving all compensation for corporate
officers, and salaries for certain other senior management. It also approves,
by direct action or through delegation, participation in and all awards,
grants, and related actions under the provisions of the IBM Stock Option Plans
and the Long-Term Performance Plan, and reviews changes in the IBM Retirement
Plan primarily affecting IBM corporate officers. The committee reports to
stockholders on executive compensation items as required by the Securities and
Exchange Commission (page 9). The committee has responsibility for reviewing
the Company's management resources programs and for recommending qualified
candidates to the Board for election as officers.
Members of this committee are outside directors who are not officers or
employees of IBM or its subsidiaries and are not eligible to participate in any
of the plans or programs that the committee administers. In the opinion of the
Board, these directors are independent of management and free of any
relationship that would interfere with their exercise of independent judgment
as members of this committee. The committee held three meetings in 1993.
IBM Notice of 1994 Annual Meeting and Proxy Statement 6
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Other Relationships
The Company and its subsidiaries purchase services, supplies, and equipment in
the normal course of business from many suppliers and similarly sell and lease
IBM products and services to many customers. In some instances, these
transactions occur between IBM and other companies for whom members of IBM's
Board serve as executive officers. In 1993, none of these transactions were
individually significant or reportable. In 1993, legal fees were paid to Paul,
Hastings, Janofsky & Walker, of which Mrs. Hope, a director who is not a
nominee for election, is a senior partner.
The Company has renewed its directors and officers indemnification insurance
coverage. This insurance covers directors and officers individually where
exposures exist other than those for which the Company is able to provide
direct indemnification. These policies run from June 30, 1993 through June 30,
1994, at a total cost of $914,511. The primary carrier is Federal Insurance
Company.
Directors' Compensation
Employee directors receive no additional compensation for service on the Board
of Directors or its committees. Directors who are not employees receive an
annual retainer of $55,000. Committee chairmen receive an additional annual
retainer of $5,000. Under the Directors Deferred Compensation and Equity Award
Plan (the "DCEAP"), directors may irrevocably defer all or part of their Board
compensation to selected later years, to be paid either with interest at a rate
equal to that of the 26-week U.S. Treasury bills updated each January and July,
or in Promised Fee Shares of IBM common stock (IBM's $1.25 par value capital
stock) with dividends used to buy additional Promised Fee Shares. In addition,
each non-employee director receives 100 Promised Award Shares of IBM common
stock upon election and an additional 100 Promised Award Shares each May 1
thereafter that the director is reelected at the Annual Meeting of
Stockholders. All shares awarded under the DCEAP are to be delivered upon
retirement. The DCEAP was adopted in July 1993 and superseded two plans in
effect at that time. Awards and balances under those plans were carried forward
on a share-for-share basis under the DCEAP. Directors with five years or more
of service on the Board who are not entitled to retirement income under any IBM
retirement plan for employees receive, upon retirement or age 70, whichever is
later, an annual payment equal to 50% of the director's last annual fee.
Stock Ownership
The following table reflects beneficially owned shares of IBM common stock of
the named persons, and directors and executive officers as a group, as of
January 31, 1994, and indicates whether voting power and investment power are
solely exercisable by the person named or shared with others.
Voting power includes the power to direct the voting of the shares held, and
investment power includes the power to direct the disposition of shares held.
Also shown are shares over which any person could have acquired such powers
within 60 days. Since most shares appear under both the voting power and
investment power columns, the individual columns will not add across to the
total column.
Due to an inadvertent error in preparing reports for Mr. S.D. Bechtel, Jr., who
retired from the Board in July, two IBM stock transactions were omitted from
two reports timely filed during 1992 pursuant to Section 16 of the Securities
Exchange Act of 1934. Amendments to such reports were filed in 1993 to correct
the errors.
IBM Notice of 1994 Annual Meeting and Proxy Statement 7
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Beneficial Ownership of Shares of IBM Common Stock as of January 31, 1994 (1)
Acquirable
Voting Power Investment Power within 60
Name Sole Shared Sole Shared Total(1)(2) days (3)
J.F. Akers 6,998 24 6,998 24 7,022 637,475
H. Brown 0 600 5,357 600 6,518 --
J.E. Burke 4,400 725 4,400 725 5,686 --
T.F. Frist, Jr. 1,000 0 1,000 0 1,561 --
F. Gerber 1,000 0 1,000 0 1,561 --
L.V. Gerstner, Jr. 30,000 456 30,000 456 30,456 125,522
J.R. Hope 1,000 0 1,000 0 1,440 --
N.O. Keohane 0 481 1,129 481 2,171 --
C.F. Knight 2,008 0 2,008 0 2,109 --
R.J. LaBant 9,047 1 1,596 7,452 9,048 81,817
N.C. Lautenbach 10,695 0 988 9,707 10,695 110,417
T.S. Murphy 1,327 0 4,871 0 5,432 --
J.R. Opel 10,889 10,000 10,889 10,000 21,450 76,987
P.J. Rizzo 5,000 0 5,000 0 5,000 104,830
J.B. Slaughter 50 0 1,230 0 1,791 --
P.A. Toole 15,669 120 3,294 12,495 15,789 141,002
L.C. van Wachem 1,000 0 1,000 0 1,208 --
E.S. Woolard, Jr. 200 0 3,805 0 4,366 --
Directors and executive
officers as a group 159,172 13,227 111,569 75,645 193,012*
1,145,768*
* The total of these two columns represents less than 1% of the outstanding
shares.
(1) No individual's beneficial holdings totaled more than 1/10th of 1% of the
outstanding shares. These holdings do not include 975,538 shares held by the
retirement plan trust funds, over which the members of the Board have the right
to acquire shared investment power by withdrawing authority now delegated to
the Retirement Plans Committee, a management committee. The directors and
officers included in the table disclaim beneficial ownership of shares
beneficially owned by family members who reside in their household. The shares
are reported in such cases on the presumption that the individual may share
voting and/or investment power because of the family relationship.
(2) For non-employee directors, this column includes shares earned and awarded
under the Directors Deferred Compensation and Equity Award Plan. They have no
voting power over such shares and investment power only with regard to Promised
Fee Shares, which are acquired as a result of deferring fees paid to them.
Therefore, the shares listed in the other columns for them will not equal the
total in this column. Fractional shares attributable to participation in this
plan are not shown.
(3) Shares that can be purchased under an IBM stock option plan within 60 days
of the date of this proxy statement.
IBM Notice of 1994 Annual Meeting and Proxy Statement 8
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Report on Executive Compensation
The Executive Compensation and Management Resources Committee has
responsibility for IBM's executive compensation policies and practices. The
committee approves all elements of compensation for corporate officers and
administers the IBM 1989 Long-Term Performance Plan, approved by stockholders
in 1989, under which stock and cash awards are made to officers, other
executives and selected key employees. The committee regularly reports on its
activities to the Board of Directors. The committee also obtains ratification
by the non-employee members of the Board of all items of compensation for the
two highest-paid executives. The committee is comprised of three outside
directors who are not officers or employees of IBM or its subsidiaries and who
are not eligible to participate in any of the plans or programs that the
committee administers.
Compensation Philosophy
IBM's executive compensation programs are based on the belief that the
interests of the executives should be directly aligned with those of the
stockholders. The programs are strongly oriented towards a pay-at-risk
philosophy that ties compensation to both the annual and long-term financial
performance of the Company, as well as to long-term stockholder return. The
committee has established the following principles to guide development of the
Company's compensation programs and to provide a framework for compensation
decisions:
- - provide a total compensation package that will attract the best talent to
IBM, motivate individuals to perform at their highest levels, reward
outstanding performance, and retain executives whose skills are critical for
building long-term stockholder value;
- - establish annual incentives for senior management that are directly tied
to the overall financial performance of the Company; and
- - implement long-term incentives to focus executives on managing from the
perspective of an owner with an equity stake in the business, and align
executive compensation with benefits realized by the Company's stockholders.
Compensation Programs and Practices
The committee determines salary ranges and incentive award opportunities for
executive officers. For positions other than the chairman and vice chairman,
both of whom were hired in 1993, the compensation ranges are based on surveys
conducted by an independent consultant of competitive pay practices in both the
computer industry and the thirty largest U.S. market-capitalized companies. The
companies included in these surveys have jobs similar to IBM in magnitude,
complexity or scope of responsibility. The committee believes these companies
are representative of the Company's main competition for executive talent.
Consequently, the compensation survey group is broader than the ten companies
in the S&P Computer Systems Index used for the Performance Graph on page 16.
Salary and Annual Incentive
Salaries are established by the committee based on an executive's scope of
responsibilities, level of experience, individual performance and contribution
to the business, and the surveys referred to above. In the case of the vice
chairman, his salary was set by the committee at a level reflecting his
consulting rate with IBM prior to his reemployment, his broad experience in the
computer industry, and the Company's need for his services during a transition
period. The salary levels for the senior vice presidents named in the Summary
Compensation Table, and other executive officers excluding the chairman and
vice chairman, are between the median and 75th percentile of the survey group.
IBM Notice of 1994 Annual Meeting and Proxy Statement 9
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Executive officers have an annual incentive (bonus) opportunity with awards
based on the overall performance of the Company and, if applicable, on the
performance of an IBM business unit. The purpose of this incentive is to tie a
significant portion of annual pay directly to key financial results. For 1993,
the incentive awards related directly to the business performance factors, and
where performance exceeded or did not meet preestablished targets, incentive
payments were increased or decreased accordingly. The annual incentives paid to
Messrs. Rizzo and Toole were based on the Company's operating results (adjusted
for special items) measured against objectives established with the Board of
Directors early in the year. The performance factors used were profit and cash,
with the primary emphasis being on profit. Because Messrs. Lautenbach and
LaBant had responsibility for large business units, their annual incentives
were based principally on their business unit performance, equally weighted
between financial results (profit, revenue, and cash, with the primary emphasis
on profit) and a subjective assessment of other key business unit objectives,
and to a lesser degree, on the Company's operating results, as defined above.
In the first quarter of 1993, IBM's annual compensation was simplified by
eliminating a separate restricted stock unit award so as to delete a component
that had been based solely on a judgmental performance assessment. A portion
of this award opportunity has been added to salary and the remainder to the
incentive compensation opportunity. The allocation of this award opportunity
was done so that the resulting relationships between the incentive opportunity
and salary for the individuals who had received such awards were similar to the
incentive-to-salary ratios for comparable jobs in the survey companies. In the
case of the three named executive officers who were employed prior to 1993,
this change from previous years' practice is reflected in both the Salary and
Bonus columns of the Summary Compensation Table on page 13.
Stock Options
The committee strongly believes that the interests of senior management must be
closely aligned with those of the stockholders. Long-term incentives in the
form of stock options provide a vehicle to reward executives only if there is
an increase in stockholder value. Stock options are granted to officers, other
executives and selected employees whose contributions and skills are important
to the long-term success of the Company. Options are granted at fair market
value on the date of grant with a ten-year term. Since 1989, grants have been
made under the IBM 1989 Long-Term Performance Plan. The 1989 Plan expires in
April 1994, and its successor, the IBM 1994 Long-Term Performance Plan, is
being proposed for stockholder approval at this year's Annual Meeting and is
described starting on page 17.
Several factors were considered in determining the size of stock option grants
to the executive officers. These included individual performance, the lack of
market value in options granted prior to 1993, and competitive practices of the
companies in the survey group referred to above. Relative performance among
these companies was not taken into consideration nor was specific weighting
given to these factors. The number of options granted in 1993 was approximately
the same as in the prior year and is at approximately the 75th percentile of
the survey companies for the executive officers, excluding the chairman.
Long-Term Performance Incentive
A Long-Term Performance Incentive, an award under the 1989 Long-Term
Performance Plan, was introduced early in 1993 to provide executive officers
and senior management with a multiple-year incentive opportunity linked both to
corporate financial performance and stockholder value. Awards are intended to
be made annually in the form of performance stock units which must be earned
based on achieving cumulative financial targets of earnings-per-share and cash
flow (in each case, as adjusted for special items), equally weighted, over a
three-year
IBM Notice of 1994 Annual Meeting and Proxy Statement 10
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period (1993-1995). No payouts will be made for cumulative performance below a
50% threshold, and there is a maximum payout of 130% of the stock units for
exceeding target performance. Any payouts from this award will occur in the
first quarter of 1996 and the value of the performance stock units will be
based on the Company's stock price at that time. This long-term incentive
replaces a prior practice, discontinued in 1992, of making restricted stock
awards and is intended to provide an opportunity comparable to the prior
program (approximately 20% of annual compensation), but only if the performance
targets are achieved at the end of the three-year period. The Long-Term
Performance Incentive is further described in the table on page 15.
Compensation for the Chairman and Chief Executive Officer
On March 26, 1993, IBM entered into an employment agreement with Mr. Louis V.
Gerstner, Jr. to become chairman and chief executive officer of the Company.
All aspects of Mr. Gerstner's 1993 compensation were governed by this
employment agreement.
The committee and the Board of Directors approved Mr. Gerstner's employment
agreement after an extensive search had been conducted by the Board with the
assistance of two executive search firms. In settling on the final compensation
amounts, the Board focused on the importance of hiring a chairman and chief
executive officer with an outstanding business record who could provide the
leadership necessary to improve IBM's competitiveness and profitability. The
Board also recognized the need to consider Mr. Gerstner's compensation at his
former employer as well as the value of benefits under various plans of this
employer that would be forfeited upon his resignation.
The terms of Mr. Gerstner's employment agreement are set forth in the section
entitled, "Employment Agreements and Change-in-Control Arrangements" on page
15.
Compensation and Separation Payments for the Former Chairman and Chief
Executive Officer
Mr. John F. Akers was chairman and chief executive officer of the Company for
the first three months of 1993. He retired from IBM on April 30, 1993. For his
four months of service, Mr. Akers received one-third of his annual salary and
an incentive (bonus) payment, determined by the collective judgment of the
committee, that was set at the same relationship to his salary as his 1992
incentive. He also received a stock option grant, along with the other
executive officers, on January 7, 1993, the number of shares of which was equal
to his grant the prior year. The factors considered by the committee in
granting this stock option were the same as set forth above under the section
entitled "Stock Options" for other executive officers. At the time of his
retirement, Mr. Akers received $2,500,000, an amount equal to his annual
compensation rate, as part of a retirement incentive program that was available
to other corporate employees during 1993. The compensation rate was based on
his annual rate for salary and incentive, assuming all performance objectives
had been achieved and a restricted stock unit award had been made. The terms of
this program provided for a payment equal to one week of compensation for each
six months of service, up to a maximum of fifty-two weeks. The Board of
Directors also authorized an additional payment of $925,000, an amount equal to
his annual base salary, in recognition of his 33 years of service to the
Company. Mr. Akers' stock options vested and his restricted stock and
restricted stock units were paid out upon his retirement, in accordance with
their terms. (See footnote 1, Summary Compensation Table, page 13.)
IBM Notice of 1994 Annual Meeting and Proxy Statement 11
<PAGE>
Discussion of Corporate Tax Deduction on Compensation in Excess of $1 Million a
Year
Internal Revenue Code Section 162(m), enacted in 1993, precludes a public
corporation from taking a deduction in 1994 or subsequent years for
compensation in excess of $1 million for its chief executive officer or any of
its four other highest-paid officers. Certain performance-based compensation,
however, is specifically exempt from the deduction limit.
The committee has been following this matter closely. In December 1993, the
Internal Revenue Service issued proposed regulations implementing this
legislation. The regulations will not become final until after a period for
public comment and possibly public hearings thereafter.
Based on the proposed regulations, any compensation derived from the exercise
of stock options or stock appreciation rights granted under the IBM 1989
Long-Term Performance Plan and prior Stock Option Plans should be exempt from
the limit on the corporate tax deduction. Similarly, any future payouts from
the Long-Term Performance Incentive awards made in 1993 should be excluded from
the limit. The new IBM 1994 Long-Term Performance Plan, being presented for
stockholder approval as a successor to the 1989 Plan, has been designed to meet
the proposed regulations so that stock options and stock appreciation rights
granted under this Plan will also be excluded from the deduction limit, and to
provide flexibility for certain other awards to so qualify.
The committee recognizes that part of the 1994 annual compensation paid to one
or more of the five covered executive officers may not qualify for exemption.
The committee is reluctant, however, to make changes at this time to the
executive compensation programs solely for tax purposes, at least, until final
regulations are issued. At that time, the committee will assess the practical
impact of the new tax legislation on executive compensation and determine what
action, if any, is appropriate.
H. Brown
T.F. Frist, Jr.
T.S. Murphy (chairman)
IBM Notice of 1994 Annual Meeting and Proxy Statement 12
<PAGE>
Summary Compensation Table
Name and Annual Compensation Long-Term Compensation Awards (1)
Principal Other Annual Restricted Securities Under- All Other
Position Year Salary Bonus Compensation Stock Awards lying
Options (#) Compensation
L.V. Gerstner, Jr. 1993 $1,500,000 $1,125,000 $160,130 (2) $ 0
500,000 $ 4,924,596 (3)
Chairman
and CEO
P.J. Rizzo 1993 965,086 (4) 750,000 0 0 80,000 0
Vice Chairman
P.A. Toole 1993 450,000 363,000 0 0 42,000 2,698 (5)
Senior VP 1992 280,000 393,250 0 0 42,000 2,618
1991 280,000 390,044 0 149,962 23,940 2,542
N.C. Lautenbach 1993 490,000 300,000 0 0 40,000 2,698(5)
Senior VP 1992 276,666 637,100 0 0 40,000 2,618
1991 260,000 280,022 0 149,962 19,388 2,542
R.J. LaBant 1993 460,000 312,000 0 0 40,000 2,698 (5)
Senior VP 1992 250,000 446,250 0 0 40,000 2,618
1991 209,167 359,971 0 149,962 15,679 2,542
J.F. Akers 1993 308,333 125,000 0 0 97,000 3,427,698 (6)
1992 925,000 375,000 0 0 97,000 2,618
1991 925,000 650,017 0 499,994 89,354 2,542
(1) At the end of 1993, Mr. Gerstner held 10,301 performance stock units
having a value of $582,007; Mr. Rizzo held 8,241 performance stock units having
a value of $465,617; Mr. Toole held 3,090 performance stock units, 12,375
shares of restricted stock and 1,472 restricted stock units having a combined
value of $956,941; Mr. Lautenbach held 3,090 performance stock units, 9,707
shares of restricted stock and 1,338 restricted stock units having a combined
value of $798,628; Mr. LaBant held 3,090 performance stock units, 7,451 shares
of restricted stock and 1,605 restricted stock units having a combined value of
$686,249. Mr. Akers' 54,431 shares of restricted stock and 4,281 restricted
stock units having a combined value of $2,985,750 were paid out upon his
retirement in accordance with their terms. Performance stock units were
granted as part of the Long-Term Performance Incentive (LTPI) award. These
units are valued based on the Company's stock price. LTPI awards are not
included in this table (see page 15 for additional information). Restricted
stock may not be sold, transferred or assigned until retirement or age 60, is
forfeitable, and earns dividends at the same rate paid to all stockholders.
Restricted stock units, last awarded in 1992, are paid out based on the value
of the Company's stock at the end of two years and earn dividend equivalents
during the period.
(2) This amount represents reimbursement for tax liabilities related to
certain payments listed in footnote (3) below.
(3) Mr. Gerstner, under the terms of his employment agreement, was given these
one-time payments in replacement for various benefits and rights from his
former employer that were forfeited upon joining IBM. These items included:
$725,000 for forfeited options for shares of his former employer's stock;
$1,478,750 for forfeited performance shares; $500,000 representing his first
quarter bonus from his former employer; $1,381,764 for forfeited benefits under
his Personal Retirement Account; $25,000 for financial and tax planning
services provided by his former employer; and $637,500 representing the
difference between $8.125 and the price realized upon selling 300,000 shares of
his former employer's stock. Mr. Gerstner was also reimbursed an aggregate of
$176,582 for other expenses, including legal fees, relating to his change of
employment.
(4) This includes an amount paid for services rendered as a consultant during
January of 1993 prior to Mr. Rizzo's reemployment by the Company.
(5) These amounts represent the Company's annual contributions to the IBM Tax
Deferred Savings Plan, a 401(k) plan. All U.S. employees are eligible to
participate in this plan.
(6) This amount includes the following payments to Mr. Akers, who retired
April 30, 1993: $2,500,000 as part of a retirement incentive program, an
additional payment of $925,000 in recognition of 33 years of service to the
Company, and the Company's annual contribution to the IBM Tax Deferred Savings
Plan of $2,698.
IBM Notice of 1994 Annual Meeting and Proxy Statement 13
<PAGE>
Stock Option/SAR Grants in Last Fiscal Year (1)
Individual Grants
Number of % of Total Potential Realizable Value at
Securities Options/SARs Assumed Annual Rates
Underlying Granted to Exercise of Stock Price Appreciation for
Options/SARs Employees in Price Expiration Ten-Year Option
Term (3)
Name Granted (2) Fiscal Year per Share Date 5% 10%
L.V. Gerstner, Jr. 500,000 2.80% $47.88 4/22/03 $15,055,000
$38,155,000
P.J. Rizzo {40,000 .22% 46.31 1/07/03 1,164,800 2,952,400
40,000 .22% 52.12 2/04/03 1,311,200 3,322,800
P.A. Toole 42,000 .24% 46.31 1/07/03 1,223,040 3,100,020
N.C. Lautenbach 40,000 .22% 46.31 1/07/03 1,164,800 2,952,400
R.J. LaBant 40,000 .22% 46.31 1/07/03 1,164,800 2,952,400
J.F. Akers 97,000 .54% 46.31 1/07/03 2,824,640 7,159,570
Increase in market value of IBM common stock for all stockholders at 5% (to
$78/share) 10% (to $124/share)
assumed annual rates of stock price appreciation (as used in the table above)
from $47.88 per share, over the ten-year period, based on 581.4 million
$17.5 billion $44.4 billion
shares outstanding on December 31, 1993.
(1) No Stock Appreciation Rights (SARs) were granted to the named executive
officers during 1993.
(2) Included in the total aggregate exercise price for each grant is $100,000
of Incentive Stock Options exercisable in two equal installments on the first
and second anniversary dates. The balance is exercisable in four equal annual
installments commencing on the first anniversary date. All options become
exercisable upon retirement. In addition, Mr. Gerstner's grant becomes
exercisable on a change-in-control, as defined in his employment agreement.
(3) Potential Realizable Value is based on the assumed annual growth rates for
each of the grants shown over their ten-year option term. For example, a 5%
annual growth rate for Mr. Gerstner's grant results in a stock price of $77.99
per share and a 10% rate results in a price of $124.19 per share. Actual gains,
if any, on stock option exercises are dependent on the future performance of
the stock. There can be no assurance that the amounts reflected in this table
will be achieved.
Fiscal Year-End Option/SAR Values (1)
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at Fiscal Year-End Options/SARs at Fiscal Year-End
Name Exercisable Unexercisable Exercisable Unexercisable
L.V. Gerstner, Jr. 0 500,000 $ 0 $4,310,000
P.J. Rizzo 83,812 80,000 0 582,800
P.A. Toole 106,382 91,809 0 427,980
N.C. Lautenbach 79,781 84,187 0 407,600
R.J. LaBant 53,194 81,247 0 407,600
J.F. Akers 637,475 0 988,430 0
(1) No options were exercised by any named executive officer during 1993.
IBM Notice of 1994 Annual Meeting and Proxy Statement 14
<PAGE>
Long-Term Incentive Plans -- Awards in Last Fiscal Year
Performance or
Number of Other Period Estimated Future Payouts under
Shares, Units Until Maturation Non-Stock Price-Based Plans (1)
Name or Other Rights or Payout Threshold (#) Target (#) Maximum
(#)
L.V. Gerstner, Jr. 10,301 1/93-12/95 2,575 10,301 13,391
P.J. Rizzo 8,241 1/93-12/95 2,060 8,241 10,713
P.A. Toole 3,090 1/93-12/95 773 3,090 4,017
N.C. Lautenbach 3,090 1/93-12/95 773 3,090 4,017
R.J. LaBant 3,090 1/93-12/95 773 3,090 4,017
(1) Payouts of incentives are tied to achieving specified cumulative business
objectives of earnings-per-share and cash flow (in each case, as adjusted for
special items). The target amount will be earned if 100% of the targeted
objectives is achieved. The threshold amount will be earned at the achievement
of 50% of the targeted objectives and the maximum award amount will be earned
at achieving 110% of the targeted objectives. No payout will be made for
performance below the threshold.
At payout, the value of each performance stock unit will be equal to the
average of the closing price of one share of IBM common stock for the month of
January 1996. Half of the earned units will be paid in cash and the balance
will be paid in an equivalent number of shares of IBM common stock, restricted
until retirement.
Retirement Plan
Executive officers participate in the IBM Retirement Plan, which provides
retirement income to all covered employees of IBM and its U.S. subsidiaries.
For the named executive officers, other than Mr. Gerstner, retirement benefits
payable annually under the IBM Retirement Plan will be determined by the
average of the three consecutive highest-paid years of compensation times total
service through year-end 1993 times 1.43%, minus 1.43% of estimated Social
Security benefits times total service through year-end 1993, plus 1.35% of
compensation thereafter. As of January 1, 1994, service credit is limited to 30
years or accrued service at December 31, 1993, if greater. The elements of
compensation upon which the retirement plan benefits are based include salary,
incentives, and payments of recurring cash and stock awards. Mr. Gerstner's
annual pension from the Company has been set at approximately $1,275,000
pursuant to his employment agreement (see next paragraph). Mr. Rizzo's
retirement income will be based on his prior employment with the Company and
his service subsequent to January 25, 1993, at which time he was reemployed and
his current pension payments under the IBM Retirement Plan were suspended.
Prior to any reduction for survivorship options, estimated annual retirement
benefits at age 60 for Mr. Toole, Mr. Lautenbach and Mr. LaBant would be,
respectively, $480,000, $470,000, and $430,000; annual retirement benefits as
of December 31, 1993 for Mr. Rizzo (who became age 65 during 1993 and
previously elected a 50% joint and survivor annuity) would have been $545,000.
Mr. Akers retired April 30, 1993 and is receiving an annual pension calculated
on a 50% joint and survivor annuity basis of $1,294,000.
Employment Agreements and Change-in-Control Arrangements
The Company entered into an employment agreement with Mr. Gerstner as of March
26, 1993 whereby he serves as the chairman and chief executive officer of the
Company. The agreement provides Mr. Gerstner with: an annual salary of
$2,000,000; an annual incentive target award opportunity of at least $1,500,000
with a minimum 1993 award of $1,125,000; a long-term performance incentive with
a target opportunity of at least $500,000; a special one-time payment of
$4,287,096 for the value of benefits under various plans of his former employer
that were forfeited as a result of his resignation; $160,130 for reimbursement
of certain taxes (described in footnotes (2) and (3) of the Summary
Compensation Table on page 13); a 10-year stock option for 500,000 shares of
IBM common stock at $47.88 (the market price on April 23, 1993, the date of
grant); and an annual pension at age 60 from IBM of approximately $1,275,000.
Of the 30,456 shares listed as owned by Mr. Gerstner in the Beneficial
Ownership of Shares table on page 8, none was part of the terms of Mr.
Gerstner's employment agreement. Thirty thousand of those shares were purchased
by Mr. Gerstner in the open market from April 1993 through January 1994 with
his personal funds. The rest had been acquired prior to his employment by IBM.
IBM Notice of 1994 Annual Meeting and Proxy Statement 15
<PAGE>
The agreement also calls for the Company to pay Mr. Gerstner the difference
between the market price upon exercise and $8.125 for each of 3,211,320 shares
of RJR Nabisco stock on which Mr. Gerstner holds options as a result of his
employment with RJR Nabisco. To date, Mr. Gerstner has not exercised any of
these options and, based on the average of the closing prices of RJR Nabisco
stock in the month of February 1994, $7.427, the liability of IBM would be
$2,241,501. Also, the agreement guaranteed Mr. Gerstner $8.125 per share for
300,000 RJR Nabisco shares held by RJR Nabisco as collateral for a loan taken
by Mr. Gerstner to purchase those shares. In November 1993, Mr. Gerstner sold
the shares at $6.00 per share and IBM paid him $637,500 pursuant to this
provision of the agreement.
In the event of termination without cause, or due to a change-in-control of the
Company, Mr. Gerstner would receive 36 months salary plus prorated incentive
payments and other specified benefits. The Company has no other
change-in-control arrangements with any of its executive officers. There are no
employment agreements with the named executive officers other than Mr.
Gerstner.
Performance Graph
Comparison of Five-Year Cumulative Total Return for
IBM, S&P 500 Stock Index, and S&P Computer Systems Index (excluding IBM).
The above graph compares the five-year cumulative total return for IBM common
stock with the comparable cumulative return of two indexes. Since IBM is a
company within the Standard & Poor's ("S&P") 500 Stock Index, the Securities
and Exchange Commission's proxy rules require the use of that Index. Under
those rules, the second index used for comparison may be a published industry
or line-of-business index. In IBM's case, the S&P Computer Systems Index
(excluding IBM), shown above, is such an index.
The graph assumes $100 invested on December 31, 1988 in IBM common stock and
$100 invested at that same time in each of the S&P indexes. The comparison
assumes that all dividends are reinvested.
2. Ratification of Appointment of Auditors
The Board of Directors has appointed the firm of Price Waterhouse, independent
accountants, to be IBM's auditors for the year 1994 and recommends to
stockholders that they vote for ratification of that appointment.
IBM Notice of 1994 Annual Meeting and Proxy Statement 16
<PAGE>
Price Waterhouse served in this capacity for the year 1993. Its representative
will be present at the Annual Meeting and will have an opportunity to make a
statement and be available to respond to appropriate questions.
The appointment of auditors is approved annually by the Board and subsequently
submitted to the stockholders for ratification. The decision of the Board is
based on the recommendation of the Audit Committee, which reviews and approves
in advance the audit scope, the types of nonaudit services, and the estimated
fees for the coming year. The committee reviewed and approved proposed 1994
nonaudit services and concluded that they will not impair the independence of
the accountants.
Before making its recommendation to the Board for appointment of Price
Waterhouse, the Audit Committee carefully considered that firm's qualifications
as auditors for the Company. This included a review of its performance in prior
years, as well as its reputation for integrity and competence in the fields of
accounting and auditing. The committee has expressed its satisfaction with
Price Waterhouse in all of these respects. The committee's review included
inquiry concerning any litigation involving Price Waterhouse and any
proceedings by the Securities and Exchange Commission against the firm. In this
respect, the committee has concluded that the ability of Price Waterhouse to
perform services for the Company is in no way adversely affected by any such
investigation or litigation.
3. Adoption of the 1994 Long-Term Performance Plan
In April 1989, stockholders approved adoption of the 1989 Long-Term Performance
Plan ("1989 LTPP") to provide for the granting of stock options and other cash
and stock awards. The 1989 LTPP replaced the IBM 1986 Stock Option Plan,
previous versions of which had been approved by stockholders since 1956. The
Board of Directors continues to believe that stock-based incentives are
important factors in attracting, retaining, and rewarding officers and other
selected employees and closely aligning their interests with those of
stockholders. Therefore, the Board recommends to stockholders adoption of the
1994 Long-Term Performance Plan ("1994 LTPP") to replace the 1989 LTPP, which
expires April 24, 1994. Some changes have been made to reflect or comply with
intervening legislative and regulatory developments, none of which will have a
substantive effect on the way awards are granted or the plan administered.
All executive officers (currently 14), all other corporate officers (currently
44), and other executives and selected employees (now approximately 2,000) will
be eligible to participate in the 1994 LTPP. Participants are recommended by
their management. The Executive Compensation and Management Resources Committee
of the Board will review and act on all 1994 LTPP grants and awards for IBM
officers and, consistent with procedures under the 1989 LTPP and subject to
approval by stockholders of the 1994 LTPP, the committee will delegate to the
chief executive officer the authority to make grants and awards under the 1994
LTPP to other eligible employees. In administering the 1994 LTPP, the committee
has the power to interpret its provisions and to promulgate, amend, and rescind
rules and regulations for its administration. The Board is authorized to amend
the 1994 LTPP, except that it may not increase the maximum number of shares for
which awards may be made without stockholder approval or make other specified
amendments. Awards of stock may be subject to restrictions established by the
committee.
The 1994 LTPP permits the grant of any form of stock option, stock appreciation
right, stock or cash award whether granted singly, in combination or in tandem.
One or more stock options can be granted to any participant. No individual
participant may receive, under the 1994 LTPP, stock options or stock
appreciation rights ("SARs") the aggregate of which shall exceed 5% of the
shares authorized for issuance under the 1994 LTPP. As in the case of all
previous IBM stock plans for executives, stock options will be granted at not
less than 100% of the average market price of IBM common stock on the New York
Stock Exchange on the date of grant ("Fair Market Value") and other stock
awards will also be based on at least Fair Market Value. Stock options and SARs
may not be exercised for at least six months from date of grant. It is expected
that options and SARs will be granted for periods of 10 years or less and can
continue in effect after termination of employment. Up to $100,000 of options
based on Fair
IBM Notice of 1994 Annual Meeting and Proxy Statement 17
<PAGE>
Market Value on date of grant may become exercisable for the first time in a
calendar year, per optionee, in the form of an incentive stock option ("ISO")
in compliance with Section 422 of the Internal Revenue Code. In addition to
the foregoing types of awards, the 1994 LTPP permits the Board to grant such
other award forms as shall be consistent with the purposes of the plan within
the limits of the plan. Such grants may be paid at the discretion of the Board
in cash, shares of common stock or any combination thereof. The duration of the
1994 LTPP will be five years, subject to earlier termination by the Board of
Directors. The new plan will be administered by a committee of the Board
composed entirely of directors who are not eligible to participate in the plan,
in compliance with rules and regulations issued under the Internal Revenue
Code and federal securities laws.
If approved by stockholders, the Board of Directors has authorized for issuance
under the 1994 LTPP 29,105,600 shares of common stock, which is 5% of the
shares of the Company's common stock outstanding on February 10, 1994. The
stock's Fair Market Value on that day was $53.19 per share. All stock-based
awards and awards denominated in stock units (whether payable in stock or cash)
are subject to this limit. Similar to the 1989 LTPP, the 1994 LTPP does not
specify a limit for cash awards.
No benefits or amounts have been allocated under the 1994 LTPP, nor are any
such benefits or amounts now determinable. For comparison purposes, please
refer to the grants and awards that were made under the 1989 LTPP in 1993,
shown in the Stock Option Grants table on page 14 and in the Long-Term
Incentive Plans table on page 15. In addition to the data shown in those
tables, in 1993, 1,068,000 stock options were granted to all current executive
officers as a group and 12,676,772 stock options and 4,083,920 SARs were
granted to all employees, including all current officers who are not executive
officers as a group. The dollar value of Long-Term Incentive Awards in 1993 for
these two groups was $2,567,000 and $5,244,000, respectively. No awards were
made to directors who are not executive officers. See also the February 7, 1994
stock option awards described below.
On April 23, 1993, the Board authorized the forfeit of options granted from
1984 through 1992 to be exchanged on an average 2.5-to-1 basis for new options
that were issued at the April 23, 1993 Fair Market Value, $47.88. Approximately
1,200 executives participated. Executive officers were excluded from the
program. The new ten-year term options do not vest for two years (50% then, 25%
additional each of the next two years). For the first nine years of their term,
before any of these options can be exercised, the average of the closing prices
of IBM common stock on the New York Stock Exchange for 30 consecutive calendar
days, must be at or above $71.82. After nine years, there is no precondition to
their exercise. The objective of this program was to retain and motivate many
of IBM's key people during a difficult time of transition.
On February 7, 1994, ten-year stock options at $53.44 per share (the Fair
Market Value), which vest over a four-year period, were granted under the 1989
LTPP to Mr. Rizzo, 50,000 shares, to Messrs. Toole, Lautenbach, and LaBant,
60,000 shares each, to the current executive officers as a group, 655,000
shares, and to employees including current officers who are not executive
officers as a group, 5,205,000 shares.
There is currently no accounting charge to the income of the Company in
connection with the grant or exercise of a stock option; most other LTPP awards
do require a charge. SARs result in such a charge when the market value of the
shares to which the SAR grants relate exceeds the exercise price at which the
SARs were granted. The Financial Accounting Standards Board is considering
whether the accounting treatment of stock options should be changed. The
effective date of any such change, which could result in material increased
compensation expense to the Company, is not expected to occur until after 1996.
Charges for awards other than stock options are not expected to be a material
expense to the Company.
As discussed in the Report on Executive Compensation, the 1994 LTPP has been
designed to meet the new requirements in Section 162(m) of the Internal Revenue
Code for stock options and SARs and to provide flexibility for certain other
awards to so qualify (see page 12). Final regulations are not expected to be
issued governing this complex area with
IBM Notice of 1994 Annual Meeting and Proxy Statement 18
<PAGE>
regard to other 1994 LTPP awards until after the April 25, 1994 meeting of IBM
stockholders. IBM's management and the Executive Compensation and Management
Resources Committee of the Board will determine what action, if any, is
appropriate, when final regulations are issued.
The 1994 LTPP is printed in its entirety as Appendix A beginning on page 22 and
the Federal income tax consequences of the issuance and exercise of stock
options, SARs, and other awards are set forth as Appendix B on page 29. The IBM
Board of Directors recommends a vote FOR this proposal.
Stockholder Proposals
Stockholder proposals may be submitted for inclusion in IBM's 1995 proxy
material after the 1994 Annual Meeting but no later than 5 p.m. EST on November
14, 1994. Proposals must be in writing and sent via registered, certified, or
express mail to: Office of the Secretary, IBM Corporation, Armonk, N.Y. 10504.
Facsimile or other forms of electronic submissions will not be accepted.
Management carefully considers all proposals and suggestions from stockholders.
When adoption is clearly in the best interests of the Company and stockholders
and can be accomplished without stockholder approval, the proposal is
implemented without inclusion in the proxy material.
Examples of stockholder proposals and suggestions that have been adopted over
the years include stockholder ratification of the appointment of auditors,
improved procedures involving dividend checks and stockholder publications, and
changes or additions to the proxy material concerning such matters as
abstentions from voting, appointment of alternative proxy, and secrecy of
stockholder voting.
Management opposes the following proposal for the reasons stated after the
proposal.
4. Stockholder Proposal on Affirmation of IBM's Political Non-Partisanship
Management has been advised that Mrs. Evelyn Y. Davis, 2600 Virginia Avenue,
N.W., Suite 215, Washington, D.C. 20037, the owner of 50 shares, intends to
submit the following proposal at the meeting:
Resolved: "That the stockholders of IBM assembled in Annual Meeting in person
and by proxy, hereby recommend that the Corporation affirm its political
non-partisanship. To this end the following practices are to be avoided:
"(a) The handing of contribution cards of a single political party to an
employee by a supervisor.
"(b) Requesting an employee to send a political contribution to an individual
in the Corporation for a subsequent delivery as part of a group of
contributions to a political party or fund raising committee.
"(c) Requesting an employee to issue personal checks blank as to payee for
subsequent forwarding to a political party, committee or candidate.
"(d) Using supervisory meetings to announce that contribution cards of one
party are available and that anyone desiring cards of a different party will be
supplied one on request to his supervisor.
"(e) Placing a preponderance of contribution cards of one party at mail station
locations."
Reasons: "The Corporation must deal with a great number of governmental units,
commissions and agencies. It should maintain scrupulous political neutrality to
avoid embarrassing entanglements detrimental to its business. Above all, it
must avoid the appearance of coercion in encouraging its employees to make
political contributions against their personal inclinations. The Troy Onio
[sic] News has condemned partisan solicitation for political purposes by
managers in a local company (not IBM)."
IBM Notice of 1994 Annual Meeting and Proxy Statement 19
<PAGE>
"If you agree, please mark your proxy for this resolution."
The IBM Board of Directors recommends a vote against this proposal.
The proponent submitted an identical proposal for inclusion in IBM's proxy
statement for the 1975 stockholders meeting. The proposal received
approximately 3% of the vote.
IBM, like all corporations, is subject to laws and regulations that limit
corporate involvement in political election campaigns. IBM is committed to full
compliance with those laws and regulations.
In addition, it is IBM's long-standing policy that its employees participate in
politics as private citizens, not as IBM employees. IBM employees are
prohibited from making contributions of Company resources such as money, goods
or services to political candidates or parties. These policies are designed to
allow employees, as individual citizens, to participate in the political
process as they see fit, regardless of party affiliation or political
persuasion while maintaining the non-partisanship of the institution as a
whole. In the Board's opinion, IBM's policies, together with federal and state
laws and regulations regarding corporate involvement in political campaigns,
strike an appropriate balance between allowing IBM employees to exercise
lawfully their individual constitutional rights to participate in the political
process while maintaining the Company's political neutrality. Therefore, the
Board recommends a vote against this proposal.
In November of 1992, IBM was notified by the Federal Election Commission that
the Commission was investigating solicitations by the then chairman of the
board of IBM of campaign contributions that were made by certain senior IBM
executives for a fund-raising luncheon in connection with the 1992 presidential
election. The notice stated that the Federal Election Commission was
investigating whether IBM resources or personnel were improperly utilized in
the fund-raising effort in violation of federal election laws and regulations
governing the activities of federal contractors. IBM has responded to the
Federal Election Commission's inquiry and provided information relating to the
solicitations. The Commission has not advised IBM of the outcome of its
investigation. IBM does not believe that its resources or personnel were
utilized in a manner that violated any applicable law.
Other Business
Management knows of no other matters that may properly be, or are likely to be,
brought before the meeting. If other proper matters are introduced, the Proxy
Committee named in the enclosed Proxy Card will vote shares it represents.
Proxies and Voting at the Meeting
The $1.25 par value capital stock of the Company (its common stock) is its only
class of security entitled to vote at the April 25, 1994 meeting. Each
stockholder of record at the close of business on March 7, 1994, is entitled to
one vote for each share held. The Proxy Card covers the number of shares to be
voted, including any full shares held for participants in the IBM Dividend
Reinvestment Plan and Employees Stock Purchase Plan. On February 10, 1994,
there were 582,112,340 shares outstanding and entitled to be voted.
Directors are elected by a plurality of votes cast. A majority of the votes
cast is required to ratify the appointment of auditors and recommend that the
Board consider adoption of the stockholder proposal. Under the law of New York,
IBM's state of incorporation, "votes cast" at a meeting of stockholders by the
holders of shares entitled to vote are determinative of the outcome of the
matter subject to vote. Abstentions, broker non-votes, and withheld votes will
not be considered "votes cast" based on IBM's understanding of state law
requirements and IBM's Certificate of
IBM Notice of 1994 Annual Meeting and Proxy Statement 20
<PAGE>
Incorporation and By-laws. Adoption of the 1994 Long-Term Performance Plan,
pursuant to the requirements of the New York Business Corporation Law,
requires the favorable vote of the holders of a majority of all outstanding
shares of the common stock of the Company.
All stockholder meeting proxies, ballots, and tabulations that identify
individual stockholders are kept secret, and no such document shall be
available for examination, nor shall the identity or the vote of any
stockholder be disclosed except as may be necessary to meet legal requirements
under the laws of New York State, IBM's state of incorporation. Votes are
counted by employees of First Chicago Trust Company of New York, IBM's
independent transfer agent and registrar, and certified by the Inspectors of
Election who are employees of Corporation Trust Company.
Shares cannot be voted unless a signed Proxy Card is returned or other specific
arrangements are made to have shares represented at the meeting. Any
stockholder giving a proxy may revoke it at any time before it is voted. If a
stockholder wishes to give a proxy to someone other than the Proxy Committee,
he or she may cross out the names appearing on the enclosed Proxy Card, insert
the name of some other person, sign, and give the Proxy Card to that person for
use at the meeting.
Stockholders are encouraged to specify their choices by marking the appropriate
boxes on the enclosed Proxy Card. However, it is not necessary to mark any
boxes if you wish to vote in accordance with the Board of Directors'
recommendations; merely sign, date, and return the Proxy Card in the enclosed
envelope.
Solicitation of proxies is being made by the Company through the mail, in
person, and by telecommunications. The cost thereof will be borne by the
Company. In addition, management has retained Morrow & Co.,Inc., to assist in
soliciting proxies for a fee of approximately $45,000, plus reasonable
out-of-pocket expenses.
John E. Hickey
Secretary
March 14, 1994
IBM Notice of 1994 Annual Meeting and Proxy Statement 21
<PAGE>
APPENDIX A
IBM 1994 Long-Term Performance Plan
1. Objectives.
The IBM 1994 Long-Term Performance Plan (the "Plan") is designed to attract and
retain executives and other selected employees whose skills and talents are
important to the Company's operations, and reward them for making major
contributions to the success of the Company. These objectives are accomplished
by making long-term incentive awards under the Plan, thereby providing
Participants with a proprietary interest in the growth and performance of the
Company.
2. Definitions.
(a) "Award" - The grant of any form of stock option, stock appreciation
right, stock or cash award, whether granted singly, in combination or in
tandem, to a Plan Participant pursuant to such terms, conditions, performance
requirements, and limitations as the Committee may establish in order to
fulfill the objectives of the Plan.
(b) "Award Agreement" - An agreement between the Company and a Participant
that sets forth the terms, conditions, performance requirements, and
limitations applicable to an Award.
(c) "Board" - The Board of Directors of International Business Machines
Corporation.
(d) "Capital Stock" or "stock" - Authorized and issued or unissued $1.25
Par Value Capital Stock of the Company.
(e) "Code" - The Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" - The committee designated by the Board to administer the
Plan. The Committee shall be constituted to permit the Plan to comply with Rule
16b-3 promulgated under the Securities Exchange Act of 1934 or any successor
rule. No member of the Committee may receive Awards under the Plan.
(g) "Company" - International Business Machines Corporation ("IBM") and
its subsidiaries including subsidiaries of subsidiaries and partnerships and
other business ventures in which IBM has a significant equity interest, as
determined in the sole discretion of the Committee.
(h) "Fair Market Value" - The average of the high and low prices of
Capital Stock on the New York Stock Exchange for the date in question, provided
that, if no sales of Capital Stock were made on said exchange on that date, the
average of the high and low prices of Capital Stock as reported for the most
recent preceding day on which sales of Capital Stock were made on said
exchange.
(i) "Participant" - An employee of the Company to whom an Award has been
made under the Plan.
3. Eligibility.
Employees of the Company eligible for an Award under the Plan are those who
hold positions of responsibility and whose performance, in the judgment of the
Committee or the management of the Company, can have a significant effect on
the success of the Company.
IBM Notice of 1994 Annual Meeting and Proxy Statement 22
<PAGE>
4. Capital Stock Available for Awards.
The number of shares that may be issued under the Plan for Awards granted
wholly or partly in stock during the term of the Plan is 29,105,600, which is
5% of the outstanding Capital Stock as determined on February 10, 1994.
Included in this share limit are Awards denominated in units of stock that may
be redeemed or exercised for cash as well as for stock. As soon as possible
after adoption of the Plan by the Company's stockholders, the Company shall
take whatever actions are necessary to file required documents with the U.S.
Securities and Exchange Commission and any other appropriate governmental
authorities and stock exchanges to make shares of Capital Stock available for
issuance pursuant to Awards. Capital Stock related to Awards that are
forfeited, terminated, expire unexercised, settled in cash in lieu of stock or
in such manner that all or some of the shares covered by an Award are not
issued to a Participant, or are exchanged for Awards that do not involve
Capital Stock, shall immediately become available for Awards.
5. Administration.
The Plan shall be administered by the Committee, which shall have full and
exclusive power to interpret the Plan, to grant waivers of Award restrictions,
and to adopt such rules, regulations and guidelines for carrying out the Plan
as it may deem necessary or proper, all of which powers shall be executed in
the best interests of the Company and in keeping with the objectives of the
Plan. These powers include, but are not limited to, the adoption of
modifications, amendments, procedures, subplans and the like as are necessary
to comply with provisions of the laws and regulations of the countries in which
the Company operates in order to assure the viability of Awards granted under
the Plan and to enable Participants regardless of where employed to receive
advantages and benefits under the Plan and such laws and regulations.
6. Delegation of Authority.
The Committee may delegate to the chief executive officer and to other senior
officers of the Company its duties under the Plan pursuant to such conditions
or limitations as the Committee may establish, except that only the Committee
may select, and grant Awards to, Participants who are subject to Section 16 of
the Securities Exchange Act of 1934.
7. Awards.
The Committee shall determine the type or types of Award(s) to be made to each
Participant and shall set forth in the related Award Agreement the terms,
conditions, performance requirements, and limitations applicable to each Award.
Awards may include but are not limited to those listed in this Section 7.
Awards may be granted singly, in combination or in tandem. Awards may also be
made in combination or in tandem with, in replacement of, or as alternatives
to, grants or rights under any other employee plan of the Company, including
the plan of any acquired entity. No Participant may receive, under the Plan,
stock options or stock appreciation rights the aggregate of which shall exceed
1,455,280 shares, which is 5% of the shares authorized for issuance hereunder.
(a) Stock Option - A grant of a right to purchase a specified number of
shares of Capital Stock the purchase price of which shall be not less than 100%
of Fair Market Value on the date of grant of such right, as determined by the
Committee. A stock option may be in the form of an incentive stock option
("ISO") which, in addition to being subject to applicable terms, conditions and
limitations established by the Committee, complies with Section 422 of the Code
which, among other limitations, provides that the aggregate Fair Market Value
(determined at the time the option is granted) of Capital Stock for which ISO's
are exercisable for the first time by a Participant during any calendar year
shall not exceed $100,000; that ISO's shall be priced at not less than
IBM Notice of 1994 Annual Meeting and Proxy Statement 23
<PAGE>
100% of the Fair Market Value on the date of the grant; and that ISO's shall
be exercisable for a period of not more than ten years. The number of shares of
stock that shall be available for ISO's granted under the Plan is limited to
ten million.
(b) Stock Appreciation Right - A right to receive a payment, in cash
and/or Capital Stock, equal to the excess of the Fair Market Value of a
specified number of shares of Capital Stock on the date the stock appreciation
right (SAR) is exercised over the Fair Market Value on the date of grant of the
SAR as set forth in the applicable Award Agreement.
(c) Stock Award - An Award made in stock or denominated in units of stock.
All or part of any stock award may be subject to conditions established by the
Committee, and set forth in the Award Agreement, which may include, but are not
limited to, continuous service with the Company, achievement of specific
business objectives, increases in specified indices, attaining growth rates,
and other comparable measurements of Company performance. Such Awards may be
based on Fair Market Value or other specified valuation.
(d) Cash Award - An Award denominated in cash with the eventual payment
amount subject to future service and such other restrictions and conditions as
may be established by the Committee, and as set forth in the Award Agreement,
including, but not limited to continuous service with the Company, achievement
of specific business objectives, increases in specified indices, attaining
growth rates, and other comparable measurements of Company performance.
Awards payable, in whole or in part, in stock must be held for at least six
months (i) in the case of a stock option or SAR, from the date of grant to the
date of exercise and (ii) in the case of other Awards, from the date of
acquisition to the date of disposition.
8. Payment of Awards.
Payment of Awards may be made in the form of cash, stock or combinations
thereof and may include such restrictions as the Committee shall determine,
including in the case of stock, restrictions on transfer and forfeiture
provisions. When transfer of stock is so restricted or subject to forfeiture
provisions, it is referred to as "Restricted Stock." Further, with Committee
approval, payments may be deferred, either in the form of installments or as a
future lump sum payment. The Committee may permit selected Participants to
elect to defer payments of some or all types of Awards in accordance with
procedures established by the Committee which are intended to permit such
deferrals to comply with applicable requirements of the Code including, at the
choice of Participants, the capability to make further deferrals for payment
after retirement. Any deferred payment, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may require the payment
to be forfeited in accordance with the provisions of Section 13 of the Plan.
Dividends or dividend equivalent rights may be extended to and made part of any
Award denominated in stock or units of stock, subject to such terms, conditions
and restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents for deferred payments denominated in stock or
units of stock. At the discretion of the Committee, a Participant may be
offered an election to substitute an Award for another Award or Awards of the
same or different type.
9. Stock Option Exercise.
The price at which shares of Capital Stock may be purchased under a Stock
Option shall be paid in full at the time of the exercise in cash or, if
permitted by the Committee, by means of tendering Capital Stock or surrendering
another Award, including Restricted Stock, valued at Fair Market Value on the
date of exercise, or any combination
IBM Notice of 1994 Annual Meeting and Proxy Statement 24
<PAGE>
thereof. The Committee shall determine acceptable methods for tendering Capital
Stock or other Awards and may impose such conditions on the use of Capital
Stock or other Awards to exercise a Stock Option as it deems appropriate. In
the event shares of Restricted Stock are tendered as consideration for the
exercise of a Stock Option, a number of the shares issued upon the exercise of
the Stock Option, equal to the number of shares of Restricted Stock used as
consideration therefor, shall be subject to the same restrictions as the
Restricted Stock so submitted plus any additional restrictions that may be
imposed by the Committee.
10. Tax Withholding.
The Company shall have the right to deduct applicable taxes from any Award
payment and withhold, at the time of delivery or vesting of shares under the
Plan, an appropriate number of shares for payment of taxes required by law or
to take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for withholding of such taxes. If Capital Stock or
Restricted Stock is used to satisfy tax withholding, such stock shall be valued
based on the Fair Market Value when the tax withholding is required to be made.
11. Amendment, Modification, Suspension or Discontinuance of the Plan.
The Board may amend, modify, suspend or terminate the Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other
purpose permitted by law. Subject to changes in law or other legal requirements
that would permit otherwise, the Plan may not be amended without the consent of
the holders of a majority of the shares of Capital Stock then outstanding, to
(i) increase the aggregate number of shares of Capital Stock that may be issued
under the Plan (except for adjustments pursuant to Section 15 of the Plan),
(ii) decrease the option price, (iii) materially modify the requirements as to
eligibility for participation in the Plan, (iv) withdraw administration of the
Plan from the Committee, or (v) extend the period during which Awards may be
granted.
12. Termination of Employment.
If the employment of a Participant terminates, other than pursuant to
paragraphs (a) through (c) of this Section 12, all unexercised, deferred and
unpaid Awards shall be canceled immediately, unless the Award Agreement
provides otherwise.
(a) Retirement under a Company Retirement Plan. When a Participant's
employment terminates as a result of retirement with management approval in
accordance with the terms of a Company retirement plan, the Committee (in the
form of an Award Agreement or otherwise) may permit Awards to continue in
effect beyond the date of retirement in accordance with the applicable Award
Agreement and the exercisability and vesting of any Award may be accelerated.
(b) Resignation in the Best Interests of the Company. When a Participant
resigns from the Company and, in the judgment of the chief executive officer or
other senior officer designated by the Committee, the acceleration and/or
continuation of outstanding Awards would be in the best interests of the
Company, the Committee may (i) authorize, where appropriate, the acceleration
and/or continuation of all or any part of Awards granted prior to such
termination and (ii) permit the exercise, vesting and payment of such Awards
for such period as may be set forth in the applicable Award Agreement, subject
to earlier cancellation pursuant to Section 13 or at such time as the Committee
shall deem the continuation of all or any part of the Participant's Awards to
be not in the Company's best interests.
(c) Death or Disability of a Participant.
(i) In the event of a Participant's death, the Participant's estate
or beneficiaries shall have a period specified
IBM Notice of 1994 Annual Meeting and Proxy Statement 25
<PAGE>
in the Award Agreement within which to receive or exercise any outstanding
Award held by the Participant under such terms as may be specified in the
applicable Award Agreement. Rights to any such outstanding Awards shall pass by
will or the laws of descent and distribution in the following order: (a) to
beneficiaries so designated by the Participant; if none, then (b) to a legal
representative of the Participant; if none, then (c) to the persons entitled
thereto as determined by a court of competent jurisdiction. Subject to
subparagraph (iii) below, Awards so passing shall be exercised or paid out at
such times and in such manner as if the Participants were living.
(ii) In the event a Participant is deemed by the Company to be
disabled and eligible for benefits pursuant to the terms of the IBM Long-Term
Disability Plan, any successor plan, or similar plan of another employer,
Awards and rights to any such Awards may be paid to or exercised by the
Participant, if legally competent, or a committee or other legally designated
guardian or representative if the Participant is legally incompetent by virtue
of such disability.
(iii) After the death or disability of a Participant, the Committee
may in its sole discretion at any time (1) terminate restrictions in Award
Agreements; (2) accelerate any or all installments and rights; and (3) instruct
the Company to pay the total of any accelerated payments in a lump sum to the
Participant, the Participant's estate, beneficiaries or representative -
notwithstanding that, in the absence of such termination of restrictions or
acceleration of payments, any or all of the payments due under the Awards might
ultimately have become payable to other beneficiaries.
(iv) In the event of uncertainty as to interpretation of or
controversies concerning this paragraph (c) of Section 12, the Committee's
determinations shall be binding and conclusive.
13. Cancellation and Rescission of Awards.
Unless the Award Agreement specifies otherwise, the Committee may cancel any
unexpired, unpaid, or deferred Awards at any time if the Participant is not in
compliance with all other applicable provisions of the Award Agreement, the
Plan and with the following conditions:
(a) A Participant shall not render services for any organization or engage
directly or indirectly in any business which, in the judgment of the chief
executive officer of the Company or other senior officer designated by the
Committee, is or becomes competitive with the Company, or which organization or
business, or the rendering of services to such organization or business, is or
becomes otherwise prejudicial to or in conflict with the interests of the
Company. For a Participant whose employment has terminated, the judgment of the
chief executive officer shall be based on the Participant's position and
responsibilities while employed by the Company, the Participant's
post-employment responsibilities and position with the other organization or
business, the extent of past, current and potential competition or conflict
between the Company and the other organization or business, the effect on the
Company's customers, suppliers and competitors of the Participant's assuming
the post-employment position, the guidelines established in the then current
edition of IBM's booklet, Business Conduct Guidelines, and such other
considerations as are deemed relevant given the applicable facts and
circumstances. A Participant who has retired shall be free, however, to
purchase as an investment or otherwise, stock or other securities of such
organization or business so long as they are listed upon a recognized
securities exchange or traded over-the-counter, and such investment does not
represent a substantial investment to the Participant or a greater than 10
percent equity interest in the organization or business.
(b) A Participant shall not, without prior written authorization from the
Company, disclose to anyone outside the Company, or use in other than the
Company's business, any confidential information or material, as defined in
IBM Notice of 1994 Annual Meeting and Proxy Statement 26
<PAGE>
the Company's Agreement Regarding Confidential Information and Intellectual
Property, relating to the business of the Company, acquired by the Participant
either during or after employment with the Company.
(c) A Participant, pursuant to the Company's Agreement Regarding
Confidential Information and Intellectual Property, shall disclose promptly and
assign to the Company all right, title, and interest in any invention or idea,
patentable or not, made or conceived by the Participant during employment by
the Company, relating in any manner to the actual or anticipated business,
research or development work of the Company and shall do anything reasonably
necessary to enable the Company to secure a patent where appropriate in the
United States and in other countries.
(d) Upon exercise, payment or delivery pursuant to an Award, the
Participant shall certify on a form acceptable to the Committee that he or she
is in compliance with the terms and conditions of the Plan. Failure to comply
with the provisions of paragraph (a), (b) or (c) of this Section 13 prior to,
or during the six months after, any exercise, payment or delivery pursuant to
an Award shall cause such exercise, payment or delivery to be rescinded. The
Company shall notify the Participant in writing of any such rescission within
two years after such exercise, payment or delivery. Within ten days after
receiving such a notice from the Company, the Participant shall pay to the
Company the amount of any gain realized or payment received as a result of the
rescinded exercise, payment or delivery pursuant to an Award. Such payment
shall be made either in cash or by returning to the Company the number of
shares of Capital Stock that the Participant received in connection with the
rescinded exercise, payment or delivery.
14. Nonassignability.
(a) Except pursuant to paragraph (c) of Section 12 and except as set forth
in paragraph (b) of this Section 14, no Award or any other benefit under the
Plan shall be assignable or transferable, or payable to or exercisable by,
anyone other than the Participant to whom it was granted.
(b) Where a Participant terminates employment in order to assume a
position with a governmental, charitable or educational institution, the
Committee, in its discretion and to the extent permitted by law, may authorize
a third party (including but not limited to the trustee of a "blind" trust),
acceptable to the applicable governmental or institutional authorities, the
Participant and the Committee, to act on behalf of the Participant with regard
to any Awards retained by the Participant pursuant to paragraph (b) of Section
12.
15. Adjustments.
In the event of any change in the outstanding Capital Stock of the Company by
reason of a stock split, stock dividend, combination or reclassification of
shares, recapitalization, merger, or similar event, the Committee may adjust
proportionally (a) the number of shares of Capital Stock (i) reserved under the
Plan, (ii) available for ISO's, (iii) for which Awards may be granted to an
individual Participant, and (iv) covered by outstanding Awards denominated in
stock or units of stock; (b) the stock prices related to outstanding Awards;
and (c) the appropriate Fair Market Value and other price determinations for
such Awards. In the event of any other change affecting the Capital Stock or
any distribution (other than normal cash dividends) to holders of Capital
Stock, such adjustments as may be deemed equitable by the Committee, including
adjustments to avoid fractional shares, shall be made to give proper effect to
such event. In the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the Committee
shall be authorized to issue or assume Stock Options, whether or not in a
transaction to which Section 424(a) of the Code applies, by means of
substitution of new Stock Options for previously issued Stock Options or an
assumption of previously issued Stock Options.
IBM Notice of 1994 Annual Meeting and Proxy Statement 27
<PAGE>
16. Notice.
Any notice to the Company required by any of the provisions of the Plan shall
be addressed to the chief human resources officer or to the chief executive
officer of the Company in writing, and shall become effective when it is
received by the office of either of them.
17. Unfunded Plan.
Insofar as it provides for Awards of cash and Capital Stock, the Plan shall be
unfunded. Although bookkeeping accounts may be established with respect to
Participants who are entitled to cash, Capital Stock or rights thereto under
the Plan, any such accounts shall be used merely as a bookkeeping convenience.
The Company shall not be required to segregate any assets that may at any time
be represented by cash, Capital Stock or rights thereto, nor shall the Plan be
construed as providing for such segregation, nor shall the Company nor the
Board nor the Committee be deemed to be a trustee of any cash, Capital Stock or
rights thereto to be granted under the Plan. Any liability of the Company to
any Participant with respect to a grant of cash, Capital Stock or rights
thereto under the Plan shall be based solely upon any contractual obligations
that may be created by the Plan and any Award Agreement; no such obligation of
the Company shall be deemed to be secured by any pledge or other encumbrance on
any property of the Company. Neither the Company nor the Board nor the
Committee shall be required to give any security or bond for the performance of
any obligation that may be created by the Plan.
18. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto, to the
extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of New York and construed accordingly.
19. Effective and Termination Dates.
The Plan shall become effective on the date it is approved by the holders of a
majority of the shares of Capital Stock then outstanding. The Plan shall
terminate five years later, subject to earlier termination by the Board
pursuant to Section 11, after which no Awards may be made under the Plan, but
any such termination shall not affect Awards then outstanding or the authority
of the Committee to continue to administer the Plan.
IBM Notice of 1994 Annual Meeting and Proxy Statement 28
<PAGE>
APPENDIX B
Federal Income Tax Consequences
The Company has been advised by counsel that, in general, under the Internal
Revenue Code, as presently in effect, an optionee will not be deemed to receive
any income for federal income tax purposes at the time an option or SAR is
granted or a restricted stock award is made, nor will the Company be entitled
to a tax deduction at that time. However, when any part of an option or SAR is
exercised, when restrictions on restricted stock lapse, or when an unrestricted
stock award is made, the federal income tax consequences may be summarized as
follows:
1. In the case of an exercise of a nonstatutory option, the optionee will
recognize ordinary income in an amount equal to the difference between the
option price and the Fair Market Value of the shares on the exercise date.
2. In the case of an exercise of an SAR, the optionee will recognize ordinary
income on the exercise date in the amount equal to any cash and unrestricted
shares, at Fair Market Value, received.
3. In the case of an exercise of an option or SAR payable in restricted stock,
or in the case of an award of restricted stock, the immediate federal income
tax effect for the recipient will depend on the nature of the restrictions.
Generally, the Fair Market Value of the stock will not be taxable to the
recipient as ordinary income until the year in which his or her interest in the
stock is freely transferable or is no longer subject to a substantial risk of
forfeiture. However, the recipient may elect to recognize income when the stock
is received, rather than when his or her interest in the stock is freely
transferable or is no longer subject to a substantial risk of forfeiture. If
the recipient makes this election, the amount taxed to the recipient as
ordinary income is determined as of the date of receipt of the restricted
stock.
4. In the case of ISO's, there is no tax liability at time of exercise.
However, the excess of the Fair Market Value of the stock on the exercise date
over the option price is included in the optionee's income for purposes of the
alternative minimum tax. If no disposition of the ISO stock is made before the
later of one year from the date of exercise and two years from the date of
grant, the optionee will realize a long-term capital gain or loss upon a sale
of the stock, equal to the difference between the option price and the sale
price. If the stock is not held for the required period, ordinary income tax
treatment will generally apply to the amount of any gain at sale or exercise,
whichever is less, and the balance of any gain or any loss will be treated as
capital gain or loss (long-term or short-term, depending on whether the shares
have been held for more than one year).
5. Upon exercise of a nonstatutory option or SAR, the award of stock, or the
recognition of income on restricted stock, the Company will generally be
allowed an income tax deduction equal to the ordinary income recognized by the
employee. The Company does not receive an income tax deduction as a result of
the exercise of an ISO, provided that the ISO stock is held for the required
period as described above. When a cash payment is made pursuant to the Award,
the recipient will recognize the amount of the cash payment as ordinary income,
and the Company will generally be entitled to a deduction in the same amount.
6. The Company may not deduct compensation of more than $1,000,000 that is paid
in a taxable year to an individual who, on the last day of the taxable year, is
the Company's chief executive officer or among one of its four other highest
compensated officers for that year. The deduction limit, however, does not
apply to certain types of compensation, including qualified performance-based
compensation. The Company believes that compensation attributable to stock
options and stock appreciation rights granted under the 1994 LTPP will be
treated as qualified performance-based compensation and therefore will not be
subject to the deduction limit.
IBM Notice of 1994 Annual Meeting and Proxy Statement 29
<PAGE>
IBM
Dear IBM Stockholder:
YOUR VOTE IS IMPORTANT. ATTACHED IS YOUR 1994 IBM PROXY CARD. PLEASE
READ BOTH SIDES OF THE CARD, AND MARK, SIGN AND DATE IT. DETACH AND RETURN IT
PROMPTLY USING THE ENCLOSED ENVELOPE. WE URGE YOU TO VOTE YOUR SHARES.
You are invited to attend the Annual Meeting of Stockholders on Monday,
April 25, 1994, at 10 a.m. in the Metro Toronto Convention Centre, 255 Front
St. W., Toronto, Ontario, Canada. If you plan to attend the Annual Meeting,
you should mark the box provided on the attached Proxy Card. An admission
ticket is attached for your convenience.
As part of IBM's ongoing efforts to reduce expenses, we are asking our
stockholders to permit IBM to send only one copy of stockholder publications
to their household. If you are receiving multiple copies of stockholder
reports at your address and wish to eliminate them for the account shown on
the attached Proxy Card, please mark the box provided on the card. You will
continue to receive your proxy mailings for shares held in this account.
Thank you very much for your cooperation and continued loyalty as an IBM
Stockholder.
/s/ John E. Hickey
John E. Hickey
Secretary
/X/ Please mark your
votes as in this
example
Proxy Card IBM's Directors recommend a vote for proposals 1, 2, and 3,
and against shareholder proposal 4. SHARES WILL BE SO VOTED
UNLESS OTHERWISE INDICATED.
IBM's Directors recommend a vote FOR proposals 1, 2, and 3.
FOR WITHHELD
1. Election of
Directors / / / /
(see reverse)
For, except vote WITHHELD from the following nominee(s):
--------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of
Auditors' Appointment / / / / / /
(page 16)
3. Adoption of Long-
Term Performance / / / / / /
Plan
(page 17)
IBM's Directors recommend a vote AGAINST proposal 4.
FOR AGAINST ABSTAIN
4. Stockholder Proposal on
Political / / / / / /
Non-Partisanship
(page 19)
Will Attend Annual Meeting / /
Discontinue Mailing Publications
for this Account / /
["IBM" logo]
SIGNATURE(S): DATE
-------------------------------------- ------------------
PLEASE SIGN AND DATE HERE, DETACH AND RETURN IN ENCLOSED ENVELOPE.
<PAGE>
Admission Ticket
to the 1994 Annual Meeting of
IBM Stockholders
This is your admission ticket for the Annual Meeting of Stockholders to be held
on Monday, April 25, 1994, at 10 a.m. in the Metro Toronto Convention Centre,
265 Front St. W., Toronto, Ontario, Canada.
Stockholders must have a ticket for admission to the meeting. This ticket is
issued to the stockholder whose name appears on it and is non-transferable.
PROXY CARD
IBM International Business Machines Proxy Solicited by the Board of Directors
Corporation for the Annual Meeting of Stockholders
Armonk, New York 10504 April 25, 1994
Louis V. Gerstner, Jr., Paul J. Rizzo, and John E. Hickey, or any of them
individually and each of them with power of substitution, are hereby appointed
Proxies of the undersigned to vote all common stock of International Business
Machines Corporation owned on the record date by the undersigned at the Annual
Meeting of Stockholders to be held in the Metro Toronto Convention Centre,
Toronto, Ontario, Canada, at 10 a.m. on Monday, April 25, 1994, or any
adjournment thereof, upon such business as may properly come before the meeting,
including the items on the reverse side of this form as set forth in the Notice
of 1994 Annual Meeting and the Proxy Statement dated March 14, 1994.
ELECTION OF DIRECTORS, NOMINEES:
H. Brown, J.E. Burke, F. Gerber, L.V. Gerstner, Jr., N.O. Keohane, C.F. Knight,
T.S. Murphy, P.J. Rizzo, J.B. Slaughter, L.C. van Wachem, E.S. Woolard, Jr.
(SHARES CANNOT BE VOTED UNLESS THIS PROXY CARD IS SIGNED AND RETURNED, OR OTHER
SPECIFIC ARRANGEMENTS ARE MADE TO HAVE THE SHARES REPRESENTED AT THE MEETING.)
PLEASE DETACH AND PRESENT THIS TICKET FOR ADMISSION TO THE ANNUAL MEETING
