SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT
PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. )
FOR ANNUAL MEETING FOR FISCAL YEAR ENDING December 31, 1998
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Sec. 240.14a-11(c) or Sec.
240.14a-12
(Name of Registrant as Specified In Its Charter)
-----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________.
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
|_| Fee paid with preliminary materials
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form of Schedule and date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No:
3) Filing Party:
4) Date Filed:
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
IBM [LOGO]
Dear Stockholders,
You are cordially invited to attend the Annual Meeting of Stockholders on
Tuesday, April 27, at 10 a.m., in the James L. Knight Center at the Miami
Convention Center, Miami, Florida.
We are very pleased that Mr. Kenneth I. Chenault, president and chief operating
officer of American Express Company, who was elected to the Board in October
1998, is a nominee for the first time.
At this year's Annual Meeting you will be asked to approve, among other things,
certain amendments to IBM's Certificate of Incorporation to increase the number
of authorized shares. Your approval of these amendments is necessary to
effectuate a two-for-one stock split declared by the IBM Board of Directors on
January 26, 1999. In addition, you will also be asked to approve IBM's 1999
Long-Term Performance Plan, which provides for incentive and other awards that
are designed to provide participants with an increased proprietary interest in
our Company. Your vote on these matters is important and we appreciate your
continued support.
Stockholders of record can vote their shares by using the Internet or the
telephone. Instructions for using these convenient services are set forth on the
enclosed proxy card. Of course, you also may vote your shares by marking your
votes on the enclosed proxy card, signing and dating it, and mailing it in the
enclosed envelope. If you will need special assistance at the meeting because of
a disability, please contact the Office of the Secretary, Armonk, N.Y. 10504.
Very truly yours,
/s/ Louis V. Gerstner, Jr.
Louis V. Gerstner, Jr.
Chairman of the Board
YOUR VOTE IS IMPORTANT
Please Vote by Using the Internet,
the Telephone, or by Signing, Dating, and Returning
the Enclosed Proxy Card
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
[INTENTIONALLY LEFT BLANK]
2
<PAGE>
International Business Machines Corporation
Armonk, New York 10504
March 23, 1999
Notice of Meeting
The Annual Meeting of Stockholders of International Business Machines
Corporation will be held on Tuesday, April 27, 1999, at 10 a.m., in the James L.
Knight Center at the Miami Convention Center, 400 S.E. Second Avenue, Miami,
Florida 33131. The items of business are:
1. Election of directors for a term of one year.
2. Ratification of the appointment of auditors.
3. Amendment of the Certificate of Incorporation to increase authorized
shares and effect a two-for-one common stock split.
4. Adoption of the IBM 1999 Long-Term Performance Plan.
5. Approval of Annual Incentive Compensation Terms for Certain Executives.
6. 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 1, 1999, are entitled to vote at the meeting or any adjournment
thereof. Stockholders are reminded that shares cannot be voted unless the signed
proxy card is returned, shares are voted over the Internet or by telephone, or
other arrangements are made to have the shares represented at the meeting.
/s/ Daniel E. O'Donnell
Daniel E. O'Donnell
Vice President and Secretary
This Proxy Statement and the accompanying form of proxy card are being mailed
beginning on or about March 23, 1999, to stockholders entitled to vote. The IBM
1998 Annual Report, which includes financial statements, is being mailed with
this Proxy Statement. Kindly notify First Chicago Trust Company
Mail Suite 4688, P.O. Box 2530, Jersey City, N.J. 07303-2530, telephone
201-324-0405, if you did not receive a report, and a copy will be sent to you.
3
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Table of Contents
Page
1. Election of Directors for a Term of One Year 5
General Information:
o Board of Directors 8
o Committees of the Board 8
o Other Relationships 9
o Directors' Compensation 9
o Section 16(a) Beneficial Ownership Reporting Compliance 10
o Ownership of Securities -- Common Stock
and Total Stock-Based Holdings 10
Report on Executive Compensation 12
o Summary Compensation Table 15
o Performance Graph 20
2. Ratification of Appointment of Auditors 21
3. Amendment of the Certificate of Incorporation
to Increase Authorized Shares and Effect a
Two-for-One Common Stock Split 22
4. Adoption of the IBM 1999 Long-Term Performance Plan 25
5. Approval of Annual Incentive Compensation Terms
for Certain Executives 27
6. Stockholder Proposals 28
Other Business 29
Proxies and Voting at the Meeting 29
Appendix A: Proposed Amendment to Article THREE
of the Company's Certificate of Incorporation 31
Appendix B: IBM 1999 Long-Term Performance Plan 33
Appendix C: IBM 1999 Long-Term Performance Plan--
Federal Income Tax Consequences 39
4
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
1. Election of Directors for a Term of One Year
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
individuals named as proxies 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.
[PHOTO OMITTED]
Cathleen Black, 54, is president of Hearst Magazines, a division of The Hearst
Corporation, a diversified communications company. She is a member of IBM's
Directors and Corporate Governance Committee. Prior to joining Hearst Magazines,
she was president and chief executive officer of the Newspaper Association of
America from 1991 to 1996, president, then publisher, of USA TODAY from 1983 to
1991, and also executive vice president/marketing for Gannett Company, Inc.
(USA TODAY parent company) from 1985 to 1991. She is a director of The Hearst
Corporation, The Coca-Cola Company, the Advertising Council and a trustee of
the University of Notre Dame. Ms. Black became an IBM director in 1995.
[PHOTO OMITTED]
Kenneth I. Chenault, 47, is president and chief operating officer of American
Express Company, a financial services company. He is a member of IBM's Executive
Compensation and Management Resources Committee. Mr. Chenault joined American
Express in 1981 and was named president of the U.S. division of American Express
Travel Related Services Company, Inc., in 1993, vice chairman of American
Express Company in 1995 and to his present position in 1997. Mr. Chenault is a
member of the board of directors of American Express Company, the Quaker Oats
Company, the National Collegiate Athletic Association Foundation, Mount
Sinai-NYU Medical Center and Health System, and the National Center on Addiction
and Substance Abuse. He also serves on the Dean's Advisory Board of Harvard Law
School and is a member of the Council on Foreign Relations. Mr. Chenault became
an IBM director in 1998.
[PHOTO OMITTED]
Juergen Dormann, 59, is chairman of the management board of Hoechst AG, a
chemicals and pharmaceuticals company. He is a member of IBM's Audit Committee.
Mr. Dormann joined Hoechst in 1963 and was elected finance and accounting
director in 1987 and to his present position in 1994. He is a director of ABB
Asea Brown Boveri Ltd., ABB AG and a member of the supervisory board of Allianz
AG. Mr. Dormann became an IBM director in 1996.
[PHOTO OMITTED]
Louis V. Gerstner, Jr., 57, is chairman of the Board and chief executive officer
of IBM and chairman of IBM's Executive Committee. From 1989 until joining IBM in
1993, he was chairman of the board and chief executive officer of RJR Nabisco
Holdings Corp., an international consumer products company. From 1985 to 1989,
Mr. Gerstner was president of American Express Company. He is a member of the
board of directors of Bristol-Myers Squibb Company. Mr. Gerstner co-chairs
Achieve, an organization created by United States governors and business leaders
to establish high academic standards in our nation's public schools. He serves
on the President's Advisory Committee for Trade Policy and Negotiations. He is a
member of the board of Memorial Sloan-Kettering Cancer Center and the Board of
Regents of the Smithsonian Institution, and a director of the Council on Foreign
Relations. Mr. Gerstner became an IBM director in 1993.
5
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
[PHOTO OMITTED]
Nannerl O. Keohane, 58, is president and professor of political science at Duke
University. She is chairperson of IBM's Directors and Corporate Governance
Committee and a member of IBM's Executive 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, the
American Philosophical Society and the American Academy of Arts and Sciences.
Dr. Keohane is a trustee of the Colonial Williamsburg Foundation and has served
as vice president of the American Political Science Association. Dr. Keohane
became an IBM director in 1986.
[PHOTO OMITTED]
Charles F. Knight, 63, is chairman and chief executive officer of Emerson
Electric Co., an electronics company. He is chairman of IBM's Executive
Compensation and Management Resources Committee and a member of IBM's Executive
Committee. He joined Emerson Electric in 1972 as vice chairman and was elected
chief executive officer in 1973, chairman in 1974 and president in 1995. Prior
to joining Emerson, he was president of Lester B. Knight & Associates, Inc., a
consulting engineering firm. He is a director of SBC Communications Inc.,
Anheuser Busch Companies, Inc., BP Amoco p.l.c. and Morgan Stanley Dean Witter &
Co. Mr. Knight became an IBM director in 1993.
[PHOTO OMITTED]
Minoru Makihara, 69, is chairman of Mitsubishi Corporation. He is a member of
IBM's Directors and Corporate Governance Committee. Mr. Makihara joined
Mitsubishi in 1956 and was elected president of Mitsubishi International
Corporation in 1987, chairman of Mitsubishi International Corporation in 1990,
president of Mitsubishi Corporation in 1992 and chairman in 1998. Mr. Makihara
became an IBM director in 1997.
[PHOTO OMITTED]
Lucio A. Noto, 60, is chairman and chief executive officer of Mobil Corporation,
an oil, gas and petrochemical company. He is a member of IBM's Audit Committee.
Mr. Noto joined Mobil in 1962 and was elected to Mobil's board in 1988. He was
elected chief financial officer in 1989, president and chief operating officer
in 1993, and to his present position in 1994. He also serves as chairman of
Mobil's executive committee. Mr. Noto is a director of Philip Morris Companies
Inc. He is a member of the Trilateral Commission, the American Petroleum
Institute and a member of the Board of Trustees of the Urban Institute. Mr. Noto
became an IBM director in 1995.
6
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
[PHOTO OMITTED]
John B. Slaughter, 65, 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, Solutia, Inc., and
Northrop Grumman Corporation. He is a member of the National Academy of
Engineering, a member of the American Academy of Arts and Sciences, a fellow of
the American Association for the Advancement of Science, a fellow of the
Institute of Electrical and Electronics Engineers, and a member of the Hall of
Fame of the American Society for Engineering Education. Dr. Slaughter became an
IBM director in 1988.
[PHOTO OMITTED]
Alex Trotman, 65, is retired chairman and chief executive officer of the Ford
Motor Company, an automotive manufacturer. He is a member of IBM's Directors and
Corporate Governance Committee. Mr. Trotman joined Ford of Britain in 1955 and
was elected president of Ford Asia-Pacific in 1983 and chairman of Ford of
Europe in 1988. He became president and chief operating officer of Ford
Automotive Group and a director in 1993. He was chairman and chief executive
officer of the Ford Motor Company from 1993 to 1998. Mr. Trotman is a director
of the New York Stock Exchange and Imperial Chemical Industries PLC. Mr. Trotman
became an IBM director in 1994.
[PHOTO OMITTED]
Lodewijk C. van Wachem, 67, is chairman of the supervisory board of Royal Dutch
Petroleum Company, an oil, gas and petrochemical company. He is chairman of
IBM's Audit Committee and a member of IBM's Executive 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 ABB Asea Brown Boveri Ltd., ATCO Ltd., and
Zurich Financial Services, and a member of the supervisory boards of Akzo Nobel
N.V., Bavarian Motor Works A.G., Bayer A.G. and Philips Electronics N.V. Mr. van
Wachem became an IBM director in 1992.
[PHOTO OMITTED]
Charles M. Vest, 57, is president and professor of mechanical engineering at the
Massachusetts Institute of Technology. He is a member of IBM's Executive
Compensation and Management Resources Committee. Dr. Vest was formerly the
provost and vice president for Academic Affairs of the University of Michigan.
He is a director of E. I. du Pont de Nemours and Company, a fellow of the
American Association for the Advancement of Science, a member of the National
Academy of Engineering and the Corporation of Woods Hole Oceanographic
Institution, and vice chair of the Council on Competitiveness. Dr. Vest became
an IBM director in 1994.
7
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
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. The Board of Directors held 9 meetings
during 1998. Overall attendance at Board and committee meetings was 92 percent.
Attendance was at least 75 percent for each director. Following the Annual
Meeting, the Board will consist of 12 directors. In the interim between Annual
Meetings, the Board has the authority under the By-laws to increase or decrease
the size of the Board and fill vacancies.
The IBM Board has long adhered to governance principles designed to assure the
continued vitality of the Board and excellence in the execution of its duties.
Since 1994, the Board has had in place a set of governance guidelines reflecting
these principles, including the Board's policy of requiring a majority of
independent directors, the importance of equity compensation to align the
interests of directors and stockholders, and the periodic review by the Board in
executive session of its own performance and of the performance of the chief
executive officer.
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.* L.C. van Wachem* N.O. Keohane* C.F. Knight*
N.O. Keohane J. Dormann C. Black K.I. Chenault
C.F. Knight L.A. Noto M. Makihara C.M. Vest
L.C. van Wachem J.B. Slaughter A. Trotman
* Chair
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 did
not meet in 1998.
Audit Committee
The Audit Committee is responsible for reviewing reports of the Company's
financial results, audits, internal 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 their
independence with respect to the services performed for the Company.
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 4 meetings in 1998.
8
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Directors and Corporate Governance Committee
The Directors and Corporate Governance Committee was formed in 1993 and is
devoted primarily to the continuing review and articulation of the governance
structure of the Board of Directors. The 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 workforce
diversity, protection of the environment, and philanthropic contributions, and
it reviews and considers stockholder proposals dealing with issues of public and
social interest. Members of the 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 4 meetings in 1998.
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 candidate's name, biographical data, and qualifications.
Executive Compensation and Management
Resources Committee
The Executive Compensation and Management Resources Committee has responsibility
for administering and approving all elements of compensation for elected
corporate officers and certain other senior management positions. 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 Plans, reviews changes in the IBM Retirement
Plan primarily affecting IBM corporate officers, and manages the operation and
administration of the IBM Extended Tax Deferred Savings Plan and the IBM
Supplemental Executive Retirement Plan. The committee reports to stockholders on
executive compensation items as required by the Securities and Exchange
Commission (page 12). 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 4 meetings in 1998.
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 1998, none of these transactions was
individually significant or reportable.
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, 1998, through June 30, 1999,
at a total cost of $411,199. The primary carrier is Federal Insurance Company.
Directors' Compensation
Directors who are not employees of the Company receive an annual retainer of
$70,000 and each committee chair receives an additional annual retainer of
$5,000. Sixty percent of the annual retainer fees is paid in Promised Fee Shares
of IBM common stock under the Directors Deferred Compensation and Equity Award
Plan (the "DCEAP"). Under the DCEAP, outside directors may defer all or part of
their remaining cash compensation, to be paid either with interest at a rate
equal to the rate on 26-week U.S. Treasury bills updated each January and July,
or in Promised Fee Shares, with dividends used to buy additional Promised Fee
Shares. Promised Fee Shares
9
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
are valued based on the market price of IBM common stock and are payable in the
form of IBM shares or cash. All amounts under the DCEAP are to be paid only upon
retirement or other completion of service as a director. Employee directors
receive no additional compensation for service on the Board of Directors or its
committees.
Under the IBM Non-Employee Directors Stock Option Plan, each outside director
receives an annual grant of options to purchase 2,000 shares of IBM common
stock. The exercise price of the options is the fair market value of IBM common
stock on the date of grant, and each option has a term of ten years and becomes
exercisable in four equal installments commencing on the first anniversary of
the date of grant and continuing for the three successive anniversaries
thereafter. In the event of the retirement (as defined in the plan) or death of
an outside director, all options granted to such director shall become
immediately exercisable. Outside directors are provided group life insurance of
up to $50,000 and travel accident insurance in the amount of $300,000. Directors
are also eligible to participate in the Company's Matching Grants Program on the
same basis as the Company's employees.
The Directors and Corporate Governance Committee of the Board periodically
reviews IBM's director compensation practices and compares them against the
practices of the largest U.S. companies in terms of market capitalization. In
performing this review, the committee focuses on ensuring that the Company's
outside directors have a proprietary stake in the Company and that the interests
of the directors continue to be closely aligned with the interests of the
Company's stockholders. The committee believes that the Company's total director
compensation package continues to be competitive with the compensation offered
by other companies and is fair and appropriate in light of the responsibilities
and obligations of the Company's outside directors.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that during 1998 all reports for the Company's executive
officers and directors that were required to be filed under Section 16 of the
Securities Exchange Act of 1934 were timely filed, except that a report was not
timely filed to reflect a transfer of IBM common stock by Mr. Trotman.
Ownership of Securities--Common Stock
and Total Stock-Based Holdings
The following table reflects shares of IBM common stock beneficially owned by
the named persons, and the directors and executive officers as a group, as of
December 31, 1998.
The table sets forth the beneficial ownership of shares of the Company's common
stock, as well as all other IBM stock-based holdings as of December 31, 1998, by
IBM's current directors and nominees, the executive officers named in the
Summary Compensation Table on page 15, and the directors and officers as a
group, as of December 31, 1998. The table indicates the alignment of these
individuals' personal financial interests with the interests of the Company's
stockholders, because the value of their holdings will increase or decrease in
line with the price of IBM stock.
The table indicates whether voting power and investment power in IBM common
stock 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 the named person could have acquired such powers within 60
days. SINCE SOME SHARES MAY APPEAR UNDER BOTH THE VOTING AND INVESTMENT POWER
COLUMNS, AND SINCE OTHER TYPES OF HOLDINGS ARE LISTED ONLY IN THE STOCK OR TOTAL
COLUMN, THE INDIVIDUAL COLUMNS WILL NOT ADD ACROSS TO THE TOTAL COLUMN.
10
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
Voting Power Investment Power Total Acquirable
--------------------------------------------- Stock-based within 60
Name Sole Shared Sole Shared Stock(1) Holdings(2) Days(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
C. Black 2,000 162 4,660 162 4,822 4,999 1,500
K.I. Chenault 500 0 559 0 559 559 0
J. Dormann 2,000 0 3,253 0 3,253 3,253 1,500
L.V. Gerstner, Jr. 261,892 456 261,892 456 415,388 472,367 1,739,519
N.O. Keohane 0 1,012 9,006 1,012 10,018 11,622 3,000
C.F. Knight 4,936 0 10,143 0 10,143 11,071 3,000
M. Makihara 500 0 1,218 0 1,218 1,218 0
L.A. Noto 1,763 1,936 4,890 1,936 6,826 7,076 3,000
S.J. Palmisano 9,033 160 9,033 160 52,943 57,364 140,761
L.R. Ricciardi 0 17,110 0 17,110 64,610 65,804 89,997
J.B. Slaughter 100 0 7,440 0 7,440 9,420 3,000
R.M. Stephenson 50,819 0 50,819 0 99,192 100,845 43,379
J.M. Thompson 59,515 0 49,233 0 122,413 123,060 85,392
A. Trotman 0 4,000 3,132 4,000 7,132 7,467 3,000
L.C. van Wachem 2,000 0 4,368 0 4,368 5,886 3,000
C.M. Vest 200 0 2,101 0 2,101 2,510 3,000
- ------------------------------------------------------------------------------------------------------------------------------------
Directors and executive
officers as a group (4) 559,200 29,186 525,043 29,186 1,221,799* 1,328,834 3,007,665*
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The total of these two columns represents less than 1% of the outstanding
shares. No individual's beneficial holdings totaled more than 1/4 of 1% of
the outstanding shares. These holdings do not include 2,627,529 shares
held by the IBM Retirement Plan Trust Fund, 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 households. 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.
(1) For executive officers, this column includes shares shown in the "Voting
Power" and "Investment Power" columns, as well as restricted stock units.
For non-employee directors, this column includes shares earned and accrued
under the Directors Deferred Compensation and Equity Award Plan. They have
no voting power over such shares and investment power only with regard to
such shares acquired as a result of deferring fees paid to them.
(2) This column shows the total IBM stock-based holdings, including the
securities shown in the "Stock" column and other IBM stock-based
interests, including, as appropriate, employee contributions into the IBM
Stock Fund under the IBM Extended Tax Deferred Savings Plan ("ETDSP") and
all Company matching contributions under the ETDSP. For non-employee
directors, this column also includes the Promised Fee Shares payable in
cash that were credited to the non-employee directors in connection with
the elimination of pension payments to such directors.
(3) Shares that can be purchased under an IBM stock option plan.
(4) None of the directors or executive officers own any IBM preferred stock.
11
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Report on Executive Compensation
The Executive Compensation and Management Resources Committee (the "Committee")
is responsible for administering the Company's executive compensation policies
and practices, and it approves all elements of compensation for elected
corporate officers and certain other senior management positions. In carrying
out its duties, the Committee has direct access to independent compensation
consultants and outside survey data. The Committee reports regularly to the
Board of Directors on its activities and 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 eligible to participate in any of the plans or programs that it
administers.
Compensation Philosophy and Practices
The Board believes that leadership and motivation of the Company's executives
are critical to establishing IBM's preeminence both in the marketplace and as an
investment for stockholders. The Committee is responsible to the Board for
ensuring that the individuals in executive positions are highly qualified and
that they are compensated in a manner that furthers the Company's business
strategies and aligns their interests with those of the stockholders. To support
this philosophy, the following principles provide a framework for the
compensation program:
o offer competitive total compensation value that will attract the best
talent to IBM; motivate individuals to perform at their highest levels;
reward outstanding achievement; and retain those individuals with the
leadership abilities and skills necessary for building long-term
stockholder value.
o maintain a significant portion of executives' total compensation at risk,
tied both to annual and long-term financial performance of the Company as
well as to the creation of stockholder value.
o encourage executives to manage from the perspective of owners with an
equity stake in the Company.
Beginning in 1994, section 162(m) of the U.S. Internal Revenue Code of 1986
limits deductibility of compensation in excess of $1 million paid to the
Company's chief executive officer and to each of the other four highest-paid
executive officers unless this compensation qualifies as "performance-based."
Based on the applicable tax regulations, any taxable compensation derived from
the exercise of stock options or stock appreciation rights under the IBM 1999
Long-Term Performance Plan and any prior Plans should qualify as
performance-based. In 1995, the Company's stockholders approved terms under
which the Company's annual and long-term incentive compensation should qualify
as performance-based. The Committee also amended IBM's Extended Tax Deferred
Savings Plan to permit an executive officer who is subject to section 162(m) and
whose salary is above $1 million to defer payment of a sufficient amount of the
salary to bring it below the section 162(m) limit. Earlier this year, the
Committee adopted new terms for annual incentive compensation and Long-Term
Performance Incentive awards for the executive officers subject to section
162(m). These terms are being submitted for stockholder approval at this year's
Annual Meeting and are set forth on pages 27 and 35 (at Section 6(e)) of this
proxy statement, respectively. These terms do not preclude the Committee from
making any payments or granting any awards whether or not such payments or
awards qualify for tax deductibility under section 162(m).
The Committee makes annual incentive awards based on its assessment of the
Company's performance as measured against predetermined financial targets,
taking into account various quantitative and qualitative factors. The primary
quantitative factors reviewed by the Committee include such financial measures
as net income, cash flow, earnings-per-share, and market capitalization of the
Company. Among the qualitative factors evaluated by the Committee are the
Company's performance relative to other leading multinational corporations,
progress toward achievement of the Company's short-term and long-term business
goals and the global business and economic environment. In addition, every
executive is expected to uphold and comply with IBM's Business Conduct
Guidelines, which require the individual to maintain the Company's
discrimination-free workplace and high standards of environmental protection.
Upholding the Business Conduct Guidelines contributes to the success of the
individual executive, and to IBM as a whole.
IBM's compensation program for executive officers is targeted to provide highly
competitive total compensation levels (including both annual and long-term
incentives) for highly competitive performance. Compensation is benchmarked
against data developed by independent consultants using surveys of both the
information technology industry and the largest U.S. market-capitalized
companies and is set to reflect the 75th percentile of the compensation
practices of comparator companies. These companies have executive positions
similar to those at
12
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
IBM in magnitude, complexity and scope of responsibility, and they are
representative of the various markets in which IBM competes for executive
talent. This is a broader and more diverse set of companies than those included
in the S&P Computers (Hardware) Index used for the Performance Graph on page 20.
Stock ownership guidelines have been established for members of senior
management to increase their equity stake in the Company and more closely link
their interests with those of the stockholders. These guidelines provide that
within a five-year period senior executives should attain an investment position
in IBM stock or stock units of two to four times the sum of their base salary
and annual incentive target depending on the individual's scope of
responsibilities and the Company's strategic imperatives.
Components of Executive Compensation
The compensation program for executive officers consists of the following
components:
Annual Cash Compensation: includes base salary and any cash incentive or bonus
award earned for the year's performance. Both salary and the annual incentive
target opportunity are established for each executive officer based on job
responsibilities, level of experience, overall business performance and
individual contribution to the business, as well as analyses of competitive
industry practice. Actual annual incentive awards for 1998 are based on an
assessment of these factors and various other quantitative and qualitative
performance factors. Financial measures include net income and cash flow (with
most of the weighting on net income) and directly align executive pay with
Company profitability. Qualitative measures include achievements in areas such
as strategy, product and technology leadership, implementation of key business
programs and customer satisfaction. Final incentive amounts for the named
executive officers are reported in the Summary Compensation Table. Effective
January 1, 1998, the Committee amended the Extended Tax Deferred Savings Plan
(ETDSP) to permit participants to defer up to 15% of pay, in order to maintain
parallel deferral limits between the ETDSP and the qualified all-employee Tax
Deferred Savings Plan.
Long-Term Incentive Compensation: includes stock options, Long-Term Performance
Incentive awards and restricted stock or restricted stock unit awards. The
objectives for these awards are to closely align executive interests with the
longer-term interests of stockholders by encouraging equity participation and to
retain the skills that are critical to the future success of the business. Stock
options and long-term performance incentive opportunities depend on the creation
of incremental stockholder value or the attainment of cumulative financial
targets over three-year periods. These long-term grants represent a significant
portion of the total compensation value provided to executive officers. Award
sizes are based both upon individual performance, level of responsibility and
potential to make significant contributions to the Company, as well as upon
award levels at other companies included in the competitive surveys. In
addition, long-term incentives granted in prior years are taken into
consideration.
o STOCK OPTIONS are generally granted annually to executives and
periodically to other selected employees whose contributions and skills
are critical to the long-term success of the Company. Options are granted
with an exercise price equal to the market price of the Company's common
stock on the date of grant, vest over a period of at least four years and
generally expire after ten years. These options only have value to the
recipients if the price of the Company's stock appreciates after the
options are granted.
o LONG-TERM PERFORMANCE INCENTIVE (LTPI) awards provide senior management
with an incentive linked to both multiple-year corporate financial
performance and stockholder value. Awards are intended to be made annually
in the form of performance stock units. For awards made in 1998 covering
the period 1998-2000, the stock units can be earned based on achieving
cumulative financial goals of earnings-per-share and cash flow (with most
of the weighting on earnings-per-share). Depending on the level of
performance against the three-year goals, payout of the stock units can
range between 0% to 150% of the target awards, as shown in the table on
page 17. The stock units are valued based upon the market price of the
Company's common stock. For LTPI awards made in 1996 covering the
three-year period through 1998, the financial goals were
earnings-per-share and cash flow weighted 80/20. Based on the Company's
performance for this period, 80% of the stock units were earned by the
participants. Payouts for the named executives are reported in the Summary
Compensation Table on page 15.
o RESTRICTED STOCK UNIT awards are designed to provide long-term retention
incentives for certain key members of senior management. These awards are
highly selective, limited to a very small group of executives, and
equity-based so as to tie them directly to stockholder return. The
restriction period is generally five years.
13
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Compensation for the Chairman and Chief Executive Officer
Now in his sixth year as chairman and chief executive officer of IBM, Mr.
Gerstner continues to demonstrate highly effective leadership and unique vision.
Since assuming his role in April of 1993, Mr. Gerstner has returned IBM to
industry strength--continuing to deepen and expand client relationships, core
competencies and IBM's position as the industry's leading solutions and
e-business company. As a result, during his tenure through year-end 1998,
stockholders have experienced a 676% increase in total stockholder return.
IBM's overall performance in 1998 was reflected in the Company's growth in
market capitalization, which grew $69 billion to $169 billion, and in the price
per share of IBM's stock, which increased 76%. IBM achieved record revenues in
1998 of $81.7 billion, record after-tax profit of $6.3 billion and
earnings-per-share improvement of 9% year-to-year (14% at constant currency) to
a record $6.57 per share. This performance demonstrates the strength of IBM's
portfolio in light of continued weak conditions in Asia, global competition and
pricing pressures in key business segments. Some highlights of IBM's individual
business units' performance include 24% year-to-year growth in services revenue
(IBM remains the largest and fastest growing information technology services
company in the world), 8% year-to-year growth in software revenue and 45%
year-to-year growth in Hard Disk Drive (HDD) revenue, all at constant currency.
IBM was able to achieve these results while increasing spending on strategic
initiatives, and while improving IBM's expense-to-revenue ratio and continuing
to advance its position as the leading e-business solutions provider.
The Committee's criteria for determining Mr. Gerstner's compensation are driven
by three factors: the competitive marketplace, the complexity inherent in
leading IBM (because of its size, breadth of product and service offerings,
global reach, technology dependency, number of competitors and the rate/speed of
change in the IT industry) and, most importantly, Mr. Gerstner's performance.
The Committee believes that 1998 performance was exceptional. This is reflected
in Mr. Gerstner's annual incentive award of $7,500,000 for 1998, which is
reported in the "Bonus" column of the Summary Compensation Table on page 15. He
also earned a payout from the 1996-98 LTPI based on the Company's cumulative
financial results over the three-year period.
The terms of Mr. Gerstner's employment agreement, including his annual long-term
performance incentive target opportunity, are described in the section entitled,
"Employment Agreements and Change-in-Control Arrangements" on page 19.
Charles F. Knight (chairman)
Kenneth I. Chenault
Charles M. Vest
14
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Summary Compensation Table
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation (1)
--------------------------------------
Annual Compensation Awards Payouts
- ------------------------------------------------------------------------------------------------------------------------------------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Awards Options(#) Payouts Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr 1998 $1,875,000 $7,500,000 $ 12,384 $ 0 0 $4,145,419 $ 191,250(2)
Chairman 1997 1,500,000 4,500,000 5,081 0 2,200,000 2,094,018 102,600
and CEO 1996 1,500,000 3,270,000 5,938 0 600,000 2,072,567 128,250
J.M. Thompson 1998 612,500 1,000,000 0 0 60,000 1,785,696 43,125(2)
Senior VP 1997 575,000 825,000 0 2,057,500 100,000 1,875,240 29,190
1996 556,250 603,000 0 0 100,000 621,770 166,133
R.M. Stephenson 1998 606,250 850,000 0 0 60,000 1,488,080 42,188(2)
Senior VP 1997 532,501 800,000 0 2,057,500 100,000 1,203,279 26,265
1996 472,500 543,000 0 1,073,750 70,000 414,513 29,925
S.J. Palmisano 1998 481,250 900,000 0 0 60,000 1,160,702 32,588(2)
Senior VP 1997 399,167 605,000 0 2,057,500 80,000 781,350 22,370
1996 375,000 346,500 0 0 48,000 0 24,595
L.R. Ricciardi 1998 492,500 850,000 1,458 0 60,000 1,488,080 38,775(2)
Senior VP and 1997 470,000 800,000 1,412 2,057,500 90,000 1,562,700 568,768
General Counsel 1996 470,000 503,000 1,189 1,073,750 70,000 0 140,444
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) At the end of 1998, Mr. Gerstner held 63,318 performance stock units and
153,040 restricted stock units having a combined value of $39,972,141; Mr.
Thompson held 34,000 performance stock units, 62,898 restricted stock
units and 10,282 shares of restricted stock having a combined value of
$19,801,505; Mr. Stephenson held 32,000 performance stock units and 48,373
restricted stock units having a combined value of $14,848,912; Mr.
Palmisano held 25,800 performance stock units and 43,750 restricted stock
units having a combined value of $12,849,363; and Mr. Ricciardi held
30,000 performance stock units and 47,500 restricted stock units having a
combined value of $14,318,125. Restricted stock and restricted stock units
earn dividends and dividend equivalents at the same rate as dividends paid
to shareholders; otherwise, restricted stock/unit awards have no value to
the recipient until the restrictions are released. No dividend equivalents
are paid on outstanding performance stock units.
(2) Represents the Company's contributions to the IBM Tax Deferred Savings
Plan ("TDSP") and the Extended Tax Deferred Savings Plan ("ETDSP").
15
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Stock Option/SAR Grants in Last Fiscal Year(1)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Individual Grants
----------------------------------------------------------
Potential Realizable Value at
Number % of Total Assumed Annual Rates of
of Securities Options/SARs Stock Price Appreciation for
Underlying Granted to Exercise Ten-Year Option Term (3)
Options/SARs Employees in Price Expiration -------------------------------------------------
Name Granted(2) Fiscal Year per Share Date 0% 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 0 0.00% $ 0.00 0 $0 $ 0 $ 0
J.M. Thompson 60,000 0.29% 102.31 2/23/08 0 3,860,400 9,783,600
R.M. Stephenson 60,000 0.29% 102.31 2/23/08 0 3,860,400 9,783,600
S.J. Palmisano 60,000 0.29% 102.31 2/23/08 0 3,860,400 9,783,600
L.R. Ricciardi 60,000 0.29% 102.31 2/23/08 0 3,860,400 9,783,600
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in market value of IBM common stock for all stock- 5% (to $167/share) 10% (to $265/share)
holders at assumed annual rates of stock price appreciation ----------------- -------------------
(as used in the table above) from $102.31 per share, over $58.9 billion $149.3 billion
the ten-year period, based on 915.9 million shares outstanding
on December 31, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No Stock Appreciation Rights (SARs) were granted to the named executive
officers during 1998.
(2) Included in the total aggregate exercise price for the grants made to each
of Messrs. Thompson, Stephenson, Palmisano and Ricciardi is approximately
$100,000 of Incentive Stock Options, which become exercisable along with
the balance of their grants in four equal installments commencing on the
first anniversary date.
(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
$102.31 per share price with a 5% annual growth rate results in a stock
price of $166.65 per share and a 10% rate results in a price of $265.37
per share. Actual gains, if any, on stock option exercises are dependent
on the future performance of the stock.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Shares Options/SARs at Fiscal Year-End SARs at Fiscal Year-End
Acquired on Value ---------------------------------------------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 301,386 $32,801,922 1,540,188 2,398,292 $208,539,653 $226,792,857
J.M. Thompson 74,607 5,668,270 25,394 205,001 2,863,340 22,411,612
R.M. Stephenson 70,018 3,318,315 0 180,882 0 19,246,198
S.J. Palmisano 20,526 2,398,500 106,932 175,832 14,207,413 18,348,247
L.R. Ricciardi 75,527 7,006,211 57,499 186,974 6,782,837 20,159,219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Long-Term Incentive Plans-Awards in Last Fiscal Year
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Performance or Estimated Future Payouts under
Number of Other Period Non-Stock Price-Based Plans(1)
Shares, Units Until Maturation ----------------------------------------------------------------------
Name or Other Rights or Payout Threshold (#)(2) Target (#) Maximum (#)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L.V. Gerstner, Jr. 14,662 1/98-12/00 3,666 14,662 21,993
J.M. Thompson 10,000 1/98-12/00 2,500 10,000 15,000
R.M. Stephenson 10,000 1/98-12/00 2,500 10,000 15,000
S.J. Palmisano 10,000 1/98-12/00 2,500 10,000 15,000
L.R. Ricciardi 10,000 1/98-12/00 2,500 10,000 15,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Long-Term Performance Incentive (LTPI) awards are denominated in
Performance Stock Units (PSUs), which are equivalent in value to IBM
common stock. PSUs are earned for achieving specified cumulative business
objectives of earnings-per-share and cash flow, weighted 80/20
respectively, over a three-year performance period beginning 1/1/98 and
ending 12/31/00. Performance against each of the targets will be subject
to separate payout calculations. The target number of performance stock
units will be earned if 100% of the objectives are achieved. The threshold
number will be earned for the achievement of 70% of the objectives, and
the maximum number will be earned for achieving 120% of the objectives. No
payout will be made for performance below the threshold.
After the performance period, one-half of the earned performance stock
units will be paid in cash. The cash value for each performance stock unit
will be equal to the average closing price of one share of IBM common
stock for the month of January 2001. The balance of the performance stock
units will be paid in an equivalent number of stock units, which will be
restricted for a two-year period ending 12/31/02.
(2) The amounts in this column represent the threshold number that can be
earned if 70% attainment of both business objectives is achieved. In the
event that only one objective is achieved (at the 70% level), then the
number of performance stock units earned would be 80% of the threshold
number based on earnings-per-share achievement or 20% based on cash flow
achievement.
17
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Retirement Plans
Retirement benefits are provided to the executive officers of the Company,
including the named executive officers, under a funded, tax-qualified defined
benefit pension plan known as the IBM Retirement Plan and an unfunded,
non-qualified defined benefit pension plan known as the Supplemental Executive
Retirement Plan (collectively, the "Plans").
The following table sets out the estimated annual pension benefit payable under
the Plans for a participant at age 65, for various levels of average annual
compensation (as defined below) and years of service, as supplemented in the
case of Mr. Gerstner by a separate arrangement.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Five Year Years of Service
Average ---------------------------------------------------------------------------------------------------
Compensation 5 15 20 25 30 35
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 17,340 $ 52,020 $ 69,360 $ 82,360 $ 95,360 $ 102,860
400,000 42,840 128,520 171,360 197,360 223,360 238,360
600,000 68,340 205,020 273,360 312,360 351,360 373,860
800,000 93,840 281,520 375,360 427,360 479,360 509,360
1,000,000 119,340 358,020 477,360 542,360 607,360 644,860
1,500,000 183,090 549,270 732,360 829,860 927,360 983,610
2,000,000 246,840 740,520 987,360 1,117,360 1,247,360 1,322,360
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of the Plans, average annual compensation is equal to the average
annual salary and bonus over the final five years of employment or the highest
consecutive five calendar years of compensation, whichever is greater. The
annual salary and bonus for the current year for the named executive officers is
indicated in the Annual Compensation column of the Summary Compensation Table.
The years of service for each of the named executive officers under the Plans,
as of December 31, 1998, are: Mr. Gerstner, 5 years; Mr. Thompson, 32 years; Mr.
Stephenson, 36 years; Mr. Palmisano, 25 years; and Mr. Ricciardi, 3 years. No
additional benefits are payable under the Plans for years of service in excess
of 35 years.
Benefits under the Plans are computed on the basis of a single life annuity and
are payable, subject to reduction, in any annuity form permitted under the IBM
Retirement Plan. Benefits are paid from the trust under the IBM Retirement Plan,
to the extent permitted by law, and are not subject to reduction for Social
Security benefits or other offset amounts.
Mr. Gerstner's annual pension from the Company under his employment agreement
has been set at approximately $1,140,000 at age 60, when his employment
agreement expires.
Other Deferred Compensation Plans
The IBM Tax Deferred Savings Plan (the "TDSP") allows all eligible employees to
defer up to 15% of their income on a tax-favored basis into a tax exempt trust
pursuant to Internal Revenue Service guidelines. IBM matches these deferrals at
the rate of 50% for the first 6% of compensation deferred. The employee accounts
are invested by the plan trustee in a selection of investment funds, including
an IBM Stock Fund, as directed by the employees. Corporate officers participate
in the TDSP on the same basis as all other employees.
18
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Internal Revenue Service limits on the TDSP preclude an annual investment of
more than $10,000 or an eligible compensation base of more than $160,000 for any
one employee.
IBM established the Extended Tax Deferred Savings Plan (the "ETDSP") in 1995.
The ETDSP allows any U.S. executive, including officers, to defer additional
monies and receive a Company match on the same basis as the TDSP except that the
Company match for the ETDSP is credited only in units of IBM common stock, which
are not transferable to other investment alternatives during employment. In
addition, participants can defer all or a portion of their annual incentive
until retirement under the ETDSP. In the event that the salary of a Company
officer who is subject to the limits of section 162(m) of the Code exceeds
$1,000,000, such officer may defer up to 100 percent of his or her salary. The
ETDSP is not funded and participants are general creditors of the Company. All
investments in the ETDSP earn income based on the results of the actual TDSP
funds' performance, but the income is paid out of Company funds rather than the
actual returns on a dedicated investment portfolio.
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. Effective January 1, 1996, the employment agreement was amended to
provide that Mr. Gerstner's annual salary is at least $1,500,000, his annual
incentive target award opportunity is at least $2,000,000, and his annual
long-term performance incentive target award opportunity is at least $1,500,000.
In addition, the agreement provides Mr. Gerstner with an annual pension at age
60 from IBM of approximately $1,140,000.
Effective November 17, 1997, the agreement was further amended to provide that
Mr. Gerstner will become a consultant to the Company for a period of 10 years
following his retirement. During this period, he will receive a daily consulting
fee based on his daily salary rate at the time of his retirement plus reasonable
expense reimbursement, and he will adhere to Company rules prohibiting
competition, solicitation of employees and other activities detrimental to the
Company. In addition, he will continue to have use of Company facilities and
services, such as aircraft, cars, office, and financial planning. He will also
be treated as a retired employee of IBM for purposes of retiree medical benefit
coverage for him and his spouse and the vesting and payout terms of awards
pursuant to the Long-Term Performance Plan. He receives these benefits only if
he remains until age 60, leaves earlier with the consent of the Board, becomes
disabled or is terminated without cause. If he leaves the Company before age 60
with the consent of the Board, he will receive the benefits to which the March
1993 agreement otherwise entitled him for a termination without cause. This
amendment also provides that his base salary prior to the January 1, 1996,
amendment (and any increases in his base salary) will be deemed to be his base
salary for purposes of the guaranteed payments he would receive pursuant to the
agreement in the event of a termination without cause. It is not possible to
predict the value of the consulting agreement or the other benefits described
above. The foregoing description has been provided on the assumption that such
value may exceed $100,000.
In the event of termination without cause, or due to a "change-in-control" of
the Company, as defined in the agreement, Mr. Gerstner would receive 36 months'
salary, prorated incentive payments, the right to exercise all stock options,
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, that
provide for their continuing service.
19
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Performance Graph
Comparison of Five-Year Cumulative Total Return for IBM, S&P 500 Stock Index,
and S&P Computers (Hardware) Index (excluding IBM)
[GRAPHIC OMITTED]
1993 1994 1995 1996 1997 1998
IBM Common Stock 100 132.27 166.73 278.73 388.34 689.20
S&P 500 Stock Index 100 101.32 139.40 171.41 228.59 293.92
S&P Computers (Hardware)
Index (excluding IBM) 100 133.60 198.57 257.33 388.29 673.03
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 Computers (Hardware) Index
(excluding IBM), shown above, is such an index. Prior to June 1996, the S&P
Computers (Hardware) Index had been known as the S&P Computer Systems Index.
The graph assumes $100 invested on December 31, 1993, 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.
20
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
2. Ratification of Appointment of Auditors
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP,
independent accountants, to be IBM's auditors for the year 1999 and recommends
to stockholders that they vote for ratification of that appointment.
PricewaterhouseCoopers LLP served in this capacity for the year 1998. 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 also reviews and approves proposed
nonaudit services to ensure that they will not impair the independence of the
accountants.
Before making its recommendation to the Board for appointment of
PricewaterhouseCoopers LLP, 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 PricewaterhouseCoopers LLP in all of these respects. The
committee's review included inquiry concerning any litigation involving
PricewaterhouseCoopers LLP and any proceedings by the Securities and Exchange
Commission against the firm. In this respect, the committee has concluded that
the ability of PricewaterhouseCoopers LLP to perform services for the Company is
in no way adversely affected by any such investigation or litigation.
THE IBM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
21
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
3. Amendment of the Certificate of Incorporation to Increase Authorized Shares
and Effect a Two-for-One Common Stock Split
On January 26, 1999, the Board of Directors unanimously adopted a resolution
declaring it advisable to amend the Company's Certificate of Incorporation to
increase the number of shares of stock that the Company has the authority to
issue to an aggregate of 4,837,500,000 shares, of which 4,687,500,000 would be
capital stock, $0.20 par value per share ("common stock"), and 150,000,000 of
which would continue to be preferred stock, $0.01 par value per share (the
"Amendments"). The Board of Directors further directed that the Amendments be
submitted for consideration by stockholders at the Company's Annual Meeting. In
the event the Amendments are approved by stockholders, the Company will amend
the Certificate of Incorporation (the "Certificate") with the New York State
Secretary of State. These Amendments will become effective at the close of
business on the date the Certificate is accepted for filing by the Secretary of
State. The text of Article THREE of the Certificate, as proposed to be amended,
is set forth in Appendix A, on page 31 of this proxy statement.
On January 26, 1999, the Board of Directors also unanimously adopted a
resolution authorizing and declaring, subject to approval by stockholders of the
Amendments, a two-for-one stock split, which split will provide one share of
common stock for each authorized share of common stock issued and reserved for
issuance to common stockholders of record at the close of business on May 10,
1999 (the "Stock Split Record Date").
In the event stockholders approve the Amendments, the Company will amend Article
THREE of the Company's Certificate to increase the number of shares of common
stock which the Company is authorized to issue from 1,875,000,000 to
4,687,500,000 and decrease the par value per share of such stock from $0.50 per
share to $0.20 per share. This change to the par value has been recommended by
the Board in order to permit the Company to save a significant amount of fees
which would otherwise be payable under state law upon the filing of the
Certificate with the increase in the number of authorized shares of common stock
requested by these Amendments. APPROVAL OF THE AMENDMENTS WILL ALSO PERMIT THE
COMPANY TO EFFECT THE SPLIT OF THE COMMON STOCK OF THE COMPANY. STOCKHOLDER
APPROVAL OF AN INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK IS
REQUIRED IN ORDER FOR THE PROPOSED TWO-FOR-ONE STOCK SPLIT TO BE EFFECTED, AND
IF THE PROPOSED AMENDMENTS TO THE COMPANY'S CERTIFICATE ARE NOT APPROVED BY THE
STOCKHOLDERS, THE STOCK SPLIT CANNOT BE EFFECTED. If the proposed Amendments to
the Certificate are adopted, each share of common stock held of record as of the
close of business on the Stock Split Record Date will be changed into two shares
of common stock. As a result of the change in par value, an amount equal to
$0.30 for each issued share of common stock (prior to the stock split) will be
reclassified from stated capital to surplus. As a result of the stock split, an
amount equal to the new par value of $0.20 per share of common stock for each
share issued in the stock split will be transferred back to stated capital. In
each case, there will be no change in the Company's total paid-in capital. The
split of the Company's common stock will also include shares reserved for
issuance under various stock option and other plans, including all shares of
common stock authorized for issuance under the IBM 1999 Long-Term Performance
Plan which is being submitted for stockholder approval (the "1999 LTPP," see
pages 25-26 and Appendices B and C hereto), as well as those shares held by the
Company as Treasury shares.
As of December 31, 1998, there were 926,869,052 shares of issued common stock,
of which 915,906,906 were outstanding, 10,000,000 were held in an employee
benefits trust and 962,146 were Treasury shares. Of the 948,130,948 authorized
but unissued shares, a total of 138,249,666 shares were reserved for issuance
under Company stock purchase, option and other benefit plans for employees and
directors, and the remaining 809,881,282 shares were unreserved. Shares issued
pursuant to the proposed stock split will have the same rights as currently
outstanding shares of common stock. Holders of common stock do not have
preemptive rights to subscribe to additional securities that may be issued by
the Company. This means that current stockholders do not have a prior right to
purchase any new issue of common stock of the Company in order to maintain their
proportionate ownership interest.
The Board believes that the proposed two-for-one split of the common stock will
result in a market price that should be more attractive to a broader spectrum of
investors, particularly individual investors. Based on figures as of December
31, 1998, of the 4,687,500,000 shares of common stock which would be authorized,
1,853,738,104 shares would be required to effectuate the two-for-one
22
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
split of the common shares issued. The aggregate number of shares that may be
sold under each of the Company's stock option, employee benefit and incentive
plans, the number of shares covered by outstanding options and restricted stock
awards under such Plans, and the exercise price of such options, will also be
proportionately adjusted to reflect the stock split. For example, the stock
split will have the effect of doubling the number of shares of common stock
issuable upon exercise of options and other rights granted under the Company's
stock and option plans, and of reducing by one-half the option price per share
of such options and rights. The number of shares of restricted stock granted to
Company employees and directors and common stock equivalents held by directors,
officers and employees, will also be doubled accordingly.
The Board of Directors also believes that it is in the Company's best interest
to increase the number of authorized but unissued shares of common stock in
order to have additional shares available to meet the Company's future business
needs as they arise. Other than the shares which are required to effect the
stock split, the Company's management has no present arrangements, agreements,
understandings or plans for the use of the additional shares proposed to be
authorized by the Amendments. The Board believes the availability of such
additional shares will provide the Company with the flexibility to issue common
stock for a variety of other purposes the Board of Directors may deem advisable
without further action by the Company's stockholders, unless required by law,
regulation or stock exchange rule. These purposes could include, among other
things, the sale of stock to obtain additional capital funds, the purchase of
property, the acquisition or merger into the Company of other companies, the use
of additional shares for various equity compensation and other employee benefit
plans, the declaration of stock splits or distributions, and other bona fide
corporate purposes. In some situations, the issuance of additional shares of
common stock could have a dilutive effect on earnings per share, and, for a
person who does not purchase additional shares to maintain his or her pro rata
interest, on a stockholder's percentage voting power in the Company.
Although an increase in the authorized shares of common stock could, under
certain circumstances, also be construed as having an anti-takeover effect (for
example, by diluting the stock ownership of a person seeking to effect a change
in the composition of the Board of Directors or contemplating a tender offer or
other transaction for the combination of the Company with another company), we
are not proposing to amend the Certificate in response to any effort to
accumulate the Company's stock or to obtain control of the Company by means of a
merger, tender offer, or solicitation in opposition to management. In addition,
this proposal is not part of any plan by management to recommend a series of
similar amendments to the Board of Directors and the stockholders. Finally, the
Board does not currently contemplate recommending the adoption of any other
amendments to the Certificate which could be construed to affect the ability of
third parties to take over or change control of the Company.
In addition to the Company's common stock, the Company's Certificate currently
empowers the Board of Directors to authorize the issuance of one or more series
of preferred stock without stockholder approval. Pursuant to this authorization,
the Company has issued one series of preferred stock, and, as of December 31,
1998, a total of 2,546,011 shares of Series A 7 1/2% preferred stock were
outstanding. No change to the Company's preferred stock authorization is
requested by the Amendments. Existing Series A preferred stockholders do not
have preemptive rights, nor any other participatory rights with respect to the
matters covered by this proposal.
In the event this proposal is approved, certificates representing shares of the
Company's common stock issued prior to the time the stock split becomes
effective will continue to represent the same number of shares of the Company's
stock as they did prior to such time. Each common stockholder of record at the
close of business on the Stock Split Record Date will be entitled to receive one
additional share of common stock for each share of common stock held on such
date. Distribution of the additional shares is presently expected to occur on
May 26, 1999, and will be effected in book-entry form, through the mailing of an
account statement to each stockholder of record as of the Stock Split Record
Date, crediting the additional shares of common stock as a result of the stock
split. Stockholders of record as of the Stock Split Record Date may request a
physical certificate from the Company's transfer agent for the additional shares
they are entitled to receive as a result of the stock split. In the event this
proposal is approved, additional instructions will be mailed to stockholders on
or about May 26, 1999.
EXISTING CERTIFICATES WILL CONTINUE TO REPRESENT THE SAME NUMBER OF SHARES
LISTED ON THE CERTIFICATES. EXISTING CERTIFICATES WILL NOT BE EXCHANGED FOR NEW
CERTIFICATES. PLEASE DO NOT RETURN ANY CERTIFICATES TO THE COMPANY OR OUR
TRANSFER AGENT.
23
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
If this proposal is approved, the Company will also apply to the New York Stock
Exchange, as well as various other exchanges upon which the Company's common
stock is listed, for the continued listing of the Company's common stock on a
split basis.
The Company has been advised by competent counsel that under U.S. federal income
tax laws the receipt of additional shares of common stock in the stock split
will not constitute taxable income to stockholders. In addition, the cost or
other tax basis to a stockholder of each old share held immediately before the
split will be divided equally between the corresponding two shares held
immediately after the split, and the holding period for each of the two shares
will include the period for which the corresponding old share was held. The laws
of jurisdictions other than the United States may impose income taxes or other
fees on the receipt of additional shares resulting from the split. Stockholders
subject to such other laws should consult with their own financial advisors for
additional information.
If a stockholder elects to sell or purchase shares of the Company's common stock
following the stock split, stock transfer taxes, if applicable, may be higher in
a transaction involving an equivalent aggregate market value, because of the
greater number of shares involved, and the brokerage commissions associated with
such activities may also be higher. Stockholders may wish to determine from
their brokers the taxes and commissions applicable for the additional number of
shares.
SINCE WE BELIEVE THE AMENDMENTS AND THE STOCK SPLIT ARE IN THE BEST INTEREST OF
THE COMPANY AND ITS STOCKHOLDERS, THE IBM BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THIS PROPOSAL.
24
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
4. Adoption of the IBM 1999 Long-Term Performance Plan
The Board of Directors has adopted the IBM 1999 Long-Term Performance Plan
("1999 LTPP"), and joins with the Company's management in asking for your
support of this proposal. Competition for key employees is very intense and to
secure top talent, the Company needs to have competitive compensation programs,
including equity-based awards. The use of stock options and other stock awards
among information technology companies is widely prevalent and continues to
increase, and the Company has found that its use of equity for awards falls
behind the usage by others in the industry. The 1999 LTPP is integral to the
Company's compensation strategies and programs, and with stockholder approval of
the 1999 LTPP, the Company expects to continue its efforts to expand the use of
stock options, particularly among non-executive employees with critical skills.
The 1999 LTPP permits the grant of any form of award, including, but not limited
to, stock options, stock appreciation rights ("SARs") and stock and cash awards,
whether granted singly, in combination or in tandem. During any five-year
period, no participant may receive stock options or SARs with respect to an
aggregate of more than 5,000,000 shares. Stock options will be granted at an
exercise price of not less than 100% of fair market value (as defined in the
plan) on the date of grant and it is expected that options and SARs will
typically be granted for periods of 10 years or less. The 1999 LTPP also permits
the grant of other awards in stock or denominated in units of stock, which may
be subject to restrictions on transfer and/or forfeiture provisions. The maximum
number of shares of common stock that may be issued under stock awards under the
1999 LTPP will not exceed 20% of the aggregate number of shares available for
issuance under the 1999 LTPP.
If approved by stockholders, the Board has authorized for issuance under the
1999 LTPP 59,335,650 shares of common stock, which is 6.5% of the Company's
outstanding shares of common stock on February 10, 1999. The closing price of
the Company's common stock on the New York Stock Exchange that day was $168.875
per share. In addition, any shares previously authorized by stockholders for
awards under prior Company long-term performance plans which are still available
for issuance or which either wholly or in part were not earned, or that expired
or were forfeited, terminated, canceled, settled in cash, payable solely in cash
or exchanged for other awards shall be available for issuance under the 1999
LTPP. Subject to stockholder approval of Proposal 3, as set forth beginning on
page 22, the shares available for issuance under the 1999 LTPP shall be doubled
to reflect the proposed two-for-one stock split.
For purposes of determining the number of shares of common stock issued under
the 1999 LTPP, no shares shall be deemed issued until they are actually
delivered to a participant, or such other person in accordance with Section 10
of the 1999 LTPP. Shares covered by awards that either wholly or in part are not
earned, or that expire or are forfeited, terminated, canceled, settled in cash,
payable solely in cash or exchanged for other awards, shall be available for
future issuance under awards. Further, shares tendered to or withheld by the
Company in connection with the exercise of stock options, or the payment of tax
withholding on any award, shall also be available for future issuance under
awards.
It is intended that the 1999 LTPP will generally be administered by the
Executive Compensation and Management Resources Committee (or any successor
committee), which is constituted in compliance with the rules and regulations
issued under the federal securities laws and the Internal Revenue Code. In
administering the 1999 LTPP, the Committee has the full power to select
participants, to interpret the provisions of the plan, to grant waivers of award
restrictions, to continue or accelerate the exercisability, vesting or payment
of an award and to adopt such rules, regulations and guidelines for carrying out
the 1999 LTPP as it may deem necessary or proper. The Committee may delegate
certain of its duties, power and authority to officers of the Company, pursuant
to such conditions and limitations as the Committee may establish. The 1999 LTPP
may be amended by the Board, except that it may not be amended to increase the
maximum number of shares that may be issued under the 1999 LTPP (except for
adjustments pursuant to Section 14 of the 1999 LTPP) or to permit the granting
of stock options or stock appreciation rights with exercise or grant prices
lower than those specified in Section 6 of the 1999 LTPP, without stockholder
approval.
25
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Awards under the 1999 LTPP may be made to employees of, and other individuals
providing services to, the Company. Participants in the 1999 LTPP will be
recommended by their management, and the Committee intends to review and act on
all 1999 LTPP grants and awards for elected officers and certain other senior
management positions. The Committee has previously delegated certain of its
authority to make grants and awards, waive restrictions and take other actions
under the Company's prior or future long-term performance plans. As the
participants in the 1999 LTPP will be selected by the Committee and management
in their discretion, it is not possible to indicate the number or names of
positions or participants who may be eligible for awards under the 1999 LTPP and
no allocation or other determination has been made as to the types or amounts of
awards that may be made. During 1998, options to purchase 20,587,675 shares were
granted to employees, including options to purchase 695,100 shares granted to
current executive officers as a group. In 1998, the number of performance stock
units representing Long-Term Performance Incentive awards granted to all
participants and current executive officers was 563,112 and 120,512,
respectively. A total of 153,249 restricted stock units were granted in 1998,
including 42,500 units to current executive officers. Further, 26,125 shares of
restricted stock were granted to employees, none of which were granted to
current executive officers. For additional information on awards in 1998 to the
named executive officers, refer to the tables on pages 16-17. No awards under
the Company's long-term performance plans were made to directors who are not
executive officers.
As discussed in the Report on Executive Compensation, the 1999 LTPP has been
designed to meet the requirements of section 162(m) of the Internal Revenue Code
for stock options and SARs. In addition, the 1999 LTPP contains performance
criteria for future long-term incentive awards to qualify those awards for tax
deductibility under section 162(m). Those criteria consist of objective tests
based on one or more of the following: earnings, cash flow, customer
satisfaction, revenues, financial return ratios, market performance, shareholder
return and/or value, operating profits, net profits, earnings per share, profit
return and margins, stock price and working capital. The formula for any such
award may include or exclude items to measure the specific objectives, such as
losses from discontinued operations, extraordinary gains and losses, the
cumulative effect of accounting changes, acquisitions or divestitures, foreign
exchange impacts and any unusual, nonrecurring gain or loss. These terms apply
to "covered employees" as defined in section 162(m), which included the
Company's chief executive officer and the four other most highly compensated
executive officers of the Company. Under these terms, no covered employee may
receive more than 200,000 shares or share equivalents (stock units), subject to
adjustment for changes in corporate capitalization, such as stock splits. For
purposes of this maximum, if an award is denominated in cash rather than in
shares, the equivalent will be determined by dividing the highest amount that
the award could be under the formula for that year by the closing price of a
share of stock on the first trading day of the applicable performance period. As
discussed above, awards under these terms will be based upon the Company's
future performance, and no incentive compensation under these terms has yet been
awarded or earned by any covered executive. Accordingly, the amount of long-term
incentive compensation to be paid in the future to the Company's current and
future covered executives under these terms cannot be determined at this time,
as actual amounts will depend on the size of such awards, on actual performance
and on the Compensation Committee's discretion to reduce such amounts. For an
understanding of the size and structure of these awards in the past, see the
Long-Term Incentive Plans--Awards in Last Fiscal Year table on page 17. Nothing
in these terms precludes the Compensation Committee from making any payments or
granting any awards whether or not such payments or awards qualify for tax
deductibility under section 162(m).
The foregoing summary of the terms and features of the 1999 LTPP is qualified by
reference to the 1999 LTPP itself. The 1999 LTPP is printed in its entirety as
Appendix B beginning on page 33 and the federal income tax consequences of the
issuance and exercise of options and SARs are summarized in Appendix C beginning
on page 39. THE IBM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS
PROPOSAL.
26
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
5. Approval of Annual Incentive Compensation Terms for Certain Executives
Under section 162(m) of the Internal Revenue Code of 1986, in order for
compensation in excess of $1,000,000 paid in any year to the Company's chief
executive officer or any of the Company's four other most highly compensated
executive officers named in the proxy statement (the "covered executives") to be
deductible by the Company, such compensation must qualify as
"performance-based." The Executive Compensation and Management Resources
Committee (the "Compensation Committee") of the Board of Directors has adopted
the following terms, subject to stockholder approval, under which annual
incentive compensation to be paid to the covered executives as they may be
constituted from time to time would be performance-based for purposes of
exemption from the limitations of section 162(m).
Each year, each covered executive may be entitled to a maximum award equal to
three-tenths of one percent of the Company's earnings before income taxes as
reported in the Company's consolidated financial statements, but before taking
into account any losses from discontinued operations, extraordinary gains or
losses, the cumulative effect of accounting changes and any unusual,
nonrecurring gain or loss. In administering the incentive program and
determining incentive awards, the Compensation Committee will not have the
flexibility to pay a covered executive more than the incentive amount indicated
by this formula. The Compensation Committee will have the flexibility to reduce
this amount in its complete discretion. If stockholders do not approve these
terms, payments that would have been made pursuant to the Compensation
Committee's action on this proposal will not be made. Nothing in these terms
precludes the Compensation Committee from making any payments or granting any
awards whether or not such payments or awards qualify for tax deductibility
under section 162(m).
As discussed above, awards under the terms adopted by the Compensation Committee
will be based on the Company's future performance, and no incentive compensation
under these terms has yet been earned by any covered executive, as the
performance periods have not yet been completed. Accordingly, the amount of
annual incentive compensation to be paid in the future to the Company's current
or future covered executives cannot be determined at this time, as actual
amounts will depend on actual performance and on the Compensation Committee's
discretion to reduce such amounts. Had this proposal been in effect for 1998,
the Compensation Committee believes that the annual incentives that would have
been paid would have been essentially the same as those actually earned in 1998
by the Company's current covered executives, as reported in the Summary
Compensation Table on page 15.
THE IBM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
27
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
6. Stockholder Proposals
Stockholder proposals may be submitted for inclusion in IBM's 2000 proxy
material after the 1999 Annual Meeting but must be received no later than 5 p.m.
EST on November 17, 1999. Proposals should be sent via registered, certified, or
express mail to: Office of the Secretary, International Business Machines
Corporation, New Orchard Road, Armonk, N.Y. 10504.
Management carefully considers all proposals and suggestions from stockholders.
When adoption is clearly in the best interest 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, inclusion of a table
of contents, proponent disclosure, and secrecy of stockholder voting.
MANAGEMENT OPPOSES THE FOLLOWING PROPOSAL FOR THE REASONS STATED AFTER THE
PROPOSAL.
Stockholder Proposal on Executive Compensation
Management has been advised that Mrs. Evelyn Y. Davis, Watergate Office
Building, 2600 Virginia Avenue, N.W., Suite 215, Washington, D.C. 20037, the
owner of 100 shares, intends to submit the following proposal at the meeting:
RESOLVED: "That the stockholders recommend that the Board take the necessary
step that IBM specifically identify by name and corporate title in all future
proxy statements those executive officers, not otherwise so identified, who are
contractually entitled to receive in excess of $250,000 annually as a base
salary, together with whatever other additional compensation bonuses and other
cash payments were due them."
REASONS: "In support of such proposed Resolution it is clear that the
shareholders have a right to comprehensively evaluate the management in the
manner in which the Corporation is being operated and its resources utilized."
"At present only a few of the most senior executive officers are so identified,
and not the many other senior executive officers who should contribute to the
ultimate success of the Corporation." "Through such additional identification
the shareholders will then be provided an opportunity to better evaluate the
soundness and efficacy of the overall management."
"Last year the owners of 38,211,948 shares, representing approximately 6.3% of
shares voting, voted FOR this proposal."
"If you AGREE, please mark your proxy FOR this proposal."
- --------------------------------------------------------------------------------
THE IBM BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
The Company provides disclosure of executive compensation information each year
in full compliance with the regulations of the Securities and Exchange
Commission. Under these same regulations, the Company already provides detailed
information about the overall compensation arrangements of the Company's
chairman and chief executive officer, as well as its four other highest paid
executive officers. The Executive Compensation and Management Resources
Committee of the Board, which is comprised solely of non-employee directors,
reviews and approves the compensation of all executive officers of the Company.
Since the proposal attempts to impose future obligations beyond what is required
by the law, as well as beyond what other companies disclose, the Board believes
the proposal should be rejected. The Board believes that the existing disclosure
adequately and fairly describes the compensation structure for IBM's executive
officers as well as furnishes an informed basis for IBM stockholders to evaluate
the Company's use of compensation to motivate and retain its key personnel. THE
BOARD THEREFORE UNANIMOUSLY RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
28
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Other Business
Management knows of no other matters that may properly be, or are likely to be,
brought before the meeting. If other matters are introduced at the meeting, the
individuals named as proxies on the enclosed proxy card are also authorized to
vote upon such matters utilizing their own discretion. Under the terms of the
Company's By-laws, stockholders who intend to present an item of business at the
2000 annual meeting of stockholders (other than a proposal submitted for
inclusion in the Company's proxy materials) must provide notice of such business
to the Company's secretary no earlier than October 18, 1999 and no later than
November 17, 1999, as set forth more fully in such By-laws.
Proxies and Voting at the Meeting
The $.50 par value capital stock of the Company (its common stock) is its only
class of security entitled to vote at the April 27, 1999, meeting. Each
stockholder of record at the close of business on March 1, 1999 (the "Record
Date"), is entitled to one vote for each share held at the meeting, or any
adjournment thereof. On February 10, 1999, there were 922,856,167 common shares
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, to approve each of the IBM
1999 Long-Term Performance Plan and the Annual Incentive Compensation Terms for
Certain Executives, and to recommend that the Board consider adoption of a
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 current state law requirements and IBM's Certificate of
Incorporation and By-laws. The amendment of the Company's Certificate of
Incorporation requires the favorable vote of the holders of a majority of all
outstanding shares of common stock of the Company, pursuant to the requirements
of the New York Business Corporation Law.
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, IBM's state of incorporation. Votes are counted by employees of
First Chicago Trust Company, 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, shares are voted
using the Internet or the telephone, 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 of record wishes to
give a proxy to someone other than the individuals named as proxies on the proxy
card, 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. Shares will be voted in accordance with such
instructions. 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.
Alternatively, in lieu of returning signed proxy cards, IBM stockholders of
record can vote their shares over the Internet, or by calling a specially
designated telephone number. These new Internet and telephone voting procedures
are designed to authenticate stockholders' identities, to allow stockholders to
provide their voting instructions, and to confirm that their instructions have
been recorded properly. IBM has been advised by competent counsel that the
procedures which have been put in place are consistent with the requirements of
applicable law. Specific instructions for stockholders of record who wish to use
the Internet or telephone voting procedures
29
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
are set forth on the enclosed proxy card. A proxy may be revoked at any time
prior to the voting at the meeting by submitting a later dated proxy (including
a proxy via the Internet or by telephone) or by giving timely written notice of
such revocation to the Secretary of the Company.
The proxy card covers the number of shares to be voted, including any shares
held for participants in the IBM Investor Services Program and Employees Stock
Purchase Plans. For those stockholders who are participants in the IBM Stock
Fund investment alternative under the IBM Tax Deferred Savings Plan (the
"TDSP"), the enclosed proxy card also serves as a voting instruction to the
Trustee of the TDSP for IBM shares held in the IBM Stock Fund as of March 1,
1999 (the "Record Date"), provided that instructions are furnished over the
Internet or by telephone by April 21, 1999, or that the card is signed,
returned, and received by April 21, 1999. If instructions are not received over
the Internet or by telephone by April 21, 1999, or if the signed proxy card is
not returned and received by such date, the IBM shares in the IBM Stock Fund
under the TDSP will be voted by the Trustee in proportion to the shares for
which the Trustee timely receives voting instructions.
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.
/s/ Daniel E. O'Donnell
Daniel E. O'Donnell
Vice President and Secretary
March 23, 1999
30
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Appendix A.
PROPOSED AMENDMENT TO ARTICLE THREE OF THE COMPANY'S CERTIFICATE OF
INCORPORATION
Resolved: that the Company's Certificate of Incorporation be amended by
restating Article THREE to read as follows:
The aggregate number of shares that the Corporation shall have authority to
issue is 4,837,500,000 shares, consisting of 4,687,500,000 shares of the par
value of $0.20 per share, which shall be designated "capital stock" and
150,000,000 shares of the par value of $0.01 per share, which shall be
designated "preferred stock."
31
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
[INTENTIONALLY LEFT BLANK]
32
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Appendix B.
IBM 1999 Long-Term Performance Plan
1. Objectives.
The IBM 1999 Long-Term Performance Plan (the "Plan") is designed to attract,
motivate and retain selected employees of, and other individuals providing
services to, the Company. These objectives are accomplished by making long-term
incentive and other awards under the Plan, thereby providing Participants with a
proprietary interest in the growth and performance of the Company.
2. Definitions.
(a) "Awards"--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
Participant pursuant to such terms, conditions, performance requirements,
limitations and restrictions 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, limitations and
restrictions applicable to an Award.
(c) "Board"--The Board of Directors of International Business Machines
Corporation ("IBM").
(d) "Capital Stock" or "stock"--Authorized and issued or unissued Capital Stock
of IBM, at such par value as may be established from time to time.
(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.
(g) "Company"--IBM and its affiliates and subsidiaries including subsidiaries of
subsidiaries and partnerships and other business ventures in which IBM has an
equity interest.
(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 individual to whom an Award has been made under the Plan.
Awards may be made to any employee of, or any other individual providing
services to, the Company. However, incentive stock options may be granted only
to individuals who are employed by IBM or by a subsidiary corporation (within
the meaning of section 424(f) of the Code) of IBM, including a subsidiary that
becomes such after the adoption of the Plan.
(j) "Performance Period"--A multi-year period of no more than five consecutive
calendar years over which one or more of the performance criteria listed in
Section 6 shall be measured pursuant to the grant of Long-Term Performance
Incentive Awards (whether such Awards take the form of stock, stock units or
equivalents or cash). Performance Periods may overlap one another, but no two
Performance Periods may consist solely of the same calendar years.
3. 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 59,335,650. In addition, any
shares previously authorized by stockholders for awards under prior Company
long-term performance plans which are still available for issuance or which
either wholly or in part were not earned or that expired or were forfeited,
terminated, canceled, settled in cash, payable solely in cash or exchanged for
other awards shall be available for issuance under the Plan. Shares of Capital
Stock may be made available from the authorized but unissued shares of the
Company or from shares held in the Company's treasury and not reserved for some
other purpose. For purposes of determining the number of shares of Capital Stock
issued under the Plan, no shares shall be deemed issued until they are actually
delivered to a Participant, or such other person in accordance with Section 10.
Shares covered by Awards that either wholly or in part are not earned, or that
expire or are forfeited, terminated, canceled, settled in cash, payable solely
in cash or exchanged for other awards, shall be available for future issuance
under Awards. Further, shares tendered to or withheld by the Company in
connection with the exercise of stock options, or the payment of tax withholding
on any Award, shall also be available for future issuance under Awards.
33
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
4. Administration.
The Plan shall be administered by the Committee, which shall have full power to
select Participants, to interpret the Plan, to grant waivers of Award
restrictions, to continue, accelerate or suspend exercisability, vesting or
payment of an Award and to adopt such rules, regulations and guidelines for
carrying out the Plan as it may deem necessary or proper. These powers include,
but are not limited to, the adoption of modifications, amendments, procedures,
subplans and the like as 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.
5. Delegation of Authority.
The Committee may delegate to officers of the Company its duties, power and
authority under the Plan pursuant to such conditions or limitations as the
Committee may establish, except that only the Committee or the Board may select,
and grant Awards to, Participants who are subject to Section 16 of the
Securities Exchange Act of 1934.
6. 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 6. Awards
may be granted singly, in combination or in tandem. Awards may also be made in
combination or in tandem with, in replacement or payment of, or as alternatives
to, grants, rights or compensation earned under any other plan of the Company,
including the plan of any acquired entity. During any five-year period, no
Participant may receive, under the Plan, stock options or stock appreciation
rights with respect to an aggregate of more than 5,000,000 shares. With regard
to any "covered employee" (as defined by section 162(m) of the Code), the
maximum number of shares of Capital Stock or share equivalents of Capital Stock
(stock units) that can be earned by any Participant for any Performance Period
is 200,000 shares, subject to adjustment for changes in corporate
capitalization, such as a stock split, and if an Award is denominated in cash
rather than in shares of Capital Stock or stock units, the share equivalent for
purposes of the maximum will be determined by dividing the highest amount that
the Award could be under the formula for such Performance Period by the closing
price of a share of Capital Stock on the first trading day of the Performance
Period.
(a) Stock Option--A grant of a right to purchase a specified number of shares of
Capital Stock the exercise 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,
provided that, in the case of a stock option granted retroactively in tandem
with or as substitution for another award granted under any plan of the Company,
the exercise price may be the same as the purchase or designated price of such
other award. 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.
The number of shares of stock that shall be available for issuance under ISOs
granted under the Plan is limited to twenty million.
(b) Stock Appreciation Right--A right to receive a payment, in cash and/or
Capital Stock, equal in value 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 grant price of the SAR, which shall not be
less than 100% of the Fair Market Value on the date of grant of such SAR, as
determined by the Committee, provided that, in the case of a SAR granted
retroactively in tandem with or as substitution for another award granted under
any plan of the Company, the grant price may be the same as the exercise or
designated price of such other award.
(c) Stock Award--An Award made in stock and denominated in units of stock. The
maximum number of shares of Capital Stock that may be issued under Stock Awards
shall not exceed 20% of the aggregate number of shares available for issuance
under Awards. 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 Company, achievement of
specific business objectives, increases in specified indices, attaining growth
rates, and other comparable measurements of Company performance. An Award made
in stock or denominated in units of stock that is subject to restrictions on
transfer and/or forfeiture provisions may be referred to as an Award of
"Restricted Stock," "Restricted Stock Units" or "Long-Term Performance
Incentive" units.
34
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
(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.
(e) Performance Criteria under section 162(m) of the Code for Long-Term
Performance Incentive Awards--The performance criteria for Long-Term Performance
Incentive Awards (whether such Awards take the form of stock, stock units or
equivalents or cash) made to any "covered employee" (as defined by section
162(m) of the Code) shall consist of objective tests based on one or more of the
following: earnings, cash flow, customer satisfaction, revenues, financial
return ratios, market performance, shareholder return and/or value, operating
profits (including EBITDA), net profits, earnings per share, profit returns and
margins, stock price and working capital. Performance criteria may be measured
solely on a corporate, subsidiary or business unit basis, or a combination
thereof. Further, performance criteria may reflect absolute entity performance
or a relative comparison of entity performance to the performance of a peer
group of entities or other external measure of the selected performance
criteria. The formula for any Award may include or exclude items to measure
specific objectives, such as losses from discontinued operations, extraordinary
gains or losses, the cumulative effect of accounting changes, acquisitions or
divestitures, foreign exchange impacts and any unusual, nonrecurring gain or
loss. Nothing herein shall preclude the Committee from making any payments or
granting any Awards whether or not such payments or Awards qualify for tax
deductibility under section 162(m) of the Code.
7. 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. Further,
with Committee approval, payments may be deferred, either in the form of
installments or as a future lump-sum payment, in accordance with such procedures
as may be established from time to time by the Committee. Any deferred payment,
whether elected by the Participant or specified by the Award Agreement or the
Committee, may require the payment to be forfeited in accordance with the
provisions of Section 13. 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.
8. Stock Option Exercise.
The price at which shares of Capital Stock may be purchased under a stock option
shall be paid in full in cash at the time of the exercise or, if permitted by
the Committee, by means of tendering Capital Stock or surrendering another Award
or any combination thereof. The Committee shall determine acceptable methods of
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.
9. Tax Withholding.
Prior to the payment or settlement of any Award, the Participant must pay, or
make arrangements acceptable to the Company for the payment of, any and all
federal, state and local tax withholding that in the opinion of the Company is
required by law. 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.
10. Transferability.
No Award shall be transferable or assignable, or payable to or exercisable by,
anyone other than the Participant to whom it was granted, except (i) by law,
will or the laws of descent and distribution, (ii) as a result of the disability
of a Participant or (iii) that the Committee (in the form of an Award Agreement
or otherwise) may permit transfers of Awards by gift or otherwise to a member of
a Participant's immediate family and/or trusts whose beneficiaries are members
of the Participant's immediate family, or to such other persons or entities as
may be approved by the Committee. Notwithstanding the foregoing, in no event
shall ISOs be transferable or assignable other than by will or by the laws of
descent and distribution.
35
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
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 14 of the Plan), or
(ii) permit the granting of stock options or SARs with exercise or grant prices
lower than those specified in Section 6.
12. Termination of Employment.
If the employment of a Participant terminates, other than as a result of the
death or disability of a Participant, all unexercised, deferred and unpaid
Awards shall be canceled immediately, unless the Award Agreement provides
otherwise. In the event of the death of a Participant or in the event a
Participant is deemed by the Company to be disabled and eligible for benefits
under the terms of the IBM Long-Term Disability Plan (or any successor plan or
similar plan of another employer), the Participant's estate, beneficiaries or
representative, as the case may be, shall have the rights and duties of the
Participant under the applicable Award Agreement.
13. Cancellation and Rescission of Awards.
(a) Unless the Award Agreement specifies otherwise, the Committee may cancel,
rescind, suspend, withhold or otherwise limit or restrict any unexpired, unpaid,
or deferred Awards at any time if the Participant is not in compliance with all
applicable provisions of the Award Agreement and the Plan, or if the Participant
engages in any "Detrimental Activity." For purposes of this Section 13,
"Detrimental Activity" shall include: (i) the rendering of services for any
organization or engaging directly or indirectly in any business which 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; (ii) the
disclosure to anyone outside the Company, or the use in other than the Company's
business, without prior written authorization from the Company, of any
confidential information or material, as defined in 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; (iii) the failure or refusal to disclose promptly
and to assign to the Company, pursuant to the Company's Agreement Regarding
Confidential Information and Intellectual Property, 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 or
the failure or refusal to do anything reasonably necessary to enable the Company
to secure a patent where appropriate in the United States and in other
countries; (iv) activity that results in termination of the Participant's
employment for cause; (v) a violation of any rules, policies, procedures or
guidelines of the Company, including but not limited to the Company's Business
Conduct Guidelines; (vi) any attempt directly or indirectly to induce any
employee of the Company to be employed or perform services elsewhere or any
attempt directly or indirectly to solicit the trade or business of any current
or prospective customer, supplier or partner of the Company; (vii) the
Participant being convicted of, or entering a guilty plea with respect to, a
crime, whether or not connected with the Company; or (viii) any other conduct or
act determined to be injurious, detrimental or prejudicial to any interest of
the Company.
(b) Upon exercise, payment or delivery pursuant to an Award, the Participant
shall certify in a manner acceptable to the Company that he or she is in
compliance with the terms and conditions of the Plan. In the event a Participant
fails to comply with the provisions of paragraphs (a)(i)-(viii) of this Section
13 prior to, or during the six months after, any exercise, payment or delivery
pursuant to an Award, such exercise, payment or delivery may be rescinded within
two years thereafter. In the event of any such rescission, 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, in such manner and on
such terms and conditions as may be required, and the Company shall be entitled
to set-off against the amount of any such gain any amount owed to the
Participant by the Company.
14. 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
proportionately: (a) the number of shares of Capital Stock (i) available for
issuance under the Plan, (ii) available
36
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
for issuance under ISOs, (iii) for which Awards may be granted to an individual
Participant set forth in Section 6, and (iv) covered by outstanding Awards
denominated in stock or units of stock; (b) the exercise and grant 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 in the number and kind
of shares and the exercise, grant and conversion prices of the affected Awards
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
cause IBM 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. In such event, the aggregate number of shares of Capital
Stock available for issuance under Awards under Section 3, including the
individual Participant maximums set forth in Section 6 will be increased to
reflect such substitution or assumption.
15. Miscellaneous.
(a) Any notice to the Company required by any of the provisions of the Plan
shall be addressed to the chief human resources officer of IBM in writing, and
shall become effective when it is received.
(b) The Plan shall be unfunded and the Company shall not be required to
establish any special account or fund or to otherwise segregate or encumber
assets to ensure payment of any Award.
(c) Nothing contained in the Plan shall prevent the Company from adopting other
or additional compensation arrangements or plans, subject to shareholder
approval if such approval is required, and such arrangements or plans may be
either generally applicable or applicable only in specific cases.
(d) No Participant shall have any claim or right to be granted an Award under
the Plan and nothing contained in the Plan shall be deemed or be construed to
give any Participant the right to be retained in the employ of the Company or to
interfere with the right of the Company to discharge any Participant at any time
without regard to the effect such discharge may have upon the Participant under
the Plan. Except to the extent otherwise provided in any plan or in an Award
Agreement, no Award under the Plan shall be deemed compensation for purposes of
computing benefits or contributions under any other plan of the Company.
(e) The Plan and each Award Agreement shall be governed by the laws of the State
of New York, excluding any conflicts or choice of law rule or principle that
might otherwise refer construction or interpretation of the Plan to the
substantive law of another jurisdiction. Unless otherwise provided in the Award
Agreement, recipients of an Award under the Plan are deemed to submit to the
exclusive jurisdiction and venue of the federal or state courts of New York,
County of Westchester, to resolve any and all issues that may arise out of or
relate to the Plan or any related Award Agreement.
(f) In the event that a Participant or the Company brings an action to enforce
the terms of the Plan or any Award Agreement and the Company prevails, the
Participant shall pay all costs and expenses incurred by the Company in
connection with that action, including reasonable attorneys' fees, and all
further costs and fees, including reasonable attorneys' fees incurred by the
Company in connection with collection.
(g) The Committee and any officers to whom it may delegate authority under
Section 5 shall have full power and authority to interpret the Plan and to make
any determinations thereunder, including determinations under Section 13, and
the Committee's or such officer's determinations shall be binding and
conclusive. Determinations made by the Committee or any such officer under the
Plan need not be uniform and may be made selectively among individuals, whether
or not such individuals are similarly situated.
(h) If any provision of the Plan is or becomes or is deemed invalid, illegal or
unenforceable in any jurisdiction, or would disqualify the Plan or any Award
under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended or limited in scope to conform to applicable laws
or, in the discretion of the Committee, it shall be stricken and the remainder
of the Plan shall remain in full force and effect.
(i) The Plan shall become effective on the date it is approved by the requisite
vote of the stockholders of the Company.
37
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
[INTENTIONALLY LEFT BLANK]
38
<PAGE>
IBM Notice of 1999 Annual Meeting and Proxy Statement
Appendix C.
IBM 1999 Long-Term Performance Plan--
Federal Income Tax Consequences
The Company has been advised by counsel that, in general, under the Internal
Revenue Code, as presently in effect, a Participant will not be deemed to
recognize 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 stock option other than an ISO, the optionee
will generally recognize ordinary income in an amount equal to the excess of the
fair market value of the shares on the exercise date over the option price.
2. In the case of an exercise of a SAR, the Participant will generally recognize
ordinary income on the exercise date in an amount equal to any cash and the fair
market value of any unrestricted shares 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 ISOs, there is generally 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 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 excess of the fair market value of the stock on the
date of exercise (or, if less, the amount of gain realized on the disposition of
the stock) over the option price, and the balance of any gain or any loss will
be treated as capital gain or loss. In order for ISOs to be treated as described
above, the Participant must remain employed by the Company (or a subsidiary in
which the Company holds at least 50 percent of the voting power) from the ISO
grant date until three months before the ISO is exercised. The three-month
period is extended to one year if the Participant's employment terminates on
account of disability. If the Participant does not meet the employment
requirement, the option will be treated for federal income tax purposes as an
option as described in paragraph 5 below. A Participant who exercises an ISO
might also be subject to an alternative minimum tax.
5. Upon the exercise of a stock option other than an ISO, the exercise of a 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 a Participant. The Company will 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. Pursuant to section 162(m) of the Code, 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 Plan will be treated as qualified performance-based
compensation and therefore will not be subject to the deduction limit. The Plan
also authorizes the grant of long-term performance incentive awards utilizing
the performance criteria set forth in the Plan that may likewise be treated as
qualified performance-based awards.
39
<PAGE>
[LOGO] Printed with SOY INK(TM)
Printed on recyclable paper
<PAGE>
[LOGO] IBM
Dear IBM Stockholder:
Your vote is important. Please read both sides of the attached 1999 IBM Proxy
Card. You can vote your shares through the Internet, by telephone or by marking,
signing and returning the Proxy Card. If you vote through the Internet or by
telephone, there is no need to mail your Proxy Card.
You are invited to attend the Annual Meeting of Stockholders on Tuesday, April
27, 1999, at 10:00 a.m. in the James L. Knight Center at the Miami Convention
Center, Miami, Florida. If you plan to attend the Annual Meeting, you should
either mark the box provided on the attached Proxy Card or signify your
intention to attend when you access the Internet or telephone voting system. An
admission ticket is attached for your convenience.
As part of IBM's strategy to utilize the Internet in providing stockholders
services, we are giving our stockholders the opportunity to receive IBM's Annual
Report and Proxy Statement online. If you have not signed up for this service
and you wish to receive future copies of this material through the Internet, you
may do so by submitting IBM's Paperless Annual Meeting Material Consent form
online through the Internet at:
http://www.ibm.com/investor/form
We urge you to vote your shares. Thank you very much for your cooperation and
continued loyalty as an IBM Stockholder.
/s/ Daniel E. O'Donnell
Daniel E. O'Donnell
Vice President and Secretary
- --------------------------------------------------------------------------------
|X| Please mark your votes
as in this example
Proxy Card
IBM's Directors recommend a vote FOR proposals 1,2,3,4 and 5 and AGAINST
stockholder proposal 6. SHARES WILL BE SO VOTED UNLESS OTHERWISE INDICATED.
- --------------------------------------------------------------------------------
IBM's Directors recommend a vote FOR proposals 1, 2, 3, 4 and 5.
- --------------------------------------------------------------------------------
FOR WITHHELD
1. Election of Directors (see reverse) |_| |_|
FOR, except vote WITHHELD from the following nominee(s):
_________________________________________________________
FOR AGAINST ABSTAIN
2. Ratification of appointment
of auditors (page 21) |_| |_| |_|
3. Amendment of Certificate of
Incorporation/stock split (page 22) |_| |_| |_|
4. Adoption of the IBM 1999 Long-Term
Performance Plan (page 25) |_| |_| |_|
5. Approval of annual incentive
compensation terms for certain
executives (page 27) |_| |_| |_|
- --------------------------------------------------------------------------------
IBM's Directors recommend a vote AGAINST stockholder proposal 6.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
6. Stockholder proposal on executive
compensation (page 28) |_| |_| |_|
- --------------------------------------------------------------------------------
Will attend Annual Meeting |_|
- --------------------------------------------------------------------------------
If you are receiving multiple copies of
stockholder publications, check box to
discontinue mailings to this account. |_|
- --------------------------------------------------------------------------------
SIGNATURE(S)_________________________________________DATE_______________________
PLEASE SIGN AND DATE HERE, DETACH AND RETURN IN ENCLOSED ENVELOPE OR VOTE BY
USING THE INTERNET OR TELEPHONE.
[LOGO] IBM
- --------------------------------------------------------------------------------
PROXY CARD
[LOGO] IBM
International Business Machines
Corporation
Armonk, New York 10504
Proxy Solicited by the Board of Directors
for the Annual Meeting of Stockholders
April 27, 1999
Louis V. Gerstner, Jr., Lawrence R. Ricciardi, and Daniel E. O'Donnell, or any
of them individually and each of them with the 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 James L. Knight Center at the
Miami Convention Center, Miami, Florida, at 10 a.m. on Tuesday, April 27, 1999,
or any adjournment thereof.
THE PROXIES WILL VOTE USING THE DIRECTIONS PROVIDED ON THE REVERSE SIDE OF THIS
CARD. IF NO DIRECTION IS PROVIDED, THIS PROXY WILL BE VOTED AS RECOMMENDED BY
THE BOARD OF DIRECTORS. THE PROXIES ARE ALSO AUTHORIZED TO VOTE UPON ALL OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEREOF,
UTILIZING THEIR OWN DISCRETION AS SET FORTH IN THE NOTICE OF 1999 ANNUAL MEETING
AND PROXY STATEMENT DATED MARCH 23, 1999.
This Proxy Card will also be used to provide voting instructions to the Trustee
for any shares of common stock of International Business Machines Corporation
held in the IBM Stock Fund investment alternative under the IBM Tax Deferred
Savings Plan on the record date, as set forth in the Notice of 1999 Annual
Meeting and Proxy Statement dated March 23, 1999.
Election of Directors, Nominees:
01. C. Black, 02. K.I. Chenault, 03. J. Dormann, 04. L.V. Gerstner, Jr.,
05. N.O. Keohane, 06. C.F. Knight, 07. M. Makihara, 08. L.A. Noto,
09. J.B. Slaughter, 10. A. Trotman, 11. L.C. van Wachem, 12. C.M. Vest.
(Shares cannot be voted unless this Proxy Card is: 1. signed and returned or
2. shares are voted over the Internet or by telephone or 3. other specific
arrangements are made to have the shares represented at the meeting.)
[GRAPHIC OMITTED]
ELECTRONIC VOTING INSTRUCTIONS
To vote through the Internet log on to http://www.ibm.com/investor/vote
To vote by telephone call the toll-free number 1-877-779-8683. Stockholders
residing outside the United States, Canada and Puerto Rico should call
201-536-8073.
If you vote through the Internet or by telephone, use the control number in the
box on the left just below the perforation.
Admission Ticket
This is your admission ticket for the Annual Meeting of Stockholders to be held
on Tuesday, April 27, 1999, at 10:00 a.m. in the James L. Knight Center at the
Miami Convention Center, Miami, Florida. Please detach and present this ticket
for admission at the Annual Meeting.
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.
[LOGO] IBM
PLEASE DETACH AND PRESENT THIS TICKET FOR ADMISSION TO THE ANNUAL MEETING
