SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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International Business Machines Corporation
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<PAGE>
2 IBM Notice of 1999 Annual Meeting and Proxy Statement
[IBM Letterhead]
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>
3 IBM Notice of 1999 Annual Meeting and Proxy Statement
International Business Machines Corporation
Armonk, New York 10504
March 15, 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 ___ stockholder proposals, 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. 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.
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 15, 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 of New York, 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.
<PAGE>
4 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 x
o Committees of the Board x
o Other Relationships xx
o Directors' Compensation xx
o Section 16(a) Beneficial Ownership Reporting Compliance xx
o Ownership of Securities xx
- Common Stock and Total Stock-Based
Holdings of Management xx
Report on Executive Compensation xx
o Summary Compensation Table xx
o Performance Graph xx
2. Ratification of Appointment of Auditors xx
3. Amendment of the Certificate of Incorporation to Increase
Authorized Shares and Effect a Two-for-One Common Stock
Split xx
4. Adoption of the IBM 1999 Long-Term Performance Plan xx
5. Approval of Annual Incentive Compensation Terms for
Certain Executives xx
6. Stockholder Proposals xx
Other Business xx
Proxies and Voting at the Meeting xx
Appendix A: Proposed Amendment to Article THREE
of the Company's Certificate of Incorporation xx
Appendix B: IBM 1999 Long-Term Performance Plan xx
Appendix C: IBM 1999 Long-Term Performance Plan -
Federal Income Tax Consequences xx
<PAGE>
5 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, NYU Medical Center and
NYU Downtown Hospital, Phoenix House 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, and from 1983 to 1989,
he was chairman and chief executive officer of American Express Travel Related
Services Co., Inc. He is a member of the board of directors of Bristol-Myers
Squibb Company. Mr. Gerstner co-chairs Achieve, an organization created by
United States governors and business leaders to establish high academic
standards in our nation's schools. He is a director of The Council on Foreign
Relations and a member of the Smithsonian Board of Regents. Mr. Gerstner became
an IBM director in 1993.
<PAGE>
6 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., The British Petroleum Company 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 Business Council, 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.
<PAGE>
7 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 Allied 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 a trustee of Wellesley College. Dr. Vest became an IBM director
in 1994.
<PAGE>
8 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.
<PAGE>
9 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 xx). 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,
<PAGE>
10 IBM Notice of 1999 Annual Meeting and Proxy Statement
or in Promised Fee Shares, with dividends used to buy additional Promised Fee
Shares. Promised Fee Shares 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.
Ownership of Securities
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 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.
Common Stock and Total Stock-Based Holdings of Management
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 xx, 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.
<PAGE>
11 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 x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
K.I. Chenault x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
J. Dormann x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
L.V. Gerstner, Jr. x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
N.O.Keohane x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
C.F. Knight x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
M. Makihara x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
L.A. Noto x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
J.B. Slaughter x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
A. Trotman x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
L.C. van Wachem x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
C.M. Vest x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
Executive A x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
Executive B x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
Executive C x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
Executive D x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx x,xxx
- -------------------------------------------------------------------------------------------------------
Directors and executive
officers as a group(4) x,xxx x,xxx x,xxx x,xxx x,xxx* x,xxx x,xxx*
- -------------------------------------------------------------------------------------------------------
</TABLE>
* The total of these two columns represents less than 1% of the outstanding
shares. No individual's beneficial holdings totaled more than 1/5 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.
<PAGE>
12 IBM Notice of 1999 Annual Meeting and Proxy Statement
Report on Executive Compensation
(to come)
Compensation for the Chairman and Chief Executive Officer
(to come)
Summary Compensation Table
(to come)
Stock Option/SAR Grants in Last Fiscal Year
(to come)
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Options/SAR Values
(to come)
Long-Term Incentive Plans-Awards in Last Fiscal Year
(to come)
Retirement Plans
(to come)
Employment Agreements and Change-in-Control Arrangements
(to come)
<PAGE>
13 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)
(New Graph to Come)
1993 1994 1995 1996 1997 1998
IBM Common Stock XXX XXX XXX XXX XXX XXX
S & P 500 Stock Index XXX XXX XXX XXX XXX XXX
S & P Computers (Hardware)
Index (excluding IBM) XXX XXX XXX XXX XXX XXX
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.
<PAGE>
14 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.
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 xx 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
<PAGE>
15 IBM Notice of 1999 Annual Meeting and Proxy Statement
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 xx-xx 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 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 interests
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,
the 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
<PAGE>
16 IBM Notice of 1999 Annual Meeting and Proxy Statement
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 or
about 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.
If the 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 tax 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.
<PAGE>
17 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 x,xxx,xxx 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 xx,xxx,xxx shares of common stock, which is x.x% of the Company's
outstanding shares of common stock on February xx, 1999. The closing price of
the Company's common stock on the New York Stock Exchange that day was $xxx.xx
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 xx, 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.
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
<PAGE>
18 IBM Notice of 1999 Annual Meeting and Proxy Statement
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 x,xxx,xxx shares were granted to employees, including options to
purchase xxx,xxx shares granted to current executive officers as a group. In
1996, the number of performance stock units representing Long-Term Performance
Incentive awards granted to all participants and current executive officers was
xxx,xxx and xx,xxx, respectively. A total of xxx,xxx restricted stock units were
granted in 1998, including xx,xxx units to current executive officers. Further,
xxx,xxx 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 xx-xx. 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 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 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 xx. 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 xx and the federal income tax consequences of the
issuance and exercise of options and SARs are summarized in Appendix C beginning
on page xx. The IBM Board of Directors unanimously recommends a vote FOR this
proposal.
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).
<PAGE>
19 IBM Notice of 1999 Annual Meeting and Proxy Statement
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 xx.
The IBM Board of Directors unanimously recommends a vote FOR this proposal.
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.
A. 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."
<PAGE>
20 IBM Notice of 1999 Annual Meeting and Proxy Statement
"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.
Other Business
Management knows of no other matters that may properly be, or are likely to be,
brought before the meeting. If other proper matters are introduced, the
individuals named as Proxies on the enclosed Proxy Card will vote shares it
represents. 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. On February xx, 1999, there
were xxx,xxx,xxx common shares outstanding and entitled to be voted.
Directors are elected by a plurality of votes cast. A majority of the votes cast
is required to ratify the appointment of auditors, 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 of New York, IBM's independent transfer agent and
registrar, and certified by the Inspectors of Election who are employees of
Corporation Trust Company.
Shares cannot be voted unless a signed proxy card is returned, 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,
<PAGE>
21 IBM Notice of 1999 Annual Meeting and Proxy Statement
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 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.
Daniel E. O'Donnell
Vice President and Secretary
March 15, 1999
<PAGE>
22 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."
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 xx,xxx,xxx. 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
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23 IBM Notice of 1999 Annual Meeting and Proxy Statement
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.
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,
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24 IBM Notice of 1999 Annual Meeting and Proxy Statement
which may include, but are not limited to, continuous service with the Company,
achievement of specific business objectives, increases in specified indices,
attaining growth rates, and other comparable measurements of the 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.
(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 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
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25 IBM Notice of 1999 Annual Meeting and Proxy Statement
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.
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
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26 IBM Notice of 1999 Annual Meeting and Proxy Statement
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 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 individu-
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27 IBM Notice of 1999 Annual Meeting and Proxy Statement
als, 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.
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
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28 IBM Notice of 1999 Annual Meeting and Proxy Statement
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.
