IBM
Notice of 1994 Annual Meeting and Proxy Statement
Dear Stockholders,
You are cordially invited to attend the Annual Meeting of Stockholders on
Monday,Tuesday, April 25, at 10 a.m., in the Metro Toronto Convention Centre, Toronto,
Ontario, Canada.Ovens Auditorium, Charlotte, North
Carolina.
We are very pleased that Mr.Dr. Charles F. Knight, chairmanM. Vest, president of the board and chief
executive officer, Emerson Electric Co.,Massachusetts
Institute of Technology, who was elected to the Board in July
1993, is a nomineeJune 1994; Mr. Alex
Trotman, chairman and chief executive officer of the Ford Motor Company, who
was elected to the Board in November 1994; Mr. Jerome B. York, senior vice
president and chief financial officer of IBM, who was elected to the Board
in November 1994 and joined the Board in January 1995; and Mr. Lucio A.
Noto, chairman and chief executive officer of Mobil Corporation, who was
elected to the Board in January 1995, are nominees for the first time.
Mr. Stephen D. Bechtel,Paul J. Rizzo left the Board in December 1994 upon his retirement from
IBM. We thank Mr. Rizzo for his dedicated service as Vice Chairman for these
past two years. Mr. James E. Burke, Mr. Thomas S. Murphy, and Mr. Edgar S.
Woolard, Jr., Mr. Jack D. Kuehler, Dr. Richard W. Lyman, Mr. J.
Richard Munro, and Dr. Helmut Sihler retired will retire from the Board during 1993in April and Mr.
Thomas F. Frist, Jr., Mrs. Judith Richards Hope, and Mr. John R. Opel have
decidedare not to standnominees for
reelectionelection this year. We are grateful for their many contributions during
their years of service. We especially thank Mr. Opel for
his dedicated service, as a Board member for 21 years and his stewardship as
chairman from 1983 to 1986.we will miss their participation on the Board.
Please sign, date, and return the enclosed Proxy Card in the envelope
provided as soon as possible so that your shares can be voted at the meeting
in accordance with your instructions. If you plan to attend the meeting,
please mark the box where indicated on the Proxy Card. If you will need
special assistance at the meeting because of a disability, please contact
the Office of the Secretary, Armonk, N.Y. 10504.
A summary of the proceedings of the meeting will be mailed to all stockholders
of record.
Very truly yours,
/s/ Louis V. Gerstner, Jr.
--------------------------
Louis V. Gerstner, Jr.
Chairman of the Board
YOUR VOTE IS IMPORTANT
Please Sign, Date, and Return Your vote is important.
Please sign, date, and return your Proxy Card.Card
International Business Machines Corporation
Armonk, New York 10504
March 14, 19941995
Notice of Meeting
The Annual Meeting of Stockholders of International Business Machines
Corporation will be held on Monday,Tuesday, April 25, 1994,1995, at 10 a.m., in the
Metro
Toronto Convention Centre, Toronto, Ontario, Canada.Ovens Auditorium, 2700 East Independence Boulevard, Charlotte, North
Carolina. The items of business are:
1. Election of directors for a term of one year.
2. Ratification of the appointment of auditors.
3. Adoption of the IBM 19941995 Employees Stock Purchase Plan.
4. Adoption of the IBM Non-Employee Directors Stock Option Plan to replace
annual stock awards.
5. Approval of Annual Incentive Compensation Terms for Certain Executives.
6. Approval of Long-Term Performance Plan.
4.Incentive Compensation Terms for
Certain Executives.
7. Such other matters, including onefive stockholder proposal,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 7, 1994,1995, are entitled to vote at the meeting.
Stockholders are reminded that shares cannot be voted unless the signed
Proxy Card is returned or other arrangements are made to have the shares
represented at the meeting.
/s/ John E. Hickey
------------------
John E. Hickey
Vice President and Secretary
This Proxy Statement and the accompanying form of Proxy Card are
being mailed beginning on or about March 14, 1995, to stockholders
entitled to vote. The IBM 19931994 Annual Report, which includes financial
statements, is being mailed with this proxy statement.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 havedid
not received it,receive a report, and a copy will be sent to you.
IBM Notice of 1994 Annual Meeting and Proxy Statement 1
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 Proxy Committeeindividuals 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.
Harold Brown, 66,67, is a counselor, Center for Strategic and
International Studies, Washington, D.C., and a general partner in Warburg,
Pincus & Company.Company, a venture banking and money management firm. He is
chairman of IBM's Directors and Corporate Governance Committee and a member
of IBM's Executive Compensation and Management Resources Committee. He is a former U.S. Secretary of the Air
Force. He is a director of Alumax Inc., CBS Inc., Cummins Engine Company,
Inc., Philip Morris Companies Inc., and Mattel, Inc.; a member of the
National Academy of Sciences and the National Academy of Engineering; a
trustee and president emeritus of the California Institute of Technology;
and chairman of the Arnold and Mabel Beckman Foundation. Dr. Brown was an
IBM director from 1972 to 1977. After serving as U.S. Secretary of Defense,
he became an IBM director again in 1981.
James E. Burke, 69, is retired chairman of Johnson & Johnson, which he
joined in 1953. He is chairman of IBM's Directors and Corporate Governance
Committee and a member of IBM's Executive Committee. He is chairman of the
Partnership for a Drug-Free America; a director of The Prudential Insurance
Company of America and The Washington Post Company; and a member of The
Business Council and The Council on Foreign Relations. Mr. Burke became an IBM
director in 1980.
Fritz Gerber, 65,66, is chairman and chief executive officer of Roche
Holding Ltd. and, a pharmaceutical company, positions he has held since 1978.
He is also executive chairman of Zurich Insurance Company.Company, an international
insurance provider. He joined Zurich Insurance Company in 1958, became chief
executive officer in 1969, and chairman of the board of directors in 1977.
HeMr. Gerber is a member of IBM's Directors and Corporate Governance
Committee. He is a director of Nestle S.A. and Credit Suisse. He is a member
of the International Advisory Council of The Chase Manhattan Bank and of
the European Advisory Council of Tenneco Europe, Limited, and he holds
membership in various economic and cultural organizations such as the
European Round Table. Mr. Gerber became an IBM director in 1989.
IBM Notice of 1994 Annual Meeting and Proxy Statement 2
Louis V. Gerstner, Jr., 52,53, is chairman of the Board and chief
executive officer of IBM and chairman of IBM's Executive Committee. From
1989 until joining IBM, he was chairman of the board and chief executive
officer of RJR Nabisco Holdings Corp., a food and tobacco company. From
1985 to 1989, heMr. 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 and The New York Times Company, and
RJR Nabisco Holdings Corp.Company.
Mr. Gerstner is a member of the board of Lincoln Center for the Performing
Arts and vice chairman of the board of the New American School Development
Corp. HeMr. Gerstner is also a member of The Council on Foreign Relations.Relations and
a board member of The America/China Society and The Japan Society. Mr.
Gerstner became an IBM director in 1993.
Nannerl O. Keohane, 53,54, is president and professor of political
science at Duke University. She is a member of IBM's Directors and Corporate
Governance Committee. She was formerly president of Wellesley College, and a
former faculty member at Swarthmore College and Stanford University. She is
a member of The Council on Foreign Relations and the American Academy of
Arts and Sciences; and a trustee of the Colonial Williamsburg Foundation.
Dr. Keohane is a member of the MIT Corporation and has served as vice
president of the American Political Science Association. Dr. Keohane became
an IBM director in 1986.
Charles F. Knight, 58,59, 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 Directors and Corporate GovernanceExecutive Committee. He joined Emerson Electric in 1972 as vice
chairman and was elected chief executive officer in 1973 and chairman in
1974. Prior to joining Emerson, he was president of Lester B. Knight &
Associates, Inc., a consulting engineering firm. He is a director of Southwestern Bell Corporation,
CaterpillarSBC
Communications Inc., Anheuser Busch Companies, Inc., and The British
Petroleum Company p.l.c. Mr. Knight became an IBM director in 1993.
Thomas S. Murphy, 68,Lucio A. Noto, 56, is chairman and chief executive officer of Capital
Cities/ABC, Inc.Mobil
Corporation, an oil and isgas company. 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 IBM's Executive Compensation and Management
Resources Committee andMobil's executive committee.
Mr. Noto is a member of IBM's Executive Committee. Mr. Murphy
joined Capital Cities in 1954.The Council on Foreign Relations. He was elected president in 1964 and chairman
and chief executive officer in 1966. From June 1990 to February 1994, he served
as chairman of the board only. He is a director of Johnson & Johnson and Texaco
Inc. He is chairman of the New York University Medical Center Board and a
member of the board of overseers of Harvard College. Mr. Murphy became an IBM
director in 1987.
IBM Notice of 1994 Annual Meeting and Proxy Statement 31995.
Paul J. Rizzo, 66, is vice chairman of the Board of IBM and a member of
IBM's Executive Committee. Mr. Rizzo served as dean of the Kenan-Flagler
Business School at the University of North Carolina-Chapel Hill from 1987 to
1992. He then became a partner in Franklin Street Partners, a Chapel Hill
investment firm. He is also a director of Johnson & Johnson and McGraw-Hill,
Inc. Mr. Rizzo served as an IBM director from 1972 to 1987 and became an IBM
director again in 1993.
John B. Slaughter, 60,61, is president of Occidental College. He is a
member of IBM's Audit Committee. He is a former chancellor of the University
of Maryland and a former director of the National Science Foundation. He is
a director of the Atlantic Richfield Company, Avery Dennison Corporation,
Monsanto Company, and Northrop Corporation. He is a member of the National
Academy of Engineering, a member of the American Academy of Arts and
Sciences, a fellow of the American Association for the Advancement of
Science, and a fellow of the Institute of Electrical and Electronics
Engineers. Dr. Slaughter became an IBM director in 1988.
Alex Trotman, 61, is chairman and chief executive officer of the
Ford Motor Company, an automotive manufacturer. He is a member of IBM's
Executive Compensation and Management Resources 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 subsequently elected to his present position in 1993. Mr. Trotman
became an IBM director in 1994.
Lodewijk C. van Wachem, 62,63, is chairman of the supervisory board of
Royal Dutch Petroleum Company.Company, an international petrochemical company. He is
a member of IBM's Audit Committee. In 1992, Mr. van Wachem retired as
president of Royal Dutch Petroleum, a post he had held since 1982. He is a
director of ATCO Ltd., Credit Suisse Holding, and Zurich Versicherungs-Gesellschaft;Versicherungs-
Gesellschaft; and a member of the supervisory boards of AKZO N.V.
and, Philips
Electronics N.V., and Bavarian Motor Works A.G. Mr. van Wachem became an
IBM director in 1992.
Edgar S. Woolard, Jr., 59,Charles M. Vest, 53, is chairmanpresident and chief executive officerprofessor 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. HeCompany, 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.
Jerome B. York, 56, is chairmansenior vice president and chief financial
officer of IBM's Audit CommitteeIBM and a member of IBM's Executive Committee. Mr. Woolard joined Du PontFrom 1979 until
joining IBM, he served in 1957a number of executive positions at Chrysler
Corporation, an automotive manufacturer, including executive vice president-
finance and was electedchief financial officer from 1990 to Du Pont's board in 1983. He was elected1993 and vice chairman in 1985,
president in 1987, and
controller from 1989 to his present position in 1989.1990. He also servesserved as a
member of Du Pont's finance committee. He is a director of Citicorp, the North
Carolina Textile Foundation,Chrysler from
1992 to 1993. Prior to joining Chrysler, he held a number of technical and
management positions with General Motors Corporation, Ford Motor Company,
The Hertz Corporation, and Baker Industries, Inc., The Seagram Company Ltd., and The National
Council on Economic Education. He is a trustee of the Winterthur Museum, North
Carolina State University, and the Protestant Episcopal Theological Seminary of
Virginia. Mr. WoolardYork became an IBM
director in 1988.
IBM Notice of 1994 Annual Meeting and Proxy Statement 41995.
General Information
Board of Directors
The Board of Directors is responsible for supervision of the overall affairs
of the Company. To assist it in carrying out its duties, the Board has
delegated certain authority to several committees.
Consistent with the Company's long-standing practice, the majority of the
Board, twelve of the fourteen current directors, are outside directors who
are neither officers nor employees of IBM or its subsidiaries. In the
opinion of the Board, each of the outside directors is independent of
management and free of any relationship with the Company that would
interfere with his or her exercise of independent judgment in performing
the duties of a director.
In addition, the Audit Committee, the Directors and Corporate Governance
Committee, and the Executive Compensation and Management Resources Committee
are composed entirely of outside directors. The committees of the Board, as
well as the full Board, have access to outside consultants and experts as
needed in connection with their deliberations.
The Board of Directors held thirteenten meetings during 1993.1994. Overall attendance at
Board and committee meetings was 9295 percent. Individual attendanceAttendance was at least 8380
percent except for Mr. Knight whose attendance, 37 percent, was
affected by previously outstanding commitments at the time of his election to
the Board in July. On the date ofeach director. Following the Annual Meeting, the Board will
consist of eleven directors. In the interim between Annual Meetings, the
Board has the authority under the By-laws to increase or decrease the size
of the Board and fill vacancies.
Committees of the Board
The Executive Committee, the Audit Committee, the Directors and Corporate
Governance Committee, and the Executive Compensation and Management
Resources Committee are the standing committees of the Board of Directors.
Executive
Directors Compensation
and Corporate and Corporate Management
Executive Audit Governance Resources
----------------------------------------------------------------------------
L.V. Gerstner, Jr.* E.S. Woolard, Jr.* J.E. Burke* T.S. Murphy*
J.E. Burke J.R. Hope+ H. Brown* C.F. Knight*
H. Brown J.B. Slaughter F. Gerber H. Brown
T.S. Murphy J.B. Slaughter N.O. Keohane T.F. Frist, Jr.
P.J. RizzoA. Trotman
C.F. Knight L.C. van Wachem C.F. KnightN.O. Keohane C.M. Vest
E.S. Woolard, Jr. J.R. Opel+
J.B. York
* Chairman
Prior to a reorganization of the Board's committee structure in June, functions
now under the jurisdiction of the Directors and Corporate Governance Committee
and the Executive Compensation and Management Resources Committee were handled
by the former Nominating and Executive Compensation Committee, which met seven
times in 1993.
IBM Notice of 1994 Annual Meeting and Proxy Statement 5
+ Retiring April 25, 1995
Executive Committee
The Executive Committee is empowered to act for the full Board in intervals
between Board meetings, with the exception of certain matters that by law
may not be delegated. The committee meets as necessary, and all actions by
the committee are reported at the next Board of Directors meeting. The
committee held fourtwo meetings in 1993.1994.
Audit Committee
The Audit Committee is responsible for reviewing reports of the Company's
financial results, audits, internal accounting controls, and adherence to its Business
Conduct Guidelines in compliance with federal procurement laws and
regulations. The committee recommends to the Board of Directors the
selection of the Company's outside auditors and reviews their procedures for
ensuring compliancetheir independence with respect to the Company's policies on conflicts of interest.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 fivefour meetings in 1993.1994.
Directors and Corporate Governance Committee
The Directors and Corporate Governance Committee is responsible
for recommending qualified candidates to the Board for election
as directors of the Company, including the slate of directors
that the Board proposes for election by stockholders at the
Annual Meeting.
The committee advises and makes recommendations to the Board on all
matters concerning directorship practices, including retirement
policies and compensation for non-employee directors, and recommendations
concerning the functions and duties of the committees of the Board.
The committee reviews and considers the Company's position and practices
on significant issues of corporate public responsibility, such as equal
employment opportunity, protection of the environment, and philanthropic
contributions, and it reviews and considers stockholder proposals dealing
with issues of public or social interest. Members of this committee are
outside directors who are not officers or employees of IBM or its
subsidiaries. In the opinion of the Board, these directors are independent
of management and free of any relationship that would interfere with
their exercise of independent judgment as members of this committee. The
committee held three meetings in 1993.1994.
Stockholders wishing to recommend director candidates for consideration by
the committee may do so by writing to the Secretary of the Corporation,
giving the recommended nominee'scandidate's name, biographical data, and
qualifications, accompanied
by the written consent of the recommended nominee.qualifications.
Executive Compensation and Management Resources Committee
The Executive Compensation and Management Resources Committee has
responsibility for administering and approving all compensation for
corporate officers, and salaries for certain other senior management. It
also approves, by direct action or through delegation, participation in and
all awards, grants, and related actions under the provisions of the IBM
Stock Option Plans and the Long-Term Performance Plan,Plans, and reviews changes
in the IBM Retirement Plan primarily affecting IBM corporate officers. The
committee reports to stockholders on executive compensation items as
required by the Securities and Exchange Commission (page 9)12). The committee
has responsibility for reviewing the Company's management resources programs
and for recommending qualified candidates to the Board for election as
officers.
Members of this committee are outside directors who are not officers or
employees of IBM or its subsidiaries and are not eligible to participate in
any of the plans or programs that the committee administers. In the
opinion of the Board, these directors are independent of management and
free of any relationship that would interfere with their exercise of
independent judgment as members of this committee. The committee held threesix
meetings in 1993.
IBM Notice of 1994 Annual Meeting and Proxy Statement 6
1994.
Other Relationships
The Company and its subsidiaries purchase services, supplies, and equipment
in the normal course of business from many suppliers and similarly sell and
lease IBM products and services to many customers. In some instances, these
transactions occur between IBM and other companies for whom members of IBM's
Board serve as executive officers. In 1993,1994, none of these transactions were
individually significant or reportable. In 1993, legal fees were paid to Paul,
Hastings, Janofsky & Walker, of which Mrs. Hope, a director who is not a
nominee for election, is a senior partner.
The Company has renewed its directors and officers indemnification insurance
coverage. This insurance covers directors and officers individually where
exposures exist other than those for which the Company is able to provide
direct indemnification. These policies run from June 30, 19931994, through
June 30, 1994,1995, at a total cost of $914,511.$1,034,011. The primary carrier
is Federal Insurance Company.
Directors' Compensation
Employee directors receive no additional compensation for service onAt the recommendation of the Directors and Corporate Governance Committee,
the Board of Directors or its committees. Directors who are not employees receive anrecently adopted a number of changes to the
compensation of IBM's outside directors designed to increase the outside
directors' proprietary interest in the Company, and to align more closely
their interests with the interests of the Company's stockholders. These
changes include paying 50% of the annual retainer fees in stock, and
limiting the number of $55,000. Committee chairmen receive an additionalyears retirement benefits will be paid to directors.
Further, to tie more of the directors' compensation to the long-term
performance of IBM's common stock, the Board has also proposed terminating
the annual award of stock to directors, and decreasing the annual retainer
from $55,000 to $50,000, upon approval by stockholders of $5,000. Undera new non-employee
directors stock option plan.
Commencing in 1995, 50% of the annual retainer will be paid in Promised Fee
Shares of IBM common stock (IBM's $1.25 par value capital stock) under the
Directors Deferred Compensation and Equity Award Plan (the "DCEAP"),. The
Promised Fee Shares are valued based upon the market price of IBM common
stock and are paid in the form of IBM shares or cash. Outside directors maywill
retain the ability under the DCEAP to defer irrevocably defer all or part of their
Boardremaining cash compensation to selected later years, to be paid either with
interest at a rate equal to that of the rate on 26-week U.S. Treasury bills updated
each January and July, or in Promised Fee Shares of IBM common stock (IBM's $1.25 par value capital
stock) with dividends used to buy additional Promised Fee Shares. In addition,
each non-employee director receives 100 Promised Award Shares of IBM common
stock upon election and an additional 100 Promised Award Shares each May 1
thereafter that the director is reelected at the Annual Meeting of
Stockholders. All shares awardedawards under the DCEAP
are to be deliveredpaid only upon retirement.retirement or other completion of service as a
director.
Upon approval of the IBM Non-Employee Directors Stock Option Plan, directors
will no longer receive 100 Promised Award Shares upon election and annually
thereafter upon reelection to the Board and the annual retainer will be
decreased by $5,000. In that event, directors who are not employees will
receive an annual retainer of $50,000 and committee chairmen will continue
to receive an additional annual retainer of $5,000.
The DCEAP was adopted in July 1993 and superseded two plans in
effectBoard also modified the retirement benefits payable to directors so that
those elected at that time. Awards and balances under those plans were carried forward
on a share-for-share basis under the DCEAP.1995 Annual Meeting or thereafter shall no longer be
entitled to retirement benefits for the full life of the director. Directors
with five years or more of service on the Board who are not entitled to
retirement income under any IBM retirement plan for employees will now be
eligible to receive, upon retirement or age 70, whichever is later, an
annual payment equal to 50% of the director's last annual fee.fee, payable
quarterly during his or her lifetime for a period equal to the length of
service by the director on the Board.
The Board is proposing for stockholder approval the IBM Non-Employee
Directors Stock Option Plan, which is more fully described on pages 22 and
23 and in Appendix B of this proxy statement.
Employee directors receive no additional compensation for service on the
Board of Directors or its committees.
Stock Ownership
The following table reflects beneficially ownedtables reflect shares of IBM common stock ofbeneficially owned
by the named persons, and directors and executive officers as a group, as of
JanuaryDecember 31, 1994, and indicatesindicate whether voting power and investment power
are solely exercisable by the person named or shared with others.
Voting power includes the power to direct the voting of the shares held,
and investment power includes the power to direct the disposition of shares
held. Also shown are shares over which any person could have acquired such
powers within 60 days. Since most shares may appear under both the voting power
and investment power columns, the individual columns will not add across to
the total column.
Due
The following sets forth information as to an inadvertent error in preparing reports for Mr. S.D. Bechtel, Jr., who
retired from the Board in July, two IBM stock transactions were omitted from
two reports timely filed during 1992 pursuantonly persons known
to Section 16the Company to be the beneficial owner of more than five
percent of the Securities
Exchange Act of 1934. Amendments to such reports were filed in 1993 to correct
the errors.
IBM Notice of 1994 Annual Meeting and Proxy Statement 7
Beneficial Ownership of Shares of IBM Common StockCompany's common stock as of JanuaryDecember 31, 1994.
Voting Power Investment Power Percent of
Name and Address Sole Shared Sole Shared Total(2) class(2)
FMR Corp. (1) 2,236,711 8,050 32,250,466 8,050 32,281,389 5.50%
82 Devonshire Street
Boston, Mass. 02109
(1) Based on Schedule 13G filed by FMR Corp. with the Securities and
Exchange Commission on February 14, 1995. The Schedule 13G does not
identify any shares with respect to which there is a right to acquire
beneficial ownership. The Schedule 13G indicates that beneficial
ownership of substantially all of these shares arises through the
investment advisory activities of Fidelity Management & Research Company
and the investment management activities of Fidelity Management Trust
Company, each a wholly owned subsidiary of FMR Corp.
(2) The Schedule 13G additionally reports that Mr. Edward C. Johnson 3rd,
chairman of FMR Corp., and together with other family members part of a
controlling group of FMR Corp., is the beneficial owner of the same
shares, except that his sole voting power is with respect to 17,700
shares.
The following table sets forth the beneficial ownership of shares of the
Company's common stock as of December 31, 1994, (1)
Acquirable
Voting Power Investment Power within 60
Name Sole Shared Sole Shared Total(1)(2) days (3)
J.F. Akers 6,998 24 6,998 24 7,022 637,475
H. Brown 0 600 5,357 600 6,518 --
J.E. Burke 4,400 725 4,400 725 5,686 --
T.F. Frist, Jr. 1,000 0 1,000 0 1,561 --
F. Gerber 1,000 0 1,000 0 1,561 --
L.V. Gerstner, Jr. 30,000 456 30,000 456 30,456 125,522
J.R. Hope 1,000 0 1,000 0 1,440 --
N.O. Keohane 0 481 1,129 481 2,171 --
C.F. Knight 2,008 0 2,008 0 2,109 --
R.J. LaBant 9,047 1 1,596 7,452 9,048 81,817
N.C. Lautenbach 10,695 0 988 9,707 10,695 110,417
T.S. Murphy 1,327 0 4,871 0 5,432 --
J.R. Opel 10,889 10,000 10,889 10,000 21,450 76,987
P.J. Rizzo 5,000 0 5,000 0 5,000 104,830
J.B. Slaughter 50 0 1,230 0 1,791 --
P.A. Toole 15,669 120 3,294 12,495 15,789 141,002
L.C. van Wachem 1,000 0 1,000 0 1,208 --
E.S. Woolard, Jr. 200 0 3,805 0 4,366 --
Directorsby IBM's current directors
and the executive officers as a group 159,172 13,227 111,569 75,645 193,012*
1,145,768*named in the Summary Compensation Table on page
15.
Voting Power Investment Power Acquirable
------------------ ---------------- within 60
Name Sole Shared Sole Shared Total(1)(2) days (3)
- ------------------------------------------------------------------------------------------
H. Brown 0 600 6,320 600 7,591 -
J.E. Burke 4,400 725 4,989 725 6,385 -
F. Gerber 1,000 0 1,000 0 1,671 -
L.V. Gerstner, Jr. 57,500 456 57,500 456 57,956 125,522
N.O. Keohane 0 489 2,025 489 3,185 -
C.F. Knight 2,040 0 2,580 0 2,784 -
N.C. Lautenbach 10,695 0 988 9,707 10,695 148,397
T.S. Murphy 1,348 0 5,906 0 6,577 -
L.A. Noto 697 601 697 601 1,398 -
P.J. Rizzo 15,000 0 15,000 0 15,000 200,282
J.B. Slaughter 50 0 1,688 0 2,359 -
J.M. Thompson 5,465 0 324 5,141 5,465 132,695
A. Trotman 1,000 0 1,000 0 1,100 -
L.C. van Wachem 1,000 0 1,000 0 1,313 -
C.M. Vest 100 0 100 0 201 -
E.S. Woolard, Jr. 200 0 4,820 0 5,491 -
J.B. York 0 20,000 0 20,000 20,000 37,193
- -----------------------------------------------------------------------------------------
Directors and
executive officers
as a group(4) 183,324 30,205 120,388 113,431 239,334* 1,282,798*
- -----------------------------------------------------------------------------------------
* The total of these two columns represents less than 1% of the
outstanding shares.
(1) No individual's beneficial holdings totaled more than 1/10th of 1% of
the outstanding shares. These holdings do not include 975,5381,501,567 shares
held by the retirement plan trust funds,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 household.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.
(2) For non-employee directors, this column includes shares earned and
awardedaccrued under the Directors Deferred Compensation and Equity Award Plan.
They have no voting power over such shares and investment power only
with regard to Promised Fee Shares whichthat are acquired as a result of
deferring fees paid to them.
Therefore, the shares listed in the other columns for them will not equal the
total in this column. Fractional shares attributable to
participation in this plan are not shown.
(3) Shares that can be purchased under an IBM stock option plan within 60 daysplan.
(4) None of the date of this proxy statement.directors or named executive officers own any IBM Notice of 1994 Annual Meeting and Proxy Statement 8preferred
stock.
Report on Executive Compensation
The Executive Compensation and Management Resources Committee has
responsibility(the
"Committee") is responsible for IBM'sadministering the Company's executive
compensation policies and practices. The
committeepractices and approves all elements of
compensation for corporate officersofficers. In carrying out its duties, the
Committee has direct access to independent compensation consultants and
administers the IBM 1989 Long-Term Performance Plan, approved by stockholders
in 1989, under which stock and cash awards are made to officers, other
executives and selected key employees.outside survey data. The committeeCommittee reports regularly reports on its
activities to the Board of
Directors. The committee alsoDirectors on its activities and obtains ratification by the non-employee
members of the Board of all items of compensation for the two highest-paid
executives.
The committee is comprised of three outside
directors who are not officers or employees of IBM or its subsidiaries and who
are not eligible to participate in any of the plans or programs that the
committee administers.
Compensation Philosophy IBM'sand Practices
The Company's executive compensation programs areprogram is based on the belief that
the interests of the executives should be directlyclosely aligned with those of IBM's
stockholders. To support this philosophy, the stockholders. The programs are strongly oriented towardsfollowing principles provide
a pay-at-risk
philosophyframework for the compensation program:
- offer compensation opportunities that tiesattract the best talent to IBM;
motivate individuals to perform at their highest levels; reward
outstanding achievement; and retain the leadership and skills necessary
for building long-term stockholder value;
- maintain a significant portion of executives' total compensation at risk,
tied to both the annual and long-term financial performance of the
Company, as well as to long-termthe creation of stockholder return. The
committee has established the following principlesvalue.
- encourage executives to guide development of the
Company's compensation programs and to provide a framework for compensation
decisions:
- - provide a total compensation package that will attract the best talent to
IBM, motivate individuals to perform at their highest levels, reward
outstanding performance, and retain executives whose skills are critical for
building long-term stockholder value;
- - establish annual incentives for senior management that are directly tied
to the overall financial performance of the Company; and
- - implement long-term incentives to focus executives on managingmanage from the perspective of an ownerowners with an
equity stake in the business, and align
executive compensation with benefits realized byCompany.
While performance against financial objectives is the Company's stockholders.
Compensation Programs and Practices
The committee determines salary ranges and incentive award opportunitiesprimary measurement
for executive officers.officers' annual incentive compensation, non-financial
performance also can affect pay. Every executive, as well as every employee,
is expected to uphold and comply with IBM's Business Conduct Guidelines,
which require the individual to maintain IBM's discrimination-free
workplace and high standards of environmental protection. Upholding the
Business Conduct Guidelines contributes to the success of the individual
employee, and to IBM as a whole.
IBM's compensation program for executive officers is designed to provide a
total compensation level (including both annual and long-term incentives)
that is targeted at approximately the 75th percentile of survey companies.
For positions other thanexecutive officers recently recruited by IBM, annual compensation rates
and long-term incentive awards reflect amounts necessary to attract them to
the chairman and vice chairman,
bothCompany. The compensation program is benchmarked by independent
consultants using surveys of whom were hired in 1993, the compensation ranges are based on surveys
conducted by an independent consultant of competitive pay practices in both the computerinformation processing industry and
the thirty largest U.S. market-capitalized companies. TheThese companies, included in these surveyswhich are
representative of the firms IBM competes with for executive talent and have
jobs similar to those at IBM in magnitude, complexity orand scope of
responsibility. The committee believes these companies
are representative ofresponsibility, form the Company's main competitionbasis for executive talent.
Consequently, the compensation survey group used by the Committee.
Consequently, this is a broader and more diverse set of companies than the ten companiesthose
included in the S&P Computer Systems Index used for the Performance Graph on
page 16.
Salary20.
Management has initiated new stock ownership guidelines to support the
objective of increasing the amount of stock owned by senior executives of
the Company. The guidelines provide that within a five-year period of time
senior executives should attain an investment position in IBM stock or stock
units that is equal to two to four times their base salary, depending on the
position of the executive.
Components of Executive Compensation
The compensation program for executive officers consists of the following
components:
ANNUAL CASH COMPENSATION includes base salary and Annual Incentivean annual cash incentive
(bonus). Salaries are established by the committeeCommittee based on an executive's
scope ofjob responsibilities, level of experience, individual performance and
contribution to the business, and information obtained from surveys. The
annual incentive component of pay is at risk and tied to specific
performance measures. The Committee establishes the surveys referredannual incentive
opportunity for each executive officer in relation to above. Inhis or her base
salary. Actual incentive awards for 1994 were based primarily on performance
measured against annual financial targets approved by the caseCommittee early in
the year. These targets were pre-tax earnings and cash flow with most of the
vice
chairman, his salaryweighting on earnings, thus establishing a direct link between executive pay
and Company profitability. To a lesser degree, individual performance was
measured by factors such as strategy development, leadership of special
projects, and customer satisfaction. The final score results in a bonus
that may be above or below the executive's target incentive opportunity,
depending on the level of overall performance. In 1994, the Company's
financial performance exceeded the objectives set by the committee at a level reflecting his
consulting rate with IBM priorCommittee,
resulting in above-target incentive payouts to his reemployment, his broad experience in the computer industry, and the Company's need for his services during a transition
period. The salary levels for the senior vice presidentsexecutive officers named
in the Summary Compensation Table,Table.
LONG-TERM INCENTIVES include both stock options and otherLong-Term Performance
Incentive awards. The objective for both of these awards is to align closely
executive officers excludinginterests with the chairmanlonger term interests of stockholders. These
awards, which are at risk and vice chairman, are between the median and 75th percentile of the survey group.
IBM Notice of 1994 Annual Meeting and Proxy Statement 9
Executive officers have an annual incentive (bonus) opportunity with awards
baseddependent on the overall performancecreation of incremental
stockholder value or the Company and, if applicable, on the
performanceattainment of an IBM business unit. The purpose of this incentive is to tiecumulative financial targets over
several years, represent a significant portion of annual pay directlythe total compensation
opportunity provided for the executive officers. Award sizes are based on
individual performance, level of responsibility, the individual's potential
to key financial results. For 1993,
the incentive awards related directlymake significant contributions to the business performance factors,Company, and where performance exceeded or did not meet preestablished targets, incentive
payments were increased or decreased accordingly. The annual incentives paid to
Messrs. Rizzo and Toole were based on the Company's operating results (adjusted
for special items) measured against objectives established with the Board of
Directors early in the year. The performance factors used were profit and cash,
with the primary emphasis being on profit. Because Messrs. Lautenbach and
LaBant had responsibility for large business units, their annual incentives
were based principally on their business unit performance, equally weighted
between financial results (profit, revenue, and cash, with the primary emphasis
on profit) and a subjective assessment of other key business unit objectives,
and to a lesser degree, on the Company's operating results, as defined above.
In the first quarter of 1993, IBM's annual compensation was simplified by
eliminating a separate restricted stock unit award so as to delete a component
that had been based solely on a judgmental performance assessment. A portion
of this award opportunity has been added to salary and the remainder to the
incentive compensation opportunity. The allocation of this award opportunity
was done so that the resulting relationships between the incentive opportunity
and salary for the individuals who had received such awards were similar to the
incentive-to-salary ratios for comparable jobslevels at
companies in the survey companies. In the
case of the three named executive officers who were employedgroup. Long-term incentives granted in prior to 1993,
this change from previous years' practice is reflected in both the Salary and
Bonus columns of the Summary Compensation Table on page 13.years
are also taken into consideration.
- Stock Options The committee strongly believes that the interests of senior management must be
closely aligned with those of the stockholders. Long-term incentives in the
form of stock options provide a vehicleare typically granted annually to reward executives only if there is
an increase in stockholder value. Stock options are granted to officers, other
executives and other
selected employees whose contributions and skills are important to the
long-term success of the Company. OptionsThe options are granted at fairwith an exercise
price equal to the market valueprice of the Company's common stock on the date of
grant, withvest over a ten-year term. Since 1989, grantsperiod of up to four years, and expire after ten years.
These options only have been
made under the IBM 1989 Long-Term Performance Plan. The 1989 Plan expires in
April 1994, and its successor, the IBM 1994 Long-Term Performance Plan, is
being proposed for stockholder approval at this year's Annual Meeting and is
described starting on page 17.
Several factors were considered in determining the size of stock option grantsvalue to the executive officers. These included individual performance,recipients if the lack of
market value in options granted prior to 1993, and competitive practicesprice of the
companies inCompany's stock appreciates from the survey group referred to above. Relative performance among
these companies was not taken into consideration nor was specific weighting
given to these factors. The number ofdate when the options granted in 1993 was approximately
the same as in the prior year and is at approximately the 75th percentile of
the survey companies for the executive officers, excluding the chairman.were granted.
- Long-Term Performance Incentive A Long-Term Performance Incentive, an award under the 1989 Long-Term
Performance Plan, was introduced early in 1993 toawards provide executive officers
and senior management with a multiple-yearan
incentive opportunity linked to both tomultiple year corporate financial performance and
stockholder value. Awards are intended to be made annually in the form of
performance stock units which mustthat are valued based upon the market price of the
Company's common stock. For the award in 1994, the stock units can be earned
based on achieving cumulative financial targets of earnings-per-share and
cash flow, (in each case, as adjusted for special items), equally weighted, over a three-year IBM Notice of 1994 Annual Meeting and Proxy Statement 10
period (1993-1995).period. No payouts will be
made for cumulative performance below a 50% threshold level, and there is a
maximum payout of 130%150% of the stock units for exceeding target performance.
Any payouts from this award will occur in the
first quarterAt time of 1996 and the valuepayout, one-half of the performance stockearned units will be based onpaid in cash and
one-half in the form of an equivalent number of restricted shares of the
Company's stock price at that time. This long-term incentive
replaces a prior practice, discontinued in 1992, of making restricted stock
awards and is intended to provide an opportunity comparable to the prior
program (approximately 20% of annual compensation), but only if the performance
targets are achieved at the end of the three-year period. The Long-Term
Performance Incentive is further described in the table on page 15.common stock.
Compensation for the Chairman and Chief Executive Officer
On March 26, 1993, IBM entered into an employment agreement with Mr. Louis
V. Gerstner, Jr., to become chairman and chief executive officer of the
Company. All aspects of Mr. Gerstner's 1993 compensation were governed by
this employment agreement. The committee andIn determining the Board of Directors approvedcompensation for Mr. Gerstner's employment
agreement after an extensive search had been conducted by the Board with the
assistance of two executive search firms. In settling on the final compensation
amounts,Gerstner,
the Board focused on the importance of hiring a chairman and chiefan executive officer with an
outstanding business record who could provide the leadership necessary to
improve IBM's competitiveness and profitability. The Board also recognized
the need to consider Mr. Gerstner's compensation at his former employer, as
well as the value of benefits under various plans of this employer that
would be forfeited upon his resignation. For 1994, Mr. Gerstner's base
salary, as well as both his annual cash incentive and Long-Term Performance
Incentive target opportunities, were governed by this employment agreement.
Based on above-target achievement of the Company's 1994 financial targets
(referred to under the section above entitled Annual Cash Compensation), and
their assessment of Mr. Gerstner's contributions to the business, the
Committee approved an annual incentive payment to him of $2,600,000. In
June, the Committee approved a stock option grant for Mr. Gerstner covering
225,000 shares of IBM common stock. In approving this grant, the Committee
considered several factors: an analysis prepared by an independent
consultant of option grants made to chief executive officers at other
leading companies in the survey groups; the size and complexity of IBM; the
leadership challenge facing the chairman; and improved business results for
the
Company. This grant was made with an exercise price of $60.94 (the average
market price on June 27, 1994, the date of grant).
The terms of Mr. Gerstner's employment agreement are set forthdescribed in the section
entitled, "Employment Agreements and Change-in-Control Arrangements" on page 15.
Compensation and Separation Payments for the Former Chairman and Chief
Executive Officer
Mr. John F. Akers was chairman and chief executive officer19.
Deductibility of the Company for
the first three months of 1993. He retired from IBM on April 30, 1993. For his
four months of service, Mr. Akers received one-third of his annual salary and
an incentive (bonus) payment, determined by the collective judgment of the
committee, that was set at the same relationship to his salary as his 1992
incentive. He also received a stock option grant, along with the other
executive officers, on January 7, 1993, the number of shares of which was equal
to his grant the prior year. The factors considered by the committee in
granting this stock option were the same as set forth above under the section
entitled "Stock Options" for other executive officers. At the time of his
retirement, Mr. Akers received $2,500,000, an amount equal to his annual
compensation rate, as part of a retirement incentive program that was available
to other corporate employees during 1993. The compensation rate was based on
his annual rate for salary and incentive, assuming all performance objectives
had been achieved and a restricted stock unit award had been made. The terms of
this program provided for a payment equal to one week of compensation for each
six months of service, up to a maximum of fifty-two weeks. The Board of
Directors also authorized an additional payment of $925,000, an amount equal to
his annual base salary, in recognition of his 33 years of service to the
Company. Mr. Akers' stock options vested and his restricted stock and
restricted stock units were paid out upon his retirement, in accordance with
their terms. (See footnote 1, Summary Compensation Table, page 13.)
IBM Notice of 1994 Annual Meeting and Proxy Statement 11
Discussion of Corporate Tax Deduction on Compensation in Excess of $1 Million a Year
In 1993, Congress enacted section 162(m) of the U.S. Internal Revenue Code Section 162(m), enactedof
1986, effective for tax years beginning in 1993,1994. This legislation precludes a
public corporation from taking a deduction in 1994 or subsequent years for compensation in excess of $1
million per year for its chief executive officer orand any of its four other
highest-paid executive officers. CertainHowever, certain performance-based compensation
however,
is specifically exempt from the deduction limit. The committee has been following this matter closely. In December 1993, the
Internal Revenue Service issued proposed regulations implementing this
legislation. The regulations will not become final until after a period for
public comment and possibly public hearings thereafter.
Based on the proposed
regulations, any taxable compensation derived from the exercise of stock options
or stock appreciation rights granted under the IBM 19891994 Long-Term Performance
Plan and prior Stock Option Plans should be exempt from the limit on the corporate tax
deduction. Similarly, any future payouts fromAs explained in the Long-Term Performance Incentive awards madeReport on Executive Compensation in 1993 should be excluded from
the limit. The new IBMCompany's
1994 Long-Term Performance Plan, being presented for
stockholder approval as a successorproxy statement, the Committee was reluctant to make changes at that time
to the 1989 Plan, has been designed to meetexecutive compensation program solely for tax purposes. At that time, the
proposed regulations so that stock options and stock appreciation rights
granted under this Plan will also be excluded from the deduction limit, and to
provide flexibility for certain other awards to so qualify.
The committee recognizesCommittee indicated it recognized that part of the 1994 annual compensation paid
to one or more of the five coverednamed executive officers maymight not qualify for the
exemption. The committee is reluctant, however,Although the regulations still have not been finalized, the Committee
has taken action designed so that future annual incentive compensation and
Long-Term Performance Incentive awards that otherwise would be subject to make changesthe
limitations of section 162(m) should not be subject to these deductibility
limitations. Accordingly, on pages 23 and 25 of this proxy statement there are
two resolutions covering performance-based incentives that are being proposed
for stockholder approval at this timeyear's Annual Meeting.
* * *
The Board believes that the caliber and motivation of IBM's employees, and
especially of their leadership, are fundamentally important to achieving our
objective of restoring IBM to preeminence in the marketplace and as an
investment for our stockholders. The Committee is responsible to the executive compensation programs solelyBoard, and
by extension to stockholders, for tax purposes, at least, until final
regulationsensuring that the best qualified individuals
are issued. Atin key positions and that time,they are compensated in a way that is compatible
with IBM's business strategies and that aligns their interests with those of
long-term investors. We believe the committeeactions taken by the Committee to strengthen
and broaden cash and stock-based incentives will assessprove beneficial to the practical
impact ofCompany
and the new tax legislation on executive compensationcustomers, communities and determine what
action, if any, is appropriate.
H. Brown
T.F. Frist, Jr.
T.S. Murphystockholders IBM serves.
Charles F. Knight (chairman)
IBM Notice of 1994 Annual Meeting and Proxy Statement 12Alex Trotman
Charles M. Vest
Summary Compensation Table
Name and Annual Compensation
- -----------------------------------------------------------------------------------------------------------
Long-Term Compensation
Annual Compensation (1) Awards (2)
- -----------------------------------------------------------------------------------------------------------
Name and Other Annual Securities Under- All Other
Principal Position Year Salary Bonus Compensation lying Options(#) Compensation
- -----------------------------------------------------------------------------------------------------------
L.V. Gerstner, Jr. 1994 $2,000,000 $2,600,000 $0 225,000 $7,755,055(3)
Chairman and CEO 1993 1,500,000 1,125,000 160,130 500,000 4,924,596
P.J. Rizzo 1994 1,000,000 1,300,000 0 50,000 2,248(4)
Vice Chairman 1993 965,086 750,000 0 80,000 0
J.B. York 1994 575,000 800,000 0 75,000 2,250(4)
Senior VP and CFO 1993 371,354 300,000 0 70,000 3,360,473(5)
N.C. Lautenbach 1994 490,000 575,000 0 60,000 2,250(4)
Senior VP 1993 490,000 300,000 0 40,000 2,698
1992 276,666 637,100 186,800 (6) 40,000 485,688(7)
J.M. Thompson 1994 458,000 550,000 0 60,000 110,820(7)
Senior VP 1993 448,000 315,000 0 35,000 110,887
1992 298,300 669,679 0 35,000 108,451
(1) Principal Other Annual Restricted Securities Under- All Other
Position Year Salary Bonus Compensation Stock Awards lying
Options (#) CompensationInformation for Messrs. L.V. Gerstner, Jr. 1993 $1,500,000 $1,125,000 $160,130 (2) $ 0
500,000 $ 4,924,596 (3)
Chairman
and CEO, P.J. Rizzo, and J.B. York is
provided only for 1994 and 1993 965,086 (4) 750,000 0 0 80,000 0
Vice Chairman
P.A. Toolebecause none of these individuals were
employed by the Company in 1992. In addition, the 1993 450,000 363,000 0 0 42,000 2,698 (5)
Senior VP 1992 280,000 393,250 0 0 42,000 2,618
1991 280,000 390,044 0 149,962 23,940 2,542
N.C. Lautenbachannual compensation
amounts for these individuals reflect less than a full year, since their
employment dates were April 1, 1993, 490,000 300,000 0 0 40,000 2,698(5)
Senior VP 1992 276,666 637,100 0 0 40,000 2,618
1991 260,000 280,022 0 149,962 19,388 2,542
R.J. LaBantJanuary 25, 1993, 460,000 312,000 0 0 40,000 2,698 (5)
Senior VP 1992 250,000 446,250 0 0 40,000 2,618
1991 209,167 359,971 0 149,962 15,679 2,542
J.F. Akersand May 10, 1993,
308,333 125,000 0 0 97,000 3,427,698 (6)
1992 925,000 375,000 0 0 97,000 2,618
1991 925,000 650,017 0 499,994 89,354 2,542
(1)respectively.
(2) At the end of 1993,1994, Mr. Gerstner held 10,30118,961 performance stock units having
a value of $582,007;$1,393,634; Mr. Rizzo held 8,24113,437 performance stock units having
a value of $465,617;$987,620 (upon his retirement, he forfeited 3,464 units); Mr.
TooleYork held 3,09011,376 performance stock units 12,375having a value of $836,136; Mr.
Lautenbach held 5,688 performance stock units and 9,707 shares of restricted
stock and 1,472 restricted stock units having a combined value of $956,941;$1,131,533; and Mr. LautenbachThompson held 3,0905,173
performance stock units 9,707and 5,141 shares of restricted stock and 1,338 restricted stock units having a
combined value of $798,628; Mr. LaBant held 3,090 performance stock units, 7,451 shares
of restricted stock and 1,605 restricted stock units having a combined value of
$686,249. Mr. Akers' 54,431 shares of restricted stock and 4,281 restricted
stock units having a combined value of $2,985,750 were paid out upon his
retirement in accordance with their terms.$758,079. Performance stock units were granted as part of
the Long-Term Performance Incentive (LTPI) award. These
unitsaward and are valued based on the
Company's common stock price.price on December 31, 1994. LTPI awards are not
included in this table (see page 1517 for additional information)information on the
awards made in 1994). Restricted stock may not be sold, transferred, or
assigned until retirement or age 60, is forfeitable, and earns dividends at
the same rate paid to all stockholders.
Restricted(3) Includes: (a) $7,752,854 paid according to Mr. Gerstner's employment
contract which calls for the Company to guarantee a yield of $8.125 upon
exercise or expiration for each of 3,211,320 shares of RJR Nabisco stock units, last awarded in 1992, are paid out based on
the value
of the Company's stock at the end of two years and earn dividend equivalents
during the period.
(2) This amount represents reimbursement for tax liabilities related to
certain payments listed in footnote (3) below.
(3)which Mr. Gerstner under the termsheld options as a result of his employment agreement, was given these
one-time payments in replacement for various benefitswith RJR
Nabisco; and rights from his
former employer that were forfeited upon joining IBM. These items included:
$725,000 for forfeited options for shares of his former employer's stock;
$1,478,750 for forfeited performance shares; $500,000 representing his first
quarter bonus from his former employer; $1,381,764 for forfeited benefits under
his Personal Retirement Account; $25,000 for financial and tax planning
services provided by his former employer; and $637,500 representing the
difference between $8.125 and the price realized upon selling 300,000 shares of
his former employer's stock. Mr. Gerstner was also reimbursed an aggregate of
$176,582 for other expenses, including legal fees, relating to his change of
employment.
(4) This includes an amount paid for services rendered as(b) a consultant during
January of 1993 prior to Mr. Rizzo's reemploymentcontribution by the Company.
(5) These amounts represent the Company's annual contributionsCompany of $2,201 to the IBM Tax
Deferred Savings Plan, a 401(k) plan. All U.S. employees are eligible to
participate in this plan.Plan.
(4) Represents the Company's contribution to the IBM Tax Deferred Savings Plan.
(5) Includes a one-time payment of $3,360,000 given in replacement for various
benefits and rights from his former employer that were forfeited upon Mr.
York joining IBM, and a contribution of $473 to the IBM Tax Deferred Savings
Plan.
(6) This amount includes the followingReimbursement for tax liabilities related to payments for overseas
assignment (see footnote (7) below).
(7) Includes payments to equalize cost-of-living and housing differences, and
for certain other expenses, related to assignments outside of home country.
For Mr. Akers, who retired
April 30, 1993: $2,500,000 as part of a retirement incentive program, an
additional payment of $925,000 in recognition of 33 years of service to the
Company, andLautenbach, it also includes $2,618 for the Company's annual
contribution to the IBM Tax Deferred Savings Plan of $2,698.
IBM Notice of 1994 Annual Meeting and Proxy Statement 13Plan.
Stock Option/SAR Grants in Last Fiscal Year (1)
Individual Grants
Number of % of Total Potential Realizable Value at
Securities Options/SARs Assumed Annual Rates
Underlying Granted to Exercise of Stock Price Appreciation for
Options/SARs Employees in Price Expiration Ten-Year Option
Term (3)
Name Granted (2) Fiscal Year per Share Date 5% 10%
L.V. Gerstner, Jr. 500,000 2.80% $47.88 4/22/03 $15,055,000
$38,155,000
P.J. Rizzo {40,000 .22% 46.31 1/07/03 1,164,800 2,952,400
40,000 .22% 52.12 2/04/03 1,311,200 3,322,800
P.A. Toole 42,000 .24% 46.31 1/07/03 1,223,040 3,100,020
N.C. Lautenbach 40,000 .22% 46.31 1/07/03 1,164,800 2,952,400
R.J. LaBant 40,000 .22% 46.31 1/07/03 1,164,800 2,952,400
J.F. Akers 97,000 .54% 46.31 1/07/03 2,824,640 7,159,570
Increase in market value of IBM common stock for all stockholders at 5% (to
$78/share) 10% (to $124/share)
assumed annual rates of stock price appreciation (as used in the table above)
from $47.88 per share, over the ten-year period, based on 581.4 million
$17.5 billion $44.4 billion
shares outstanding on December 31, 1993.
- -------------------------------------------------------------------------------------------------------------
Individual Grants
Number % of Total Potential Realizable Value at
of Securities Options/SARs Assumed Annual Rates of
Underlying Granted to Exercise Stock Price Appreciation for
Options/SARs Employees in Price Expiration Ten-Year Option Term (3)
Name Granted (2) Fiscal Year per Share Date 0% 5% 10%
- -------------------------------------------------------------------------------------------------------------
L.V. Gerstner, Jr. 225,000 3.24% $ 60.94 6/27/04 $ 0 $ 8,622,000 $ 21,852,000
P.J. Rizzo 50,000 .72% 53.44 2/06/04 0 1,680,500 4,258,500
J.B. York 75,000 1.08% 53.44 2/06/04 0 2,520,750 6,387,750
N.C. Lautenbach 60,000 .86% 53.44 2/06/04 0 2,016,600 5,110,200
J.M. Thompson 60,000 .86% 53.44 2/06/04 0 2,016,600 5,110,200
- -------------------------------------------------------------------------------------------------------------
Increase in market value of IBM common stock for all stockholders 5% (to $99/share) 10% (to $158/share)
at assumed annual rates of stock price appreciation (as used in the ---------------- -------------------
table above) from $60.94 per share, over the ten-year period, based $22.5 billion $57.1 billion
on 587.7 million shares outstanding on December 31, 1994.
- -------------------------------------------------------------------------------------------------------------
(1) No Stock Appreciation Rights (SARs) were granted to the named executive
officers during 1993.1994.
(2) Included in the total aggregate exercise price for the grants made to each
grantof Messrs. Gerstner, York, and Lautenbach is approximately $100,000 of
Incentive Stock Options, which become exercisable in two equal installments
on the first and second anniversary dates. The balance of their grants, as
well as the grants made to Mr. Rizzo and Mr. Thompson, is exercisable in
four equal annual installments commencing on the first anniversary date. All
options become exercisable upon retirement. In addition, Mr. Gerstner's grant also
becomes exercisable on a change-in-control,termination without cause, including upon a
"change-in-control," as defined in his employment agreement.
(3) Potential Realizable Value is based on the assumed annual growth rates for
each of the grants shown over their ten-year option term. For example, a 5%
annual growth rate for Mr. Gerstner's grant results in a stock price of
$77.99$99.26 per share and a 10% rate results in a price of $124.19$158.06 per share.
These potential values are listed in order to comply with Securities and
Exchange Commission regulations, and the Company cannot predict whether
these values will be achieved. Actual gains, if any, on stock option
exercises are dependent on the future performance of the stock.
There can be no assurance that the amounts reflected in this table
will be achieved.
Fiscal Year-End Option/SAR Values (1)
Number of Securities
Underlying Unexercised Value of Unexercised In-the-Money
Options/SARs at Fiscal Year-End Options/SARs at Fiscal Year-End
Name Exercisable Unexercisable Exercisable Unexercisable
L.V. Gerstner, Jr. 0 500,000 $ 0 $4,310,000
P.J. Rizzo 83,812 80,000 0 582,800
P.A. Toole 106,382 91,809 0 427,980
N.C. Lautenbach 79,781 84,187 0 407,600
R.J. LaBant 53,194 81,247 0 407,600
J.F. Akers 637,475 0 988,430 0
Number of Securities Value of
Underlying Unexercised Unexercised In-the-Money
Options/SARs at Fiscal Year-End Options/SARs at Fiscal Year-End
Name Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------
L.V. Gerstner, Jr. 125,522 599,478 $3,215,874 $12,420,126
P.J. Rizzo 91,300 108,982 510,596 2,435,204
J.B. York 18,012 126,988 445,797 2,791,203
N.C. Lautenbach 108,058 113,551 286,555 2,004,645
J.M. Thompson 95,642 108,303 237,913 1,917,338
- ---------------------------------------------------------------------------------------------
(1) No options were exercised by anya named executive officer during 1993.
IBM Notice of 1994 Annual Meeting and Proxy Statement 141994.
Long-Term Incentive Plans -- Awards in Last Fiscal Year
Performance or
Number of Other Period Estimated Future Payouts under
Shares, Units Until Maturation Non-Stock Price-Based Plans (1)
Name or Other Rights or Payout Threshold (#) Target (#) Maximum
(#)
L.V. Gerstner, Jr. 10,301 1/93-12/95 2,575 10,301 13,391
P.J. Rizzo 8,241 1/93-12/95 2,060 8,241 10,713
P.A. Toole 3,090 1/93-12/95 773 3,090 4,017
N.C. Lautenbach 3,090 1/93-12/95 773 3,090 4,017
R.J. LaBant 3,090 1/93-12/95 773 3,090 4,017
Long-Term Incentive Plans - Awards in Last Fiscal Year
- --------------------------------------------------------------------------------------------------
Performance or
Number of Other Period Estimated Future Payouts under
Shares, Units Until Maturation Non-Stock Price-Based Plans (1)
Name or Other Rights or Payout Threshold(#) Target(#) Maximum(#)
- --------------------------------------------------------------------------------------------------
L.V. Gerstner, Jr. 8,660 1/94-12/96 2,165 8,660 12,990
P.J. Rizzo 5,196(2) 1/94-12/96 1,299 5,196 7,794
J.B. York 5,196 1/94-12/96 1,299 5,196 7,794
N.C. Lautenbach 2,598 1/94-12/96 650 2,598 3,897
J.M. Thompson 2,598 1/94-12/96 650 2,598 3,897
- --------------------------------------------------------------------------------------------------
(1) Payouts of incentivesthe Long-Term Performance Incentive (LTPI) awards are tied to
achieving specified cumulative business objectives of earnings-per-share and
cash flow (in each case, as adjusted for
special items).flow. The target amountnumber of performance stock units will be earned if
100% of the targeted
objectives isare achieved. The threshold amountnumber will be earned atfor
the achievement of 50% of the targeted objectives and the maximum award amountnumber will be
earned atfor achieving 110%125% of the targeted objectives. No payout will be made for
performance below the threshold.
At payout, the value of each performance stock unit will be equal to the
average of the closing price of one share of IBM common stock for the month
of January 1996.1997. Half of the earned units will be paid in cash and the
balance will be paid in an equivalent number of restricted shares of IBM
common stock, restricted
untilstock.
(2) According to the provisions of the award, Mr. Rizzo forfeited 3,464 of these
units upon his retirement.
Retirement Plan
Executive officers participate in the IBM Retirement Plan, which provides
retirement income to all covered employees of IBMFor Messrs. Rizzo and its U.S. subsidiaries.
For the named executive officers, other than Mr. Gerstner,Lautenbach, retirement benefits payable annually under the
IBM Retirement Plan will be determined by the average of the three consecutive
highest-paid years of compensation times(as defined) multiplied by total service
through year-end 19931994 times 1.43%, minus 1.43% of estimated Social Security
benefits timesmultiplied by total service through year-end 1993,1994, plus 1.35% of
compensation thereafter. As of January 1, 1994, service credit is limited toIn no event will more than 30 years or accruedof total service
at(or total service as of December 31, 1993, if greater.greater than 30 years) be taken
into account in calculating the benefit under the above formula. This formula
will remain in effect for accruals through December 31, 2000.
Effective January 1, 1995, IBM amended the IBM Retirement Plan to introduce an
alternative benefit formula if such formula yields a greater benefit than the
Plan formula described above. However, the pre-existing Plan formula will yield
a greater benefit for most employees until the year 2000. The new formula, which
will be phased in over a five-year period, provides for the crediting of
age-weighted percentage points annually up to a maximum of 500 points. The total
points at retirement are multiplied by average annual compensation over the
final five years of compensation (or the highest consecutive five years of
compensation if this yields a greater benefit). The result, with minor
adjustments, is divided by a benefit conversion factor based on the
participant's age at retirement to determine the annual annuity benefit.
IBM also introduced the IBM Supplemental Executive Retirement Plan (the "SERP"),
effective January 1, 1995, to attract and retain executives whose skills and
talents are important to IBM's operations by providing retirement income that
supplements benefits under the IBM Retirement Plan. The SERP benefit is
calculated in annuity form as the sum of:
(1) 1.70% times average annual compensation over the final five years of
employment or the highest consecutive five calendar years of compensation,
whichever is greater, up to $185,000 times years of service up to 20 years, plus
(2) 2.55% of such compensation in excess of $185,000 times years of service up
to 20 years, plus
(3) 1.30% of such compensation times years of service between 20 and 30 years,
plus
(4) 0.75% of such compensation times years of service between 30 and 35 years
with no accruals past 35 years of service,
provided that average annual compensation shall be at least $150,000 and that
the SERP benefit will be reduced by the benefit payable under the IBM Retirement
Plan. The SERP benefit will phase in until 100% accrual is attained for
executives retiring on or after December 31, 1997. SERP benefits are forfeited
if an individual is no longer an executive at retirement or fails to comply with
the Plan's non-compete provisions.
The elements of compensation upon which both the retirement planIBM Retirement Plan and the
SERP benefits are based include salary incentives, and payments ofbonus. In addition, the IBM
Retirement Plan includes recurring cash and stock awards. The projected IBM plan
benefits set forth below assume no change in rate of compensation.
Mr. Gerstner's annual pension from the Company under his employment agreement
has been set at approximately $1,275,000
pursuant to$1,140,000 at age 60, when his employment
agreement (see next paragraph).expires. Mr. Rizzo's
retirement incomeRizzo, who retired on December 31, 1994, will be based on his prior employment with the Company and
his service subsequent to January 25, 1993, at which time he was reemployed and
his currentreceive an
annual pension payments underfrom the IBM Retirement Plan were suspended.
Prior to any reduction for survivorship options, estimated annual retirement
benefits at age 60 for Mr. Toole, Mr. Lautenbach and Mr. LaBant would be,
respectively, $480,000, $470,000, and $430,000; annual retirement benefits as
of December 31, 1993 for Mr. Rizzo (who became age 65 during 1993 and
previously elected a 50% joint and survivor annuity) would have been $545,000.
Mr. Akers retired April 30, 1993 and is receiving an annual pension calculated on a 50% joint and
survivor annuity basis of $1,294,000.$723,000.
In connection with his employment by the Company in 1993, the Company agreed to
pay Mr. York an annual pension expressed as the greater of (1) the difference
between the vested pension income he receives from Chrysler Corporation (his
previous employer) and the income he would have received from Chrysler had he
remained a Chrysler employee to the date the Chrysler pension would have
commenced, had his annual compensation increases at Chrysler equaled five
percent, and had he retired from Chrysler on the date he completes his
employment with IBM, or (2) his IBM pension income (with credit added at the
time of his employment for 14 years and 1 month of service with Chrysler) less
the pension income he receives from Chrysler. His projected pension at age 60
under the Chrysler formula is $515,000, which is greater than his projected
pension under the IBM pension formulas.
Prior to any reduction for survivorship options and assuming there is no
forfeiture of benefits, the estimated annual retirement benefit at age 60 for
Mr. Lautenbach would be $560,000. Employees outside the U.S. are covered by
different retirement plans, varying from country to country. Mr. Thompson is
covered by the retirement plan of IBM Canada, and his estimated annual single
life retirement benefit payable in U.S. dollars at age 60, assuming the currency
exchange rate in effect as of December 31, 1994, would be $330,000.
Other Deferred Compensation Plans
The IBM Tax Deferred Savings Plan (the "TDSP") allows all eligible employees to
defer up to 12% of their income on a tax favored basis into a tax exempt trust
pursuant to Internal Revenue Service guidelines. IBM matches these deferrals at
the rate of 50% for the first 6% of compensation deferred. The employee accounts
are invested by the plan trustee in up to eight investment funds, including an
IBM Stock Fund, as directed by the employees. Corporate officers have
participated in the TDSP since its inception in 1983 on the same basis as all
other employees except that they could not participate in the IBM Stock Fund
investment option. Commencing February 1, 1995, officers are now permitted to
invest in the TDSP's IBM Stock Fund consistent with the Company's increased
emphasis on stock ownership. Internal Revenue Service limits on the TDSP
preclude in 1995 an annual investment of more than $9,240 or an eligible
compensation base of more than $150,000 for any one employee.
IBM has established the Extended Tax Deferred Savings Plan (the "ETDSP"),
effective January 1, 1995, which allows any executive, including officers, whose
rate of compensation is at least $150,000 annually, to defer additional monies
and receive a Company match on the same basis as the TDSP. The Company match for
the ETDSP is credited only in units of IBM common stock which are not
transferable to other investment alternatives during employment. In addition,
corporate officers and other senior executives can defer all or a portion of
their annual incentive until retirement under the ETDSP. The ETDSP is not funded
and participants are general creditors of the Company. All investments in the
ETDSP earn income based on the results of the actual TDSP funds' performance but
the income is paid out of Company funds rather than the actual returns on a
dedicated investment portfolio.
Employment Agreements and Change-in-Control Arrangements
The Company entered into an employment agreement with Mr. Gerstner as of March
26, 1993, whereby he serves as the chairman and chief executive officer of the
Company. The agreement provides Mr. Gerstner with: an annual salary of at least
$2,000,000; an annual incentive target award opportunity of at least $1,500,000
with a minimum 1993 award of $1,125,000; a long-term performance incentive with
a target opportunity of at least $500,000; a special one-time payment of
$4,287,096 in 1993 for the value of benefits under various plans of his former
employer that were forfeited as a result of his resignation; $160,130 for
reimbursement of certain taxes (described in footnotes (2) and (3) of the Summary
Compensation Table on page 13);taxes; a 10-year stock option for 500,000 shares of
IBM common stock of the Company at $47.88 (the market price on April 23, 1993, the
date of grant); and an annual pension at age 60 from IBM of approximately
$1,275,000.
Of the 30,456 shares listed as owned by Mr. Gerstner in the Beneficial
Ownership of Shares table on page 8, none was part of the terms of Mr.
Gerstner's employment agreement. Thirty thousand of those shares were purchased
by Mr. Gerstner in the open market from April 1993 through January 1994 with
his personal funds. The rest had been acquired prior to his employment by IBM.
IBM Notice of 1994 Annual Meeting and Proxy Statement 15
$1,140,000.
The agreement also callscalled for the Company to payguarantee Mr. Gerstner the difference
between the market price upon exercise anda yield of
$8.125 for each of 3,211,320 shares of RJR Nabisco stock on which Mr. Gerstner
holdsheld options as a result of his employment with RJR Nabisco. To date, Mr. Gerstner has not exercised any of
these options and, based on the average of the closing prices of RJR Nabisco
stock in the month of February 1994, $7.427, the liability of IBM would be
$2,241,501. Also, the
agreement guaranteed Mr. Gerstner $8.125 per share for 300,000 RJR Nabisco
shares held by RJR Nabisco as collateral for a loan taken by Mr. Gerstner to
purchase those shares. In June 1994 and November 1993, the Company paid Mr.
Gerstner sold
the shares at $6.00 per share$7,752,854 and IBM paid him $637,500, pursuant to this
provisionrespectively, in satisfaction of the agreement.these
provisions.
In the event of termination without cause, or due to a change-in-control"change-in-control" of
the Company, as defined in the agreement, Mr. Gerstner would receive 36 months
salary, plus prorated incentive payments, the right to exercise all stock options,
and other specified benefits. The Company has no other change-in-control
arrangements with any of its executive officers. There are no employment
agreements with the named executive officers, other than Mr. Gerstner.Gerstner, that
provide for their continuing service.
Performance Graph
Comparison of Five-Year Cumulative Total Return for
IBM, S&P 500 Stock Index, and S&P Computer Systems Index (excluding IBM).
1989 1990 1991 1992 1993 1994
IBM Common Stock $100 $126 $104 $ 62 $ 72 $ 95
S&P 500 $100 $ 97 $126 $136 $150 $152
S&P Computer
Systems-Exclud.
IBM Index $100 $ 90 $ 95 $ 92 $ 84 $104
The above graph compares the five-year cumulative total return for IBM common
stock with the comparable cumulative return of two indexes. Since IBM is a
company within the Standard & Poor's ("S&P") 500 Stock Index, the Securities and
Exchange Commission's proxy rules require the use of that Index. Under those
rules, the second index used for comparison may be a published industry or
line-of-business index. In IBM's case, the S&P Computer Systems Index (excluding
IBM), shown above, is such an index.
The graph assumes $100 invested on December 31, 19881989, in IBM common stock and
$100 invested at that same time in each of the S&P indexes. The comparison
assumes that all dividends are reinvested.
2. Ratification of Appointment of Auditors
The Board of Directors has appointed the firm of Price Waterhouse LLP,
independent accountants, to be IBM's auditors for the year 19941995 and recommends
to stockholders that they vote for ratification of that appointment.
IBM Notice of 1994 Annual Meeting and Proxy Statement 16
Price Waterhouse LLP served in this capacity for the year 1993.1994. 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 reviewedalso reviews and approvedapproves proposed 1994
nonaudit services and concludedto ensure that they will not impair the independence of the
accountants.
Before making its recommendation to the Board for appointment of Price
Waterhouse 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 Price Waterhouse LLP in all of these
respects. The committee's review included inquiry concerning any litigation
involving Price Waterhouse LLP and any proceedings by the Securities and
Exchange Commission against the firm. In this respect, the committee has
concluded that the ability of Price Waterhouse LLP to perform services for the
Company is in no way adversely affected by any such investigation or litigation.
The IBM Board of Directors recommends a vote FOR this proposal.
3. Adoption of the 1994 Long-Term PerformanceIBM 1995 Employees Stock Purchase Plan
In 1958, IBM stockholders first approved an employees stock purchase plan
designed to give employees a greater stake in the Company through increased
stock holdings. Subsequently, stockholders have approved additional, consecutive
stock purchase plans, the last of which was approved on April 1989, stockholders approved adoption30, 1990. At the
end of the 1989 Long-Term Performance
Plan ("1989 LTPP")1994, approximately 218,000 employees were eligible to provide for the granting of stock optionsparticipate and
other cash
and stock awards. The 1989 LTPP replacedapproximately 67,000 employees were participating in the IBM 1986Employees 1990
Stock OptionPurchase Plan previous versions of(the "1990 Plan"), which had been approved by stockholders since 1956.became effective July 1, 1990. From
July 1, 1990, to December 31, 1994, employees purchased nearly 35,000,000 shares
under the 1990 Plan. No directors or officers participated during that period.
The Board of Directors continues to believe that stock-based incentives are
important factorsan employees stock purchase
plan is in attracting, retaining,IBM's best interest and rewarding officers and other
selected employees and closely aligning their interests with those of
stockholders. Therefore, the Boardtherefore recommends to stockholders adoption of a new
five-year plan on essentially the 1994 Long-Term Performancesame terms and conditions as were set forth in
the 1990 Plan, ("1994 LTPP"with the exceptions noted below.
The following summary describes features of the IBM 1995 Employees Stock
Purchase Plan (the "Plan"). This summary is qualified in its entirety by
reference to replace the 1989 LTPP, which
expires April 24, 1994. Some changes have been made to reflect or comply with
intervening legislative and regulatory developments, nonespecific provisions of the Plan, the full text of which is set
forth as Appendix A.
If approved by stockholders, the Plan will have a
substantive effect on the way awards are granted or the plan administered.
All executive officers (currently 14), all other corporate officers (currently
44),become effective July 1, 1995, and
other executives and selected employees (now approximately 2,000)25,000,000 shares of authorized common stock will be eligible to participate in the 1994 LTPP. Participants are recommended by
their management. The Executive Compensation and Management Resources Committee
of the Board will review and act on all 1994 LTPP grants and awards for IBM
officers and, consistent with procedures under the 1989 LTPP and subject to
approval by stockholders of the 1994 LTPP, the committee will delegate to the
chief executive officer the authority to make grants and awards under the 1994
LTPP to other eligible employees. In administering the 1994 LTPP, the committee
has the power to interpret its provisions and to promulgate, amend, and rescind
rules and regulations for its administration. The Board is authorized to amend
the 1994 LTPP, except that it may not increase the maximum number of shares for
which awards may be made without stockholder approval or make other specified
amendments. Awards of stock may be subject to restrictions established by the
committee.
The 1994 LTPP permits the grant of any form of stock option, stock appreciation
right, stock or cash award whether granted singly, in combination or in tandem.
One or more stock options can be granted to any participant. No individual
participant may receive, under the 1994 LTPP, stock options or stock
appreciation rights ("SARs") the aggregate of which shall exceed 5% of the
shares authorizedreserved for issuance under
the 1994 LTPP. As in the case of all
previous IBM stock plans for executives, stock optionsPlan. The 1990 Plan would be superseded and no additional shares would be
issued thereunder after June 30, 1995. The Plan will be granted at not
less than 100% of the average market price of IBM common stock on the New York
Stock Exchange on the date of grant ("Fair Market Value") and other stock
awards will also be based on at least Fair Market Value. Stock options and SARs
may not be exercised for at least six months from date of grant. It is expected
that options and SARs will be granted for periods of 10 years or less and can
continue in effect after termination of employment. Up to $100,000 of options
based on Fair
IBM Notice of 1994 Annual Meeting and Proxy Statement 17
Market Value on date of grant may become exercisable for the first time inhave a
calendar year, per optionee, in the form of an incentive stock option ("ISO")
in compliance with Section 422 of the Internal Revenue Code. In addition to
the foregoing types of awards, the 1994 LTPP permits the Board to grant such
other award forms as shall be consistent with the purposes of the plan within
the limits of the plan. Such grants may be paid at the discretion of the Board
in cash, shares of common stock or any combination thereof. The duration of the
1994 LTPP will be five
years, subject to earlier termination by the Board of Directors.
The new planPlan permits employees to purchase IBM common stock through payroll
deductions during five consecutive annual offerings, beginning July 1, 1995.
Eligible employees on each offering date may purchase full or fractional shares
through payroll deductions of up to 10% of compensation, but in no event can
more than $25,000 worth of common stock be purchased in a calendar year. The
price an employee pays is 85% of the average market price on the last day of the
applicable pay period. Shares for the Plan may be either shares purchased in the
open market, or authorized and unissued shares. Eligibility will be extended to
all regular and certain other employees of the Company and of its subsidiaries,
as defined in the Plan, except that officers of IBM subject to reporting
requirements under Section 16 of the Securities Exchange Act of 1934 remain
ineligible.
There are two significant changes to the Plan designed to further the Company's
philosophy of encouraging employees to invest in and retain IBM common stock.
First, stock optionees who are not officers subject to reporting requirements
under Section 16 of the Securities Exchange Act of 1934 or other selected
executives will now be able to participate in the Plan. Second, subject to
approval of the Internal Revenue Service, the Plan will be amended to provide
that employees who dispose of shares acquired during any one-year offering
period before the end of that period will be suspended from continued Plan
participation for the remainder of that period and the next one-year offering
period.
For federal income tax purposes, an employee does not realize income at the time
of entry into the Plan or purchase of a share. If no disposition of the stock is
made within two years from the July 1 offering date, and one year from the date
the share is transferred to the employee, upon subsequent disposition of the
stock, ordinary income will be realized to the extent of the lesser of (1) 15%
of the average market value on the July 1 offering date, or
(2) the amount by which the net proceeds of the sale exceed the price paid. Any
further gain is treated as capital gain. No income tax deduction will be allowed
the Company for shares transferred to an employee, provided such shares are held
for the periods described above. If the shares are disposed of within the
periods described above, the employee will recognize ordinary income for the
taxable year of the disposition equal to the excess of the fair market value of
the shares on the date of purchase over the price paid. Generally, the Company
will be entitled to a deduction equal to the amount of ordinary income
recognized by the employee.
The Plan will be administered by a committee composed of the Board
composed entirely of directorssenior management who
are not eligible to participate in the plan,
in compliance with rules and regulations issued under the Internal Revenue
Code and federal securities laws.
If approvedparticipate. The Plan may be amended by stockholders, the Board of
Directors has authorized for issuancebut may not be amended, without prior stockholder approval, to
increase the number of shares, to reduce the purchase price per share, to remove
the Plan's administration from a committee whose members are not eligible to
participate, or to change the designation of subsidiaries eligible to
participate in the Plan. The proceeds of the sale of stock and of administrative
fees received under the 1994 LTPP 29,105,600 sharesPlan will constitute general funds of the Company and
may be used by it for any purpose. The Plan provides for proportionate
adjustments to reflect stock splits, stock dividends, or other changes in the
capital stock.
On February 28, 1995, IBM common stock which is 5% of the
shares of the Company's common stock outstanding on February 10, 1994. The
stock's Fair Market Value on that day was $53.19 per share. All stock-based
awards and awards denominated in stock units (whether payable in stock or cash)
are subject to this limit. Similar to the 1989 LTPP, the 1994 LTPP does not
specify a limit for cash awards.
No benefits or amounts have been allocated under the 1994 LTPP, nor are any
such benefits or amounts now determinable. For comparison purposes, please
refer to the grants and awards that were made under the 1989 LTPP in 1993,
shown in the Stock Option Grants table on page 14 and in the Long-Term
Incentive Plans table on page 15. In addition to the data shown in those
tables, in 1993, 1,068,000 stock options were granted to all current executive
officers as a group and 12,676,772 stock options and 4,083,920 SARs were
granted to all employees, including all current officers who are not executive
officers as a group. The dollar value of Long-Term Incentive Awards in 1993 for
these two groups was $2,567,000 and $5,244,000, respectively. No awards were
made to directors who are not executive officers. See also the February 7, 1994
stock option awards described below.
On April 23, 1993, the Board authorized the forfeit of options granted from
1984 through 1992 to be exchanged on an average 2.5-to-1 basis for new options
that were issuedclosed at the April 23, 1993 Fair Market Value, $47.88. Approximately
1,200 executives participated. Executive officers were excluded from the
program. The new ten-year term options do not vest for two years (50% then, 25%
additional each of the next two years). For the first nine years of their term,
before any of these options can be exercised, the average of the closing prices
of IBM common stock$75.25 on the New York Stock
Exchange for 30 consecutive calendar
days, must be at or above $71.82. After nine years, there is no precondition to
their exercise. The objective of this program was to retain and motivate many
of IBM's key people during a difficult time of transition.
On February 7, 1994, ten-year stock options at $53.44 per share (the Fair
Market Value), which vest over a four-year period, were granted under the 1989
LTPP to Mr. Rizzo, 50,000 shares, to Messrs. Toole, Lautenbach, and LaBant,
60,000 shares each, to the current executive officers as a group, 655,000
shares, and to employees including current officers who are not executive
officers as a group, 5,205,000 shares.
There is currently no accounting charge to the income of the Company in
connection with the grant or exercise of a stock option; most other LTPP awards
do require a charge. SARs result in such a charge when the market value of the
shares to which the SAR grants relate exceeds the exercise price at which the
SARs were granted. The Financial Accounting Standards Board is considering
whether the accounting treatment of stock options should be changed. The
effective date of any such change, which could result in material increased
compensation expense to the Company, is not expected to occur until after 1996.
Charges for awards other than stock options are not expected to be a material
expense to the Company.
As discussed in the Report on Executive Compensation, the 1994 LTPP has been
designed to meet the new requirements in Section 162(m) of the Internal Revenue
Code for stock options and SARs and to provide flexibility for certain other
awards to so qualify (see page 12). Final regulations are not expected to be
issued governing this complex area with
IBM Notice of 1994 Annual Meeting and Proxy Statement 18
regard to other 1994 LTPP awards until after the April 25, 1994 meeting of IBM
stockholders. IBM's management and the Executive Compensation and Management
Resources Committee of the Board will determine what action, if any, is
appropriate, when final regulations are issued.
The 1994 LTPP is printed in its entirety as Appendix A beginning on page 22 and
the Federal income tax consequences of the issuance and exercise of stock
options, SARs, and other awards are set forth as Appendix B on page 29.Exchange.
The IBM Board of Directors recommends a vote FOR this proposal.
4.Adoption of the IBM Non-Employee Directors Stock Option Plan to Replace
Annual Stock Awards
On February 28, 1995, the Board of Directors of the Company approved for
submission to the stockholders at the 1995 Annual Meeting the IBM Non-Employee
Directors Stock Option Plan (the "Option Plan"). The following summary describes
features of the Option Plan. This Summary is qualified in its entirety by
reference to the specific provisions of the Option Plan, the full text of which
is set forth as Appendix B.
At the recommendation of the Directors and Corporate Governance Committee, the
Board of Directors recently proposed a number of changes to the compensation of
its non-employee directors. These changes are more fully described on page 9 of
this proxy statement and include paying 50% of the annual retainer in shares and
limiting the period during which retirement benefits are paid to outside
directors who are elected at the 1995 Annual Meeting and thereafter. Upon
approval of the Option Plan, the Board also proposes to cancel the annual award
of shares under the Directors Deferred Compensation and Equity Award Plan and to
reduce the annual retainer from $55,000 to $50,000.
The Board has determined that these changes will work to increase the
non-employee directors' proprietary interest in the Company and to align more
closely their interests with the interests of the Company's stockholders. The
Option Plan will also maintain the Company's ability to attract and retain the
services of experienced and highly qualified non-employee directors.
If approved by the stockholders, the Option Plan provides for automatic annual
grants, commencing in 1995, of stock options to each director who is not an IBM
employee. Each annual grant will permit the holder, for a period of up to ten
years from the date of grant, to purchase from the Company 1,000 shares of the
Company's common stock (subject to adjustment as provided in the Option Plan) at
100% of the fair market value of such shares on the date the option is granted.
Each option shall become exercisable in four equal installments commencing on
the first anniversary date of grant. One-quarter of the total number of shares
covered by the option shall be exercisable on the first anniversary and an
additional one-quarter shall become exercisable on each anniversary thereafter
until on the fourth anniversary all the shares subject to the option shall be
fully vested.
Under the Option Plan, option grants are made on the first day of the month
following the date of the Company's Annual Meeting to each individual who is
elected to the Board of Directors at such meeting, provided such individual is
not also an employee of the Company or any of its subsidiaries.
In the event of the retirement or death of a non-employee director, all options
granted to such director shall become immediately exercisable and shall expire
after ten years from the date of grant. In addition, an option will be forfeited
upon a director's resignation from or refusal to serve on the board, other than
any resignation, termination, or not standing for reelection at the retirement
age or at the request or with the consent of the Company. Each option and all
rights shall be nonassignable and non-transferrable other than by will or the
laws of descent and distribution.
Options for a maximum of 25,000 shares of common stock per year (subject to
adjustment as provided in the Option Plan) can be granted under the Option Plan
in any year for all directors combined.
Subject to the exception noted below, it is currently expected that shares
received by a non-employee director upon exercise of an option will be subject
to the restriction that if such director resigns from the Board or otherwise
refuses to continue to serve as a member of the Board, such director will
forfeit such shares and receive only the lesser of their fair market value or
the option price paid with respect to such shares. The restriction will lapse
when the non-employee director ceases to be a member of the Board other than as
a result of such director's refusal to serve. Death, disability, termination,
resignation, or not standing for reelection at the retirement age or at the
request or with the consent of the Company shall not constitute a breach of the
restriction.
The options under the Option Plan shall be nonstatutory options not intended to
qualify under section 422A of the Internal Revenue Code of 1986 (the "Code").
The grant of options will not result in taxable income to the non-employee
director or a tax deduction to the Company. Unless a director makes an election
under section 83(b) of the Code, the director will not be subject to tax upon
exercise of an option for stock subject to the restriction described above.
Rather, upon lapse of the restriction, the non-employee director will recognize
taxable ordinary income, and the Company will be entitled to a corresponding
deduction, in an amount equal to the excess of the then fair market value of the
stock over the fair market value of the stock on the date the option was granted
(the option price). The exercise of an option for stock not subject to the
restriction described above will result in taxable ordinary income to the
non-employee director and a corresponding deduction to the Company on the date
of exercise, equal to the difference between the option price and the fair
market value on the date the option was exercised.
The Option Plan will be administered by the Board of Directors who will be
authorized to interpret the Option Plan but have no authority with respect to
the selection of directors to receive options, the number of shares subject to
the Option Plan or each grant thereunder, or the option price for shares subject
to options. The Board shall have no authority to increase materially the
benefits under the Option Plan. The Board may amend the Option Plan as it shall
deem advisable but may not amend the Option Plan without further approval of the
stockholders if such approval is required by law, and may not amend the Option
Plan provisions relating to the amount, price, and timing of options more than
once every six months other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, or the rules thereunder.
Adjustments shall be made in the number and kind of shares subject to the Option
Plan and the number and kind of shares subject to outstanding and subsequent
option grants and in the purchase price of outstanding options, in each such
case to reflect changes in the Company's common stock through changes in the
Company's corporate structure or capitalization, such as through a merger or
stock split.
On February 28, 1995, IBM common stock closed at $75.25 on the New York Stock
Exchange.
The IBM Board of Directors recommends a vote FOR this proposal.
5. Approval of Annual Incentive Compensation Terms for Certain Executives
Under section 162(m), which was added to the Internal Revenue Code of 1986 in
1993, in order for compensation in excess of $1,000,000 for any taxable year
paid to a person named in the Summary Compensation Table
and employed by the Company on the last day of the taxable year 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 terms, subject to stockholder
approval, under which annual cash incentive compensation to be paid to named
executive officers subject to section 162(m) would be performance-based for
purposes of exemption from the limitations of section 162(m). The terms adopted
by the Compensation Committee are as follows:
- - The class of persons covered consists of those senior executives of the
Company who are from time to time members of the Corporate Executive
Committee (or successor committee, or other successor group of executives, if
any) and such other executive officers as are from time to time designated by
the Compensation Committee.
- - The performance criteria for annual incentive payments to covered executives
for performance years 1995 and thereafter will be limited to objective tests
based on one or more of the following: earnings, cash flow, customer
satisfaction, revenues, financial return ratios, market performance, and total
shareholder return, any of which may be measured either in absolute terms or
as compared to another company or companies. Use of any other criterion will
require ratification by stockholders if failure to obtain such approval would
jeopardize the tax deductibility of future incentive payments.
- - 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 his or her attainment
under the applicable payment schedule. The Compensation Committee will have
the flexibility, based on its business judgment, to reduce this amount.
- - There will be a maximum individual annual cash incentive amount limit of
$8,000,000 for any covered executive for any performance year. This annual
incentive payment maximum will not be increased without ratification by
stockholders if failure to obtain such approval could result in future annual
incentive payments not being tax deductible.
In addition, on February 28, 1995, the Compensation Committee adopted
performance objectives for the 1995 performance year, and established directly
related payment schedules for each of the members of the Corporate Executive
Committee, consisting of nine persons. If stockholders do not approve the terms
set forth above, payments that would have been made pursuant to the Compensation
Committee's action on this proposal in February 1995 will not be made.
It should be noted that while the Compensation Committee's intent is to prevent
section 162(m) from limiting the deductibility of annual incentive compensation
payments, final regulations and guidance for section 162(m) have not been
adopted by the Internal Revenue Service. For this reason, and because of
possible unforeseen future events, it is impossible to be certain that all
annual incentive compensation paid by the Company to named executive officers
will be tax deductible. The foregoing shall not preclude the Compensation
Committee from making other compensation payments under different terms even if
they do not qualify for tax deductibility under section 162(m).
Hypothetical Payments Based on 1994 Results
As discussed above, awards under the terms adopted by the Compensation Committee
will be based upon performance goals established with respect to the 1995
performance year and to be established with respect to future years. No
incentive compensation under these terms has yet been earned by any covered
executive, since 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 named executive officers subject to
section 162(m) cannot be determined at this time, since actual amounts will
depend on actual performance measured against the attainment of pre-established
performance goals and on the Compensation Committee's discretion to reduce such
amounts. The annual incentive compensation actually earned in 1994 by the named
executive
officers is included in the Summary Compensation Table on page 15, and amounts
in excess of $1 million did not qualify for tax deductibility by the Company. In
1995 and future years, the Company will not be entitled to a deduction to the
extent that salary payments in excess of $1 million are made to a named
executive officer in that year. Had this proposal been in effect for 1994, the
Compensation Committee believes that the annual incentives that would have been
paid to the named executive officers and to all members of the Corporate
Executive Committee as a group would have been reduced so as to be essentially
the same as is reported in the Summary Compensation Table on page 15 for the
named executive officers and to approximately $8,050,000 for the Corporate
Executive Committee as a group.
The IBM Board of Directors recommends a vote FOR this proposal.
6.Approval of Long-Term Performance Incentive Compensation Terms for Certain
Executives
As indicated in the previous proposal, under section 162(m) of the Internal
Revenue Code of 1986, in order for compensation in excess of $1,000,000 for any
taxable year paid to a person named in the Summary Compensation Table and
employed by the Company on the last day of the taxable year to be deductible by
the Company, such compensation must qualify as "performance-based." At the 1994
Annual Meeting, the Company's stockholders approved the 1994 Long-Term
Performance Plan (the "LTPP"), administered by the Compensation Committee,
governing the terms and conditions respecting the payment of long-term incentive
compensation to senior management and other selected employees. The Compensation
Committee has now adopted terms, subject to stockholder approval, under which
Long-Term Performance Incentive awards under the LTPP to be paid to named
executive officers subject to section 162(m) would be performance-based for
purposes of exemption from the limitations of section 162(m). The requirements
of section 162(m) have already been satisfied with respect to stock options
granted and to be granted under the LTPP by the Compensation Committee at not
less than 100% of fair market value on the date of grant. The proposed terms
will not apply to the grant of stock options under the LTPP. The LTPP is not
being amended. The terms adopted by the Compensation Committee are as follows:
- - The class of persons covered consists of those senior executives of the
Company who are from time to time executive officers or members of the Worldwide
Management Council (or successor council or committee, or successor group of
executives, if any) and such other executives as are from time to time
designated by the Compensation Committee.
- - The performance criteria for Long-Term Performance Incentive awards made to
covered executives for performance periods beginning in 1995 and thereafter will
be limited to objective tests based on one or more of the following: earnings,
cash flow, customer satisfaction, revenues, financial return ratios, market
performance, and total shareholder return, any of which may be measured either
in absolute terms or as compared to another company or companies. Use of any
other criterion in the future will require ratification by stockholders if
failure to obtain such approval would jeopardize the tax deductibility of future
payouts of Long-Term Performance Incentive awards.
- - In administering the long-term performance incentive program and determining
awards, the Compensation Committee will not have the flexibility to pay a
covered executive more than the Long-Term Performance Incentive award units
indicated by his or her attainment under the applicable payment schedule. The
Compensation Committee will have the flexibility, based on its business
judgment, to reduce this amount.
- - There will be a maximum number of shares of IBM common stock or share
equivalents of common stock (stock units) that can be paid to a covered
executive for any multi-year performance period of 25,000 shares, subject to
adjustment for changes in corporate capitalization, such as a stock split.
Performance periods may overlap one another but no performance period may
commence within the same calendar year as any other performance period. If an
award is denominated in cash rather than in shares of common stock or stock
units, the share equivalent for purposes of staying within the maximum 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 IBM common stock on
the first trading day of the applicable performance period. This maximum will
not be increased without ratification by stockholders if failure to obtain such
approval would result in future payouts of Long-Term Performance Incentive
awards not being tax deductible. The shares and stock units used for these
awards will be funded out of the LTPP, or any successor plan or plans.
On February 28, 1995, Long-Term Performance Incentive awards under the LTPP were
approved by the Compensation Committee for each of the members of the class of
persons covered by the terms set forth above, consisting of approximately forty
persons. Such awards provide those persons with the opportunity to earn
compensation based on the achievement of cumulative performance goals for the
performance period beginning January 1, 1995, and ending on December 31, 1997.
The awards have been made in the form of performance stock units, with each unit
having a monetary value equal to the value of a share of IBM common stock.
Payment for these awards, to the extent earned, will be partly in cash and
partly in restricted stock units, which after the restriction period ends, may
be delivered as common stock. If stockholders do not approve this proposal,
payments that would have been made pursuant to the Compensation Committee's
action on this proposal in February 1995 will not be made.
It should be noted that while the Compensation Committee's intent is to prevent
section 162(m) from limiting the deductibility of payouts of Long-Term
Performance Incentive awards, final regulations and guidance for section 162(m)
have not been adopted by the Internal Revenue Service. For this reason, and
because of possible unforeseen future events, it is impossible to be certain
that all such compensation paid by the Company to named executive officers will
be tax deductible by the Company. The foregoing shall not preclude the
Compensation Committee from making other compensation payments under different
terms even if they do not qualify for tax deductibility under section 162(m).
Potential Payments
The amount of Long-Term Performance Incentive award compensation to be paid in
the future to the Company's current or future named executive officers subject
to section 162(m) cannot be determined at this time, since any such amounts
depend on actual performance measured against the attainment of performance
goals over a multi-year period and on the Compensation Committee's discretion to
reduce such amounts. Accordingly, it is not possible to make a comparison with
1994. However, on February 28, 1995, the Compensation Committee granted
Long-Term Performance Incentive awards for the 1995-1997 performance period
consisting of target performance stock units for the following current named
executive officers (Mr. Rizzo retired at the end of 1994), other executive
officers, and members of the Worldwide Management Council:
Name Target Incentive Stock Units
- --------------------------------------------------------------------------------
L.V. Gerstner, Jr. 6,700
J.B. York 6,000
N.C. Lautenbach 6,000
J.M. Thompson 6,000
- --------------------------------------------------------------------------------
All executive officers and members of the
Worldwide Management Council as a group 113,917
- --------------------------------------------------------------------------------
Depending on the extent to which the cumulative three-year performance goals are
achieved, between 0% and 150% of the target stock units can be earned and
eventually paid.
The IBM Board of Directors recommends a vote FOR this proposal.
7. Stockholder Proposals
Stockholder proposals may be submitted for inclusion in IBM's 19951996 proxy
material after the 19941995 Annual Meeting but no later than 5 p.m. EST on November
14, 1994.15, 1995. Proposals must be in writing and sent via registered, certified, or
express mail to: Office of the Secretary, IBMInternational Business Machines
Corporation, One Old Orchard Road, Armonk, N.Y. 10504. Facsimile or other forms
of electronic submissions will not be accepted.
Management carefully considers all proposals and suggestions from stockholders.
When adoption is clearly in the best interests of the Company and stockholders,
and can be accomplished without stockholder approval, the proposal is
implemented without inclusion in the proxy material.
Examples of stockholder proposals and suggestions that have been adopted over
the years include stockholder ratification of the appointment of auditors,
improved procedures involving dividend checks and stockholder publications, and
changes or additions to the proxy material concerning such matters as
abstentions from voting, appointment of alternative proxy, proponent disclosure,
and secrecy of stockholder voting.
Management opposes the following proposalproposals for the reasons stated after theeach
proposal.
4.A. Stockholder Proposal on Affirmation of IBM's Political Non-Partisanship
Management has been advised that Mrs. Evelyn Y. Davis, 2600 Virginia Avenue,
N.W., Suite 215, Washington, D.C. 20037, the owner of 50 shares, intends to
submit the following proposal at the meeting:
Resolved:RESOLVED: "That the stockholders of IBM assembled in Annual Meeting in person
and by proxy, hereby recommend that the Corporation affirm its political
non-partisanship. To this end the following practices are to be avoided:
"(a) The handing of contribution cards of a single political party to an
employee by a supervisor.
"(b) Requesting an employee to send a political contribution to an individual in
the Corporation for a subsequent delivery as part of a group of
contributions to a political party or fund raising committee.
"(c) Requesting an employee to issue personal checks blank as to payee for
subsequent forwarding to a political party, committee or candidate.
"(d) Using supervisory meetings to announce that contribution cards of one party
are available and that anyone desiring cards of a different party will be
supplied one on request to his supervisor.
"(e) Placing a preponderance of contribution cards of one party at mail station
locations."
Reasons:REASONS: "The Corporation must deal with a great number of governmental units,
commissions and agencies. It should maintain scrupulous political neutrality to
avoid embarrassing entanglements detrimental to its business. Above all, it must
avoid the appearance of coercion in encouraging its employees to make political
contributions against their personal inclinations. The Troy Onio [sic] News has
condemned partisan solicitation for political purposes by managers in a local
company (not IBM)."
IBM NoticeLast year the owners of 1994 Annual Meeting and Proxy Statement 19
32,194,266 shares, representing approximately 10.1% of
shares voting, voted FOR this proposal."
"If you agree, please mark your proxy for this resolution."
- --------------------------------------------------------------------------------
The IBM Board of Directors recommends a vote againstAGAINST this proposal.
The proponent submitted an identical proposal for inclusion in IBM's proxy
statement for the 1975 stockholders meeting. The proposal received
approximately 3% of the vote.
IBM, like all corporations, is subject to laws and regulations that limit
corporate involvement in political election campaigns. IBM is committed to full
compliance with those laws and regulations.
In addition, it is IBM's long-standing policy that its employees participate in
politics as private citizens, not as IBM employees.to prohibit IBM employees are
prohibited from
making contributions of Company resources such as money, goods, or services to
political candidates or parties. These policies areThis policy is designed to allow
employees, as individual citizens, to participate in the political process as
they see fit, regardless of party affiliation or political persuasion, while
maintaining the non-partisanship of the institution as a whole. In the Board's
opinion, IBM's policies, together with federal and state laws and regulations
regarding corporate involvement in political campaigns, strike an appropriate
balance between allowing IBM employees to exercise lawfully their individual
constitutional rights to participate in the political process while maintaining
the Company's political neutrality. Therefore, the Board recommends a vote
against this proposal.
In November of 1992, IBM was notified by the Federal Election Commission that
the Commission was investigating solicitations by the then chairman of the board
of IBM of campaign contributions that were made by certain senior IBM executives
for a fund-raising luncheon in connection with the 1992 presidential election.
The notice stated that the Federal Election Commission was investigating whether
IBM resources or personnel were improperly utilized in the fund-raising effort
in violation of federal election laws and regulations governing the activities
of federal contractors. IBM has responded to the Federal Election Commission's
inquiry and provided information relating to the solicitations. The Commission
has not advised IBM of the outcome of its investigation. IBM does not believe
that its resources or personnel were utilized in a manner that violated any
applicable law.
B.Stockholder Proposal on Elimination of Awards or Bonuses Upon Completion of
Service
Management has been advised that Mr. John A. Caporuscio, 8360 Prestwick Drive,
Manlius, New York 13104, the owner of 1,592.4 shares, intends to submit the
following proposal at the meeting:
PROPOSAL
Resolved, that the Shareholders of IBM request that the Board of Directors
eliminate the awards or bonuses, other than normal retirement incentives, to
members of IBM's Board of Directors or IBM Employees who have completed their
IBM service.
At a critical time in our Company's future, when we are downsizing personnel,
cutting dividends and employee benefits, I find it inconsistent to give a bonus
of $925,000.00 to Mr. Akers. This bonus was for 33 years of dedicated service.
There are many employees, who have given 33 years or more of dedicated service,
who received no monetary bonuses. I would think that no employee is entitled to,
nor should accept, bonuses for doing a job which they were hired to do. Mr.
Akers' salary was based on the performance of the Company. Clearly, with the
Company's financial difficulties over the past few years, I feel that this was
an irresponsible and frivolous action taken by our Board of Directors.
The IBM Board of Directors recommends a vote AGAINST this proposal.
- --------------------------------------------------------------------------------
The Board believes it is necessary to maintain flexibility involving persons
leaving the Company, including the ability to provide payments to individuals
and groups where the best interests of the Company are served through
termination of employment, whether voluntarily through the use of incentive
packages, involuntarily through the use of layoffs, or by other appropriate
means. In connection with the Company's efforts to restructure its business, IBM
has offered a number of such programs over the past few years that have been
implemented with very successful results. These payments must necessarily be
tied to the unique circumstances of each situation, and management should have
the discretion to tailor such arrangements in the best interests of the Company
and shareholders.
The payment to Mr. Akers, with which the proponent takes issue, was made in
connection with his retirement, and with the best interests of the Company and
shareholders in mind.
C. Stockholder Proposal on Variable Executive and Other Compensation
Management has been advised that Mr. and Mrs. S. R. Guha, 5100 Hogan's Way,
Clayton, North Carolina 27520-8003, the owners of 100 shares, intend to submit
the following proposal at the meeting:
RESOLVED that it may be recommended that IBM's annual net operating
profitability level will be, and shall remain to be, the sole determinant of the
entire spectrum of corporate compensation, subject to its shareholders'
approval, as enunciated below, in pursuant of which when the annual rate of
Return on Equity (ROE) of stockholders falls short of 15% no Variable Executive
Compensations (VECs) in cash bonuses, financial awards, stock options, stock
appreciation rights (SARs), re-pricing of 'target prices' for any stock options,
or in any other form, to any Executives, Members of the Board of Directors,
Selected Employees, or to any one else, will be permitted, and in all other
years recommendations on VEC, if any, of the Executive Compensation and
Management Resources Committee, or of any other Committee or person, have to be
included in the proxy statement, and may be effectuated if, and only if, such
recommendations are approved by at least two-thirds majority of stockholders
actively casting proxy votes; and in the event of a yearly operating loss,
recourse has to be taken to across the board salary freeze until the next
profitable year.
REASONS:
- --------
The multidimensional VEC derby has become, as a routine, a free-fall-for-all
phenomenon, even when the operating net profit is less than the risk-free
bellwether Treasury Security, or is even negative. IBM's 1993 Annual Report and
1994 proxy statement revealed that while respectively in 1991, 1992 and 1993 it
sustained colossal losses in billions of $2.861 ($5.01/share), $4.964
($8.70/share) and $8.148 ($14.22/share), dwindling stockholders' equities
drastically to $36,679, $27,624 and $19,737 millions, nonetheless the total VECs
to its only six top ranking executives totalled $1,690,222, $1,862,072 and
$11,495,518. Bigger the loss bigger the VEC. In addition, in 1993 alone the same
six executives were given another potential free income from SARs of 799,000
common stocks at 'target prices' of from $46.31 to $52.12 to expire in 2003, the
realizable value of which, at the annual stock price appreciations of 5% and 10%
for a ten-year term, will come to $23,908,280 and $60,594,590 respectively. Is
this all? Worldwide its other 31 executive officers were beneficiaries too of
this free-fall, as a routine. And when there is an operating loss, this proposal
will, for cost containment, serve as a partial substitute of firing of
personnel.
A routine free-fall, divorced from corporate performance, does hardly contribute
to any motivating force for achieving better results; rather it breeds and
perpetuates self-complacency and makes management lose foresights of future
realities. If 1991-93 be any eye opener and a lesson, is it not overdue that the
shareholders should assert their indelible rights to bring some disciplines to
corporate culture, instead of rubber-stamping self-serving management's
recommendations? For the general interest we strongly urge shareholders to VOTE
IN FAVOR of this proposal for adoption at the 1995 Annual General Meeting.
- --------------------------------------------------------------------------------
The IBM Board of Directors recommends a vote AGAINST this proposal.
The Board believes it has an appropriate system to administer the Company's
executive compensation policies and practices. The Executive Compensation and
Management Resources Committee of the Board (the "Committee") is comprised of
three outside directors who are not officers or employees of the Company and who
are not eligible to participate in any of the plans that the Company
administers. This Committee approves all elements of compensation for corporate
officers and is responsible for setting the Company's executive compensation
philosophy, programs, and practices. The Committee examines compensation
programs at least annually and utilizes the services of independent consultants
to help ensure that compensation is competitive with others in the industry, as
well as with the largest U.S. market-capitalized companies. The Committee also
reports regularly to the Board on its activities.
The Company's executive compensation programs are based on the belief that the
interests of the executives should be closely aligned to those of the
stockholders. These programs are strongly oriented toward a pay-at-risk
philosophy that ties compensation to both the annual and long-term financial
performance of the Company, as well as to long-term stockholder return. The
Committee believes the existing measurements are effective methods of creating
appropriate incentives and rewards for good performance. The establishment of a
program based on the narrow criteria called for in this proposal would
significantly affect the competitive nature of
IBM's compensation programs and make it substantially more difficult, if not
impossible, to attract and retain the best people. This is neither in the best
interests of the Company nor its shareholders.
D. Stockholder Proposal on Withdrawal of Retirement Plan for Non-Employee
Directors
Management has been advised that Mr. Milton A. Laitman, 31 Roberts Circle,
Basking Ridge, New Jersey 07920, the owner of 9,300 shares, intends to submit
the following proposal at the meeting:
PROPOSAL: TO TERMINATE RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS AS A COST
REDUCTION INITIATIVE.
The Company has a retirement plan for non-employee directors with five years or
more of Board service. Upon retirement after 5 years of service and age 70,
eligible directors will receive annual retirement benefit equal to 50% of the
director's last annual fee.
RESOLVED: That the stockholders of IBM assembled in person and by proxy hereby
recommend that the Board of Directors withdraw the retirement plan thus making
such a plan unavailable to current and future non-employee directors.
REASON: Non-employee directors are more than adequately compensated by IBM.
SUPPORTING STATEMENT:
a) At present the non-employee director receives an annual retainer of
$55,000.00.
b) After five years of service, each non-employee director would be eligible to
receive a life annuity of at least $27,500. If we assume an average of 10
years of service and retirement at age 70, the director receives an annuity
worth $275,000.00 or an average additional annual income of $27,500.
c) In addition, each director receives 100 shares of IBM under the DCEAP
currently worth $7,500 per year.
d) The total compensation would therefore average out over a ten year period to
$90,000 per year.
This amount is overly excessive, especially when one considers the further
points that:
1. The non-employee director is already eligible or will be eligible to receive
a major pension benefit as well as group life, medical and dental benefits
from his primary employer.
2. The rate of the pension benefit (50% of annual fees after five years or 10%
per year for the first five years) far exceeds the normal rate of pension
benefits for employees (1 1/2% per year).
3. The average non-employee director already serves on the Board of Directors of
about 3 additional commercial companies and is eligible to receive a similar
set of benefits from many of these companies.
4. The cancellation of these benefits would still mean that each non-employee
director would be receiving $62,500.00 per year exclusive of any additional
fees or benefits.
5. The current retirement benefit for non-employee directors after five years -
without any personal contributions - is DOUBLE the maximum Social Security
retirement benefit available to an employee who has contributed steadily for
40 years.
The above supporting statements demonstrate that the provision of these
retirement benefits for non-employee directors is wasteful, duplicative,
contrary to economic wisdom and reflects a profligate use of company assets.
Moreover, this policy cannot help but undermine the morale and productivity of
full-time employees. The current minimum annual compensation for directors
(almost $5,000 per meeting) should be more than adequate to attract and retain
those who are business leaders and whose counsel could benefit the Company.
- --------------------------------------------------------------------------------
The IBM Board of Directors recommends a vote AGAINST this proposal.
It is in the best interests of IBM and its stockholders to attract and retain
outside directors who are leaders in their respective fields and who are
recognized for their knowledge, experience, and ability. To accomplish this, IBM
must provide a total compensation package that is competitive in today's
environment. IBM therefore offers its outside directors a competitive
compensation package of equity, cash (which may be deferred into
stock), and benefits (including a retirement plan). The Directors and Corporate
Governance Committee of the Board periodically reviews the compensation of IBM's
non-employee directors to ensure that it remains consistent with industry
standards and continues to be fair and appropriate in light of the obligations
and responsibilities of corporate directors.
At the recommendation of the Committee, the Board recently approved a number of
changes to the total compensation afforded to non-employee directors (see page 9
of this proxy statement for a more complete description). Included among these
changes is a modification to the retirement benefits paid by IBM to its outside
directors. Commencing with directors elected at the 1995 Annual Meeting,
retirement benefits for non-employee directors entitled to retirement benefits
will be paid for a period equal to the length of service by the director, rather
than for life. A recent independent survey has shown that approximately 75% of
leading industrial companies provide retirement benefits to their directors and
that it is common among these companies to pay benefits for a period equal to
the length of service. The Board has determined that the total compensation
package for directors remains in line with the practices of other significant
companies.
E. Stockholder Proposal on Stock Payments to Non-Employee Directors
Management has been advised that Mr. Emil Rossi, P.O. Box 249, Boonville,
California 95415, the owner of 400 shares, intends to submit the following
proposal at the meeting:
The shareholders of I.B.M. Corporation request the Board of Directors take the
necessary steps to amend the company's governing instruments to adopt the
following:
Beginning on the 1996 I.B.M. Corporation fiscal year all members of the Board of
Director's total compensation will be 1000 shares of I.B.M. Corporation common
stock each year. No other compensation of any kind will be paid.
SUPPORTING STATEMENT
For many years the Rossi family have been submitting for shareholder vote, at
this corporation as well as other corporations, proposals aimed at putting
management on the same playing field as the shareholders. This proposal would do
just that.
A few corporations have seen the wisdom in paying directors solely in stock.
Most notably, Scott Paper and Travelers. Ownership in the company is the
American way. We feel that this method of compensation should be welcomed by
anyone who feels they have the ability to direct a major corporation's fortunes.
The directors would receive 1000 shares each year. If the corporation does well,
the directors will make more money in the value of the stock they receive and
the dividend that usually rise with more profits. If things go bad, they will be
much more inclined to correct things, because it will be coming directly out of
their pockets. Instead of the way it is done now, where directors receive the
same compensation for good or bad performance.
- --------------------------------------------------------------------------------
The IBM Board of Directors recommends a vote AGAINST this proposal.
Each of IBM's directors is required to be a stockholder, and IBM believes that
the amount of stock owned by IBM's directors compares well against the amount of
stock owned by directors of many other large companies. As described more fully
on page 9 of this proxy statement, at the recommendation of the Directors and
Corporate Governance Committee, the Board recently approved a number of changes
to the compensation of IBM's outside directors, including adoption of two new
practices designed to foster increased equity ownership by IBM's outside
directors. Commencing in 1995, 50% of the annual retainer paid to outside
directors will be paid in stock, receipt of which is deferred until retirement
from the Board. Further, outside directors will retain the ability to defer up
to 100% of their remaining cash fees into stock; a majority of the Board
deferred 100% of their cash fees for 1994 into stock. Giving directors the
option to receive cash for the half of their fees not paid in stock provides
flexibility to directors to address their particular personal needs as they
arise.
Further, to tie more of the directors' compensation to the long-term performance
of IBM's stock, the Board proposes to withdraw the initial and annual award of
stock and to decrease the annual cash retainer upon stockholder approval of the
IBM Non-Employee Directors Stock Option Plan (the "Option Plan"), more fully
described on pages 22 and 23 and in Appendix B of this proxy statement. Under
the Option Plan, it is proposed that each director receive an annual grant of
options to purchase 1,000 shares of IBM common stock. The Board has designed the
Option Plan to increase the proprietary interest each outside director has in
the Company and proposes to restrict receipt of the shares issuable upon
exercise of the options.
IBM believes that its current compensation package is fair and appropriate in
light of the obligations and responsibilities of corporate directors. Moreover,
the Board has determined that the above changes to the compensation of its
outside directors will work to align more closely the interests of non-employee
directors with the interests of stockholders.
Other Business
Management knows of no other matters that may properly be, or are likely to be,
brought before the meeting. If other proper matters are introduced, the
Proxy
Committeeindividuals named inas Proxies on the enclosed Proxy Card will vote shares it
represents.
Proxies and Voting at the Meeting
The $1.25 par value capital stock of the Company (its common stock) is its only
class of security entitled to vote at the April 25, 19941995, meeting. Each
stockholder of record at the close of business on March 7, 1994,1995, is entitled to
one vote for each share held. The Proxy Card covers the number of shares to be
voted, including any full shares held for participants in the IBM Dividend
Reinvestment Plan and Employees Stock Purchase Plan.Plans. On February 10, 1994,1995,
there were 582,112,340587,947,623 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 the Annual
Incentive Compensation Terms for Certain Executives and the Long-Term
Performance Incentive Compensation Terms for Certain Executives, and to
recommend that the Board consider adoption of thea stockholder proposal. Under the
law of New York, IBM's state of incorporation, "votes cast" at a meeting of
stockholders by the holders of shares entitled to vote are determinative of the
outcome of the matter subject to vote. Abstentions, broker non-votes, and
withheld votes will not be considered "votes cast" based on IBM's understanding
of state law requirements and IBM's Certificate of IBM Notice of 1994 Annual Meeting and Proxy Statement 20
Incorporation and By-laws.
Adoption of the 1994 Long-Term PerformanceIBM 1995 Employees Stock Purchase Plan and the IBM Non-Employee
Directors Stock Option Plan, pursuant to the requirements of the New York
Business Corporation Law, requires the favorable vote of the holders of a
majority of all outstanding shares of the common stock of the Company.
All stockholder meeting proxies, ballots, and tabulations that identify
individual stockholders are kept secret, and no such document shall be available
for examination, nor shall the identity or the vote of any stockholder be
disclosed except as may be necessary to meet legal requirements under the laws
of New York, State, IBM's state of incorporation. Votes are counted by employees of
First Chicago Trust Company of New York, IBM's independent transfer agent and
registrar, and certified by the Inspectors of Election who are employees of
Corporation Trust Company.
Shares cannot be voted unless a signed Proxy Card is returned or other specific
arrangements are made to have shares represented at the meeting. Any stockholder
giving a proxy may revoke it at any time before it is voted. If a stockholder
wishes to give a proxy to someone other than the individuals named as Proxies on
the Proxy Committee,Card, he or she may cross out the names appearing on the enclosed
Proxy Card, insert the name of some other person, sign, and give the Proxy Card
to that person for use at the meeting.
Stockholders are encouraged to specify their choices by marking the appropriate
boxes on the enclosed Proxy Card. Shares will be voted in accordance with such
instructions. However, it is not necessary to mark any boxes if you wish to vote
in accordance with the Board of Directors' recommendations; merely sign, date,
and return the Proxy Card in the enclosed envelope.
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,$35,000, plus reasonable
out-of-pocket expenses.
/s/ John E. Hickey
- ----------------------------
John E. Hickey
Vice President and Secretary
March 14, 1994
IBM Notice of 1994 Annual Meeting and Proxy Statement 211995
APPENDIXAppendix A
IBM 1994 Long-Term Performance1995 Employees Stock Purchase Plan
1. Objectives.
The purpose of this Plan is to provide employees a continued opportunity to
purchase IBM 1994 Long-Term Performance Plan (the "Plan") is designedstock through annual offerings to attract and
retain executives and other selected employees whose skills and talents are
important tobe made during the Company's operations, and reward them for making major
contributions to the successfive-year
period commencing July 1, 1995. 25,000,000 shares of the Company. These objectives are accomplished
by making long-term incentive awards under the Plan, thereby providing
Participants with a proprietary interestIBM stock in the growth and performance of the
Company.
2. Definitions.
(a) "Award" - The grant of any form of stock option, stock appreciation
right, stock or cash award, whether granted singly, in combination or in
tandem, to a Plan Participant pursuant to such terms, conditions, performance
requirements, and limitations as the Committee may establish in order to
fulfill the objectives of the Plan.
(b) "Award Agreement" - An agreement between the Company and a Participant
that sets forth the terms, conditions, performance requirements, and
limitations applicable to an Award.
(c) "Board" - The Board of Directors of International Business Machines
Corporation.
(d) "Capital Stock" or "stock" - Authorized and issued or unissued $1.25
Par Value Capital Stock of the Company.
(e) "Code" - The Internal Revenue Code of 1986, as amended from time to
time.
(f) "Committee" - The committee designated by the Board to administer the
Plan. The Committee shall be constituted to permit the Plan to comply with Rule
16b-3 promulgated under the Securities Exchange Act of 1934 or any successor
rule. No member of the Committee may receive Awards under the Plan.
(g) "Company" - International Business Machines Corporation ("IBM") and
its subsidiaries including subsidiaries of subsidiaries and partnerships and
other business ventures in which IBM has a significant equity interest, as
determined in the sole discretion of the Committee.
(h) "Fair Market Value" - The average of the high and low prices of
Capital Stock on the New York Stock Exchangeaggregate
have been approved for the date in question, provided
that, if no sales of Capital Stock were made on said exchange on that date, the
average of the high and low prices of Capital Stock as reported for the most
recent preceding day on which sales of Capital Stock were made on said
exchange.
(i) "Participant" - An employee of the Company to whom an Award has been
made under the Plan.
3. Eligibility.
Employees of the Company eligible for an Award under the Plan are those who
hold positions of responsibility and whose performance, in the judgment of the
Committee or the management of the Company, can have a significant effect on
the success of the Company.
IBM Notice of 1994 Annual Meeting and Proxy Statement 22
4. Capital Stock Available for Awards.
The number of shares that may be issued under the Plan for Awards granted
wholly or partly in stock during the term of the Plan is 29,105,600, which is
5% of the outstanding Capital Stock as determined on February 10, 1994.
Included in this share limit are Awards denominated in units of stock that may
be redeemed or exercised for cash as well as for stock. As soon as possible
after adoption of the Plan by the Company's stockholders, the Company shall
take whatever actions are necessary to file required documents with the U.S.
Securities and Exchange Commission and any other appropriate governmental
authorities and stock exchanges to make shares of Capital Stock available for
issuance pursuant to Awards. Capital Stock related to Awards that are
forfeited, terminated, expire unexercised, settled in cash in lieu of stock or
in such manner that all or some of the shares covered by an Award are not
issued to a Participant, or are exchanged for Awards that do not involve
Capital Stock, shall immediately become available for Awards.
5.purpose.
1. Administration. The Plan shall be administered by a Committee appointed by
the Board of Directors from members of senior management, consisting of at least
three members. Members of the Committee whichshall not be eligible to participate in
the Plan. The Committee shall have fullauthority to make rules and exclusive powerregulations for
the administration of the Plan; its interpretations and decisions with regard
thereto shall be final and conclusive.
2. Eligibility. Except as provided below, all employees of the Corporation or
its subsidiaries shall be eligible to interpretparticipate in the Plan to grant waivers of Award restrictions,
and to adoptin accordance with
such rules regulations and guidelines for carrying outas may be prescribed by the Committee from time to time, which rules,
however, shall neither permit nor deny participation in the Plan as it may deem necessary or proper, all of which powers shall be executed incontrary to the
best interestsrequirements of the Company and in keeping with the objectives of the
Plan. These powers include,Internal Revenue Code (including, but are not limited to,
the adoption of
modifications, amendments, procedures, subplansSection 423 (b)(3), (4), (5), and (8) thereof) and the like as are necessary
to comply with provisionsregulations promulgated
thereunder. No employee may be granted an option if such employee, immediately
after the option is granted, owns 5% or more of the laws and regulationstotal combined voting power
or value of the countries in whichstock of 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 andCorporation or any subsidiary, or if such laws and regulations.
6. Delegation of Authority.
The Committee may delegateemployee
is subject to the chief executive officer and to other senior
officers of the Company its dutiesreporting requirements under the Plan pursuant to such conditions
or limitations as the Committee may establish, except that only the Committee
may select, and grant Awards to, Participants who are subject to Section 16 of the Securities
Exchange Act of 1934. For purposes of the preceding sentence, the rules of
Section 424(d) of the Internal Revenue Code shall apply in determining the stock
ownership of an employee, and stock that the employee may purchase under
outstanding options shall be treated as stock owned by the employee.
3. Offerings. The Corporation shall make one or more annual offerings to
employees to purchase IBM stock under this Plan. Each offering period shall be
12 months in duration, during which (or during such portion thereof as an
employee may elect to participate) the amounts received as compensation by an
employee shall constitute the measure of such of the employee's participation in
the offering as is based on compensation.
4. Participation. An employee eligible on the effective date of any offering may
participate in such offering at any time by completing and forwarding a payroll
deduction authorization to the employee's appropriate payroll location. The form
will authorize a regular payroll deduction from the employee's compensation, and
must specify the date on which such deduction is to commence, which may not be
retroactive.
5. Deductions. The Corporation shall maintain payroll deduction accounts for all
participating employees. With respect to any offering made under this Plan, an
employee may authorize a payroll deduction of a whole percentage (up to a
maximum of 10%) of the compensation the employee receives during the offering
period (or during such portion thereof in which the employee may elect to
participate).
No employee may be granted an option that permits his or her rights to purchase
stock under this Plan, and any other stock purchase plan of the Corporation and
its subsidiaries, to accrue at a rate that exceeds $25,000 of the fair market
value of such stock (determined at the effective date of the applicable
offering) for each calendar year in which the option is outstanding at any time.
6. Deduction Changes. An employee may increase or decrease the employee's
payroll deduction by filing a new payroll deduction authorization at any time
during an offering period. The change may not become effective sooner than the
next pay period after receipt of the authorization.
7. Awards.Purchase of Shares. Each employee participating in any offering under this
Plan shall be granted an option, upon the effective date of such offering, for
as many full and fractional shares of IBM stock as the participating employee
may elect to purchase with up to 10% of the compensation received during the
specified offering period (or during such portion thereof as the employee may
elect to participate), to be paid by payroll deductions during such period.
Notwithstanding the foregoing, in no event shall the number of shares purchased
by an employee during an offering period exceed 1,000 shares.
The purchase price for each share purchased shall be 85% of the average market
price on the last day of a participating employee's pay period. As of the last
day of the pay period during any offering, the account of each participating
employee shall be totaled, and the employee shall be deemed to have exercised an
option to purchase one or more full or fractional shares at the then-applicable
price; the employee's account shall be charged for the amount of the purchase;
and the ownership of such share or shares shall be appropriately evidenced on
the books of the Corporation. Additional shares covered by the employee's option
shall be purchased in the same manner, as of the last day of each subsequent pay
period during the offering period. A participating employee may not purchase a
share under any offering period beyond 12 months from the effective date
thereof. Any balance remaining in an employee's payroll deduction account at the
end of an offering period will be carried forward to the next offering period.
8. Employee Accounts and Certificates. Upon purchase of one or more full or
fractional shares by a Plan participant pursuant to Section 7 hereof, the
Corporation shall establish a book entry account in the name of the employee to
reflect the share(s) purchased at that time. Certificates shall be issued only
on request for full shares and also when necessary to comply with transaction
requirements outside the United States. To request certificates, employees may
call the Voice Response Service on tieline 771-7000 (201-324-0218) or send a
note on VM/PROFS to RHQVM14(STOCK). In the event a participant terminates his or
her account, any fractional share held in the account will be paid to the
participant in cash.
9. Registration of Shares. Shares may be registered only in the name of the
employee, or, if the employee so indicates on the employee's payroll deduction
authorization form, in the employee's name jointly with a member of the
employee's family, with right of survivorship. An employee who is a resident of
a jurisdiction that does not recognize such a joint tenancy may have shares
registered in the employee's name as tenant in common or as community property
with a member of the employee's family, without right of survivorship.
10. Definitions. The term "Corporation" or "IBM" means International Business
Machines Corporation, a New York corporation.
The term "IBM stock" means the common stock of IBM.
The phrase "average market price" means the average of the high and low
composite prices of IBM stock on the New York Stock Exchange on a given day or,
if no sales of IBM stock were made on that day, the average of the high and low
composite prices of IBM stock on the next preceding day on which sales were made
on said Exchange.
The term "subsidiary" means a subsidiary of the Corporation within the meaning
of Section 424(f) of the Internal Revenue Code and the regulations promulgated
thereunder, provided, however, that this Plan shall not be deemed to cover the
employees of any subsidiary that did not participate in the IBM Employees 1990
Stock Purchase Plan, unless so authorized by the Committee.
11. Rights as a Stockholder. None of the rights or privileges of a stockholder
of the Corporation shall exist with respect to shares purchased under this Plan
unless and until such shares shall have been appropriately evidenced on the
books of the Corporation.
12. Rights on Retirement, Death, or Termination of Employment. In the event of a
participating employee's retirement, death, or termination of employment, the
employee shall be ineligible to continue to participate in the Plan, and no
payroll deduction shall be taken from any pay due and owing to the employee
after the pay period during which the employee became ineligible.
13. Rights Not Transferable. Rights under this Plan are not transferable by a
participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
14. Application of Funds and Administrative Fees. All funds received or held by
the Corporation under this Plan may be used for any corporate purpose. The
Committee may impose reasonable administrative fees on participating employees
to defray the administrative costs of the Plan, which shall determinein no event exceed
the typeactual administrative costs of the Plan. Initially, the fee shall be $10 per
participating employee per offering period.
15. Adjustments in Case of Changes Affecting IBM Stock. In the event of a
subdivision of outstanding shares, or typesthe payment of Award(s) to be made to each
Participanta stock dividend, the
number of shares approved for this Plan, and shallthe share limitation set forth in
Section 7 hereof, shall be increased proportionately, and such other adjustments
shall be made as may be deemed equitable by the related Award AgreementBoard of Directors. In the event
of any other change affecting IBM stock, such adjustments shall be made as may
be deemed equitable by the Board of Directors to give proper effect to such
event.
16. Disposition Restriction. Subject to approval of the Internal Revenue
Service, the Committee will amend the Plan, effective after giving at least one
month's written notice to participating employees, to provide for a holding
period of up to one year following the purchase of each share under the Plan,
with the disposition of such share during the offering period in which it was
acquired resulting in suspension of the participant from further Plan
participation for a period not extending beyond the end of the first offering
period that begins after the date of the disposition; provided that the issuance
of a stock certificate may be treated as a disposition for this purpose; and
provided further that a participant shall not be so suspended if the disposition
is required by legal process.
17. Amendment of the Plan. The Board of Directors may at any time, or from time
to time, amend this Plan in any respect, except that, without the approval of a
majority of the shares of stock of the Corporation then issued and outstanding
and entitled to vote, no amendment shall be made (i) increasing the number of
shares approved for this Plan (other than as provided in Section 15 hereof),
(ii) decreasing the purchase price per share, (iii) withdrawing the
administration of this Plan from a Committee consisting of persons not eligible
to participate in the Plan, or (iv) changing the designation of subsidiaries
eligible to participate in the Plan.
18. Termination of the Plan. This Plan and all rights of employees under any
offering hereunder shall terminate:
(a) on the day that participating employees become entitled to purchase a
number of shares equal to or greater than the number of shares remaining
available for purchase. If the number of shares so purchasable is
greater than the shares remaining available, the available shares shall
be allocated by the Committee among such participating employees in
such manner as it deems fair, or
(b) at any time, at the discretion of the Board of Directors.
No offering hereunder shall be made which shall extend beyond June 30, 2000.
19. Governmental Regulations. The Corporation's obligation to sell and deliver
IBM stock under this Plan is subject to the approval of any governmental
authority required in connection with the authorization, issuance, or sale of
such stock.
20. Plan Shares Purchases. Purchases of outstanding shares may be made pursuant
to and on behalf of this Plan, upon such terms as the Corporation may approve,
for delivery under this Plan.
Appendix B
IBM Non-Employee Directors Stock Option Plan
1. Purpose. The purpose of the IBM Non-Employee Directors Stock Option Plan
(the "Plan") is to secure for International Business Machines Corporation (the
"Company") and its stockholders the benefits of the incentive inherent in
increased common stock ownership by the members of the Board of Directors (the
"Board") of the Company who are not employees of the Company or any of its
subsidiaries.
2. Administration. The Plan shall be administered by the Board. The Board
shall have all the powers vested in it by the terms conditions, performance requirements,of the Plan, such powers
to include authority (within the limitations described herein) to prescribe
the form of the agreement embodying awards of stock options made under the
Plan (the "Options") and limitations applicablethe power to each Award.
Awardsdetermine the restrictions, if any, on
the ability of participants to earn-out and to dispose of any stock issued in
connection with the exercise of any options granted pursuant to the Plan. The
Board shall, subject to the provisions of the Plan, have the power to construe
the Plan, to determine all questions arising thereunder and to adopt and amend
such rules and regulations for the administration of the Plan as it may include but are not limiteddeem
desirable. Any decisions of the Board in the administration of the Plan, as
described herein, shall be final and conclusive. The Board may authorize any
one or more of their number or the Secretary or any other officer of the
Company to those listedexecute and deliver documents on behalf of the Board. The Board
hereby authorizes the Secretary to execute and deliver all documents to be
delivered by the Board pursuant to the Plan. No member of the Board shall be
liable for anything done or omitted to be done by such member or by any other
member of the Board in this Section 7.
Awardsconnection with the Plan, except for such member's own
willful misconduct or as expressly provided by statute.
3. Amount of Stock. The stock which may be issued and sold under the Plan will
be the Common Stock (par value $1.25 per share) of the Company. The total
amount of stock for which Options may be granted singly,under the Plan in combinationany year
shall not exceed 25,000 Common Stock shares, subject to adjustment as provided
in Paragraph 6 below. The stock to be issued may be either authorized and
unissued shares or in tandem. Awards may also be
made in combinationissued shares acquired by the Company or in tandem with, in replacementits subsidiaries.
4. Eligibility. Each member of or as alternatives
to, grants or rights under any other employee planthe Board of the Company includingwho is not an employee
of the planCompany or any of its subsidiaries (a "Non-Employee Director") shall be
eligible to receive an Option in accordance with Paragraph 5 below. The
adoption of this Plan shall be not deemed to give any acquired entity. No Participantdirector any right to
be granted an Option, except to the extent and upon such terms and conditions,
in accordance with the terms of the Plan, as may receive,be determined by the Board.
5. Terms and Conditions of Options. Each Option granted under the Plan stock options or stock appreciation rightsshall
be evidenced by an agreement in such form as the aggregate of whichBoard shall exceed
1,455,280 shares, which is 5%prescribe from
time to time in accordance with the Plan, and shall comply with the following
terms and conditions:
(a) The Option exercise price shall be the fair market value of
the Common Stock shares authorized for issuance hereunder.
(a) Stocksubject to such Option - A grant of a right to purchase a specified number of
shares of Capital Stockon the purchase price ofdate the
Option is granted, which shall be not less than 100%the average of Fair Market Valuethe high and the
low sales prices of a Common Stock share on the date of grant as
reported on the New York Stock Exchange Composite Transactions
Tape or, if the New York Stock Exchange is closed on that date,
on the last preceding date on which the New York Stock Exchange
was open for trading.
(b) Each year, as of such right,the first day of the month following the
Annual Meeting of Stockholders of the Company, each Non-Employee
Director who has been elected or reelected as determineda member of the
Board as of the adjournment of the Annual Meeting shall
automatically receive an Option for 1,000 shares of Common Stock.
(c) The Option shall not be transferable by the Committee. A stock option may be inoptionee
otherwise than by will or the formlaws of an incentive stock option
("ISO") which, in addition to being subject to applicable terms, conditionsdescent and limitations established by the Committee, complies with Section 422 of the Code
which, among other limitations, provides that the aggregate Fair Market Value
(determined at the time the option is granted) of Capital Stock for which ISO's
are exercisable for the first time by a Participant during any calendar year
shall not exceed $100,000; that ISO's shall be priced at not less than
IBM Notice of 1994 Annual Meetingdistribution,
and Proxy Statement 23
100% of the Fair Market Value on the date of the grant; and that ISO's shall be exercisable for a periodduring the lifetime of not more thanthe optionee only
by the optionee.
(d) No Option or any part of an Option shall be exercisable:
(i) after the expiration of ten years. Theyears from the date the Option
was granted,
(ii) unless written notice of the exercise is delivered to the
Company specifying the number of shares of
stock that shallto be available for ISO's granted under the Plan is limited to
ten million.
(b) Stock Appreciation Right - A right to receive apurchased and
payment in cash
and/or Capital Stock, equal tofull is made for the excess of the Fair Market Value of a
specified number of shares of CapitalCommon Stock on the date the stock appreciation
right (SAR) is exercised over the Fair Market Value on the date of grant of the
SAR as set forth in the applicable Award Agreement.
(c) Stock Award - An Award made in stock or denominated in units of stock.
All or part of any stock award may be subject to conditions established by the
Committee, and set forth in the Award Agreement, which may include, but are not
limited to, continuous service with the Company, achievement of specific
business objectives, increases in specified indices, attaining growth rates,
and other comparable measurements of Company performance. Such Awards may be
based on Fair Market Value or other specified valuation.
(d) Cash Award - An Award denominated in cash with the eventual payment
amount subject to future service and such other restrictions and conditions as
may be established by the Committee, and as set forth in the Award Agreement,
including, but not limited to continuous service with the Company, achievement
of specific business objectives, increases in specified indices, attaining
growth rates, and other comparable measurements of Company performance.
Awards payable, in whole or in part, in stock must be held for at least six
months (i) in the case of a stock option or SAR, from the date of grant to the
date of exercise and (ii) in the case of other Awards, from the date of
acquisition to the date of disposition.
8. Payment of Awards.
Payment of Awards may be made in the form of cash, stock or combinations
thereof and may include such restrictions as the Committee shall determine,
including in the case of stock, restrictions on transfer and forfeiture
provisions. When transfer of stock is so restricted or subject to forfeiture
provisions, it is referred to as "Restricted Stock." Further, with Committee
approval, payments may be deferred, either in the form of installments or as a
future lump sum payment. The Committee may permit selected Participants to
elect to defer payments of some or all types of Awards in accordance with
procedures established by the Committee which are intended to permit such
deferrals to comply with applicable requirements of the Code including, at the
choice of Participants, the capability to make further deferrals for payment
after retirement. Any deferred payment, whether elected by the Participant or
specified by the Award Agreement or by the Committee, may require the payment
to be forfeited in accordance with the provisions of Section 13 of the Plan.
Dividends or dividend equivalent rights may be extended to and made part of any
Award denominated in stock or units of stock, subject to such terms, conditions
and restrictions as the Committee may establish. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents for deferred payments denominated in stock or
units of stock. At the discretion of the Committee, a Participant may be
offered an election to substitute an Award for another Award or Awards of the
same or different type.
9. Stock Option Exercise.
The price at which shares of Capital Stock may be purchased under a Stock
Option shall be paid in fullbeing
acquired thereunder at the time of exercise; such payment shall
be made (a) in United States dollars by check, or bank draft, or
(b) by tendering to the exercise in cash or, if
permittedCompany Common Stock shares owned by the
Committee, by meansperson exercising the Option and having a fair market value equal
to the cash exercise price applicable to such Option, such fair
market value to be the average of tendering Capitalthe high and low sales prices
of a Common Stock or surrendering
another Award, including Restricted Stock, valued at Fair Market Valueshare on the date of exercise as reported on
the New York Stock Exchange Composite Transactions Tape, or, any combination
IBM Notice of 1994 Annual Meeting and Proxy Statement 24
thereof. The Committeeif
the New York Stock Exchange is closed on that date, on the last
preceding date on which the New York Stock Exchange was open for
trading, it being understood that the Board shall determine
acceptable methods for tendering CapitalCommon Stock or other Awardsshares and may
impose such conditions on the use of CapitalCommon Stock or other Awardsshares to
exercise a Stock OptionOptions as it deems appropriate.appropriate, or (c) by a combination
of United States dollars and Common Stock shares as aforesaid;
and
(iii) unless the person exercising the Option has been, at all
times during the period beginning with the date of grant of the
Option and ending on the date of such exercise, a Director of the
Company, except that if such person shall cease to be such a
Director by reason of Retirement or death while holding an Option
that has not expired and has not been fully exercised, such
person, or in the case of death, the executors, administrators,
or distributees, as the case may be, may at any time after the
date such person ceased to be such a Director (but in no event
after the Option has expired under the provisions of subparagraph
5(d)(i) above), exercise the Option with respect to any shares of
Common Stock as to which such person has not exercised the Option
on the date the person ceased to be such a Director. In the event
sharesany Option is exercised by the executors, administrators,
legatees, or distributees of Restricted Stock are tendered as consideration for the exerciseestate of a Stockdeceased optionee,
the Company shall be under no obligation to issue stock
thereunder unless and until the Company is satisfied that the
person or persons exercising the Option a numberare the duly appointed
legal representatives of the shares issued upondeceased optionee's estate or the
exerciseproper legatees or distributees thereof.
(e) One-quarter (25%) of the Stock Option, equal to thetotal number of shares of RestrictedCommon
Stock covered by the Option shall become exercisable beginning
with the first anniversary date of the grant of the Option;
thereafter an additional one-quarter (25%) of the total number of
shares of Common Stock covered by the Option shall become
exercisable on each subsequent anniversary date of the grant of
the Option until on the fourth anniversary date of the grant of
the Option the total number of shares of Common Stock covered by
the Option shall become exercisable. In the event the
Non-Employee Director ceases to be a Director by reason of
Retirement or death, the total number of shares of Common Stock
covered by the Option shall thereupon become exercisable.
(f) Options granted to a person shall automatically be forfeited
by such person if such person shall cease to be a Director for
reasons other than Retirement or death.
(g) As used as
consideration therefor,in this Paragraph 5, the term "Retirement" means the
termination of a Director's service on the Board, including
resignation from the Board upon reaching retirement age or
otherwise resigning or not standing for reelection with the
approval of the Board, but shall not include any termination of
service resulting from an act of (i) fraud or intentional
misrepresentation or (ii) embezzlement, misappropriation or
conversion of assets or opportunities of the Company or any
direct or indirect majority-owned subsidiary of the Company, by
such Non-Employee Director. The determination of whether
termination results from any such act shall be subject to the same restrictions as the
Restricted Stock so submitted plus any additional restrictions that may be
imposedmade by the Committee.
10. Tax Withholding.
TheBoard,
whose determination shall be conclusive.
6. Adjustment in the Event of Change in Stock. In the event of changes in the
outstanding Common Stock of the Company shall haveby reason of any stock split, stock
dividend, recapitalization, merger, consolidation, split-up, split-off,
spin-off, combination or exchange of shares, a sale by the rightCompany of all or
part of its assets, any distribution to deduct applicable taxes from any Award
paymentstockholders other than a normal cash
dividend, a repurchase by the Company of its stock at a price
above the prevailing market price and withhold, at the time of delivery or vestinglike, the aggregate
number and class of shares available under the Plan, an appropriateand the
number, class, and the price of shares for payment of taxes requiredCommon Stock subject to
outstanding Options shall be appropriately adjusted by law or
to take such other actionthe Board,
whose determination shall be conclusive.
7. Miscellaneous Provisions.
(a) Except as may be necessaryexpressly provided for in the opinionPlan, no Non-Employee
Director or other person shall have any claim or right to be
granted an Option under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving any Non-Employee
Director any right to be retained in the service of the Company to
satisfy all obligations for withholding of such taxes. If Capital Stock or
Restricted Stock is used to satisfy tax withholding, such stock shall be valued
based on the Fair Market Value when the tax withholding is required to be made.
11. Amendment, Modification, Suspension or Discontinuance of the Plan.
The Board may amend, modify, suspend or terminate the Plan for the purpose of
meeting or addressing any changes in legal requirements or for any other
purpose permitted by law. Subject to changes in law or other legal requirements
that would permit otherwise,Company.
(b) An optionee's rights and interest under the Plan may not be
amended without the consentassigned or transferred in whole or in part either directly or by
operation 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 Planlaw or otherwise (except for adjustments pursuant to Section 15 of the Plan),
(ii) decrease the option price, (iii) materially modify the requirements as to
eligibility for participation in the Plan, (iv) withdraw administration of the
Plan from the Committee, or (v) extend the period during which Awards may be
granted.
12. Termination of Employment.
If the employment of a Participant terminates, other than pursuant to
paragraphs (a) through (c) of this Section 12, all unexercised, deferred and
unpaid Awards shall be canceled immediately, unless the Award Agreement
provides otherwise.
(a) Retirement under a Company Retirement Plan. When a Participant's
employment terminates as a result of retirement with management approval in
accordance with the terms of a Company retirement plan, the Committee (in the
form of an Award Agreement or otherwise) may permit Awards to continue in
effect beyond the date of retirement in accordance with the applicable Award
Agreement and the exercisability and vesting of any Award may be accelerated.
(b) Resignation in the Best Interests of the Company. When a Participant
resigns from the Company and, in the judgment of the chief executive officer or
other senior officer designated by the Committee, the acceleration and/or
continuation of outstanding Awards would be in the best interests of the
Company, the Committee may (i) authorize, where appropriate, the acceleration
and/or continuation of all or any part of Awards granted prior to such
termination and (ii) permit the exercise, vesting and payment of such Awards
for such period as may be set forth in the applicable Award Agreement, subject
to earlier cancellation pursuant to Section 13 or at such time as the Committee
shall deem the continuation of all or any part of the Participant's Awards to
be not in the Company's best interests.
(c) Death or Disability of a Participant.
(i) In the event of a Participant'san
optionee's death, the Participant's estate
or beneficiaries shall have a period specified
IBM Notice of 1994 Annual Meeting and Proxy Statement 25
in the Award Agreement within which to receive or exercise any outstanding
Award held by the Participant under such terms as may be specified in the
applicable Award Agreement. Rights to any such outstanding Awards shall pass by will or the laws of descent and
distributiondistribution), including, but not by way of limitation,
execution, levy, garnishment, attachment, pledge, bankruptcy, or
in any other manner, and no such right or interest of any
participant in the following order: (a)Plan shall be subject to beneficiaries so designated byany obligation or
liability of such participant.
(c) No Common Stock shares shall be issued hereunder unless
counsel for the Participant; if none, then (b) toCompany shall be satisfied that such issuance
will be in compliance with applicable Federal, state, and other
securities laws and regulations.
(d) It shall be a legal
representative of the Participant; if none, then (c)condition to the persons entitled
thereto as determined by a courtobligation of competent jurisdiction. Subject to
subparagraph (iii) below, Awards so passing shall be exercised or paid out at
such times and in such manner as if the Participants were living.
(ii) In the event a Participant is deemed by the Company to
be
disabled and eligible for benefits pursuantissue Common Stock shares upon exercise of an Option, that the
optionee (or any beneficiary or person entitled to the terms of the IBM Long-Term
Disability Plan, any successor plan, or similar plan of another employer,
Awards and rights to any such Awards may be paid to or exercised by the
Participant, if legally competent, or a committee or other legally designated
guardian or representative if the Participant is legally incompetent by virtue
of such disability.
act under
subparagraph 5(d)(iii) After the death or disability of a Participant, the Committee
may in its sole discretion at any time (1) terminate restrictions in Award
Agreements; (2) accelerate any or all installments and rights; and (3) instruct
the Company to pay the total of any accelerated payments in a lump sum to the
Participant, the Participant's estate, beneficiaries or representative -
notwithstanding that, in the absence of such termination of restrictions or
acceleration of payments, any or all of the payments due under the Awards might
ultimately have become payable to other beneficiaries.
(iv) In the event of uncertainty as to interpretation of or
controversies concerning this paragraph (c) of Section 12, the Committee's
determinations shall be binding and conclusive.
13. Cancellation and Rescission of Awards.
Unless the Award Agreement specifies otherwise, the Committee may cancel any
unexpired, unpaid, or deferred Awards at any time if the Participant is not in
compliance with all other applicable provisions of the Award Agreement, the
Plan and with the following conditions:
(a) A Participant shall not render services for any organization or engage
directly or indirectly in any business which, in the judgment of the chief
executive officer of the Company or other senior officer designated by the
Committee, is or becomes competitive with the Company, or which organization or
business, or the rendering of services to such organization or business, is or
becomes otherwise prejudicial to or in conflict with the interests of the
Company. For a Participant whose employment has terminated, the judgment of the
chief executive officer shall be based on the Participant's position and
responsibilities while employed by the Company, the Participant's
post-employment responsibilities and position with the other organization or
business, the extent of past, current and potential competition or conflict
between the Company and the other organization or business, the effect on the
Company's customers, suppliers and competitors of the Participant's assuming
the post-employment position, the guidelines established in the then current
edition of IBM's booklet, Business Conduct Guidelines, and such other
considerations as are deemed relevant given the applicable facts and
circumstances. A Participant who has retired shall be free, however, to
purchase as an investment or otherwise, stock or other securities of such
organization or business so long as they are listed upon a recognized
securities exchange or traded over-the-counter, and such investment does not
represent a substantial investment to the Participant or a greater than 10
percent equity interest in the organization or business.
(b) A Participant shall not, without prior written authorization from the
Company, disclose to anyone outside the Company, or use in other than the
Company's business, any confidential information or material, as defined in
IBM Notice of 1994 Annual Meeting and Proxy Statement 26
the Company's Agreement Regarding Confidential Information and Intellectual
Property, relating to the business of the Company, acquired by the Participant
either during or after employment with the Company.
(c) A Participant, pursuant to the Company's Agreement Regarding
Confidential Information and Intellectual Property, shall disclose promptly and
assign to the Company all right, title, and interest in any invention or idea,
patentable or not, made or conceived by the Participant during employment by
the Company, relating in any manner to the actual or anticipated business,
research or development work of the Company and shall do anything reasonably
necessary to enable the Company to secure a patent where appropriate in the
United States and in other countries.
(d) Upon exercise, payment or delivery pursuant to an Award, the
Participant shall certify on a form acceptable to the Committee that he or she
is in compliance with the terms and conditions of the Plan. Failure to comply
with the provisions of paragraph (a), (b) or (c) of this Section 13 prior to,
or during the six months after, any exercise, payment or delivery pursuant to
an Award shall cause such exercise, payment or delivery to be rescinded. The
Company shall notify the Participant in writing of any such rescission within
two years after such exercise, payment or delivery. Within ten days after
receiving such a notice from the Company, the Participant shallabove) pay to the Company, theupon its
demand, such amount of any gain realized or payment received as a result of the
rescinded exercise, payment or delivery pursuant to an Award. Such payment
shall be made either in cash or by returning to the Company the number of
shares of Capital Stock that the Participant received in connection with the
rescinded exercise, payment or delivery.
14. Nonassignability.
(a) Except pursuant to paragraph (c) of Section 12 and except as set forth
in paragraph (b) of this Section 14, no Award or any other benefit under the
Plan shall be assignable or transferable, or payable to or exercisable by,
anyone other than the Participant to whom it was granted.
(b) Where a Participant terminates employment in order to assume a
position with a governmental, charitable or educational institution, the
Committee, in its discretion and to the extent permitted by law, may authorize
a third party (including but not limited to the trustee of a "blind" trust),
acceptable to the applicable governmental or institutional authorities, the
Participant and the Committee, to act on behalf of the Participant with regard
to any Awards retained by the Participant pursuant to paragraph (b) of Section
12.
15. Adjustments.
In the event of any change in the outstanding Capital Stock of the Company by
reason of a stock split, stock dividend, combination or reclassification of
shares, recapitalization, merger, or similar event, the Committee may adjust
proportionally (a) the number of shares of Capital Stock (i) reserved under the
Plan, (ii) available for ISO's, (iii) for which Awards may be granted to an
individual Participant, and (iv) covered by outstanding Awards denominated in
stock or units of stock; (b) the stock prices related to outstanding Awards;
and (c) the appropriate Fair Market Value and other price determinations for
such Awards. In the event of any other change affecting the Capital Stock or
any distribution (other than normal cash dividends) to holders of Capital
Stock, such adjustments as may be deemed equitablerequested by the Committee, including
adjustmentsCompany for the
purpose of satisfying any liability to avoid fractional shares, shallwithhold Federal, state,
local, or foreign income or other taxes. If the amount requested
is not paid (which payment may be made to give proper effect to
such event. Inin any manner prescribed
in subparagraph 5(d)(ii)), the event of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the Committee
shall be authorizedCompany may refuse to issue or assumeCommon
Stock Options, whether or not in a
transaction to which Section 424(a) of the Code applies, by means of
substitution of new Stock Options for previously issued Stock Options or an
assumption of previously issued Stock Options.
IBM Notice of 1994 Annual Meeting and Proxy Statement 27
16. Notice.
Any notice to the Company required by any of the provisionsshares.
(e) The expenses of the Plan shall be addressed to the chief human resources officer or to the chief executive
officer of the Company in writing, and shall become effective when it is
receivedborne by the office of either of them.
17. Unfunded Plan.
Insofar as it provides for Awards of cash and Capital Stock, theCompany.
(f) The Plan shall be unfunded. Although bookkeeping accounts may be established with respect to
Participants who are entitled to cash, Capital Stock or rights thereto under
the Plan, any such accounts shall be used merely as a bookkeeping convenience. The Company shall not be required
to segregateestablish any special or separate fund or to make any other
segregation of assets thatto assure the issuance of shares upon
exercise of any Option under the Plan, and the issuance of shares
upon exercise of Options shall be subordinate to the claims of
the Company's general creditors.
(g) By accepting any Option or other benefit under the Plan, each
optionee and each person claiming under or through such person
shall be conclusively deemed to have indicated his or her
acceptance and ratification of, and consent to, any action taken
under the Plan by the Company or the Board.
8. Amendment or Discontinuance. The Plan may be amended at any time and from
time to time by the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without stockholder
approval if such stockholder approval is required by law, rule, or regulation,
and provided further, to the extent required by Rule 16b-3 under Section 16 of
the Securities Exchange Act of 1934, in effect from time to time, Plan
provisions relating to the amount, price, and timing of Options shall not be
represented by cash, Capital Stockamended more than once every six months, except that the foregoing shall not
preclude any amendment to comport with changes in the Internal Revenue Code of
1986, the Employee Retirement Income Security Act of 1974, or rights thereto, nor shallthe rules
thereunder in effect from time to time. No amendment of the Plan be
construed as providing for such segregation, nor shall
the Company nor the
Board nor the Committee be deemed to be a trusteematerially and adversely affect any right of any cash, Capital Stock or
rights thereto to be granted under the Plan. Any liability of the Company to
any Participantparticipant with respect to
a grantany Option theretofore granted without such participant's written consent.
9. Effective Date of cash, Capital Stock or rights
thereto under the Plan shall be based solely upon any contractual obligations
that may be created by the Plan and any Award Agreement; no such obligation of
the Company shall be deemed to be secured by any pledge or other encumbrance on
any property of the Company. Neither the Company nor the Board nor the
Committee shall be required to give any security or bond for the performance of
any obligation that may be created by the Plan.
18. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto, to the
extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of New York and construed accordingly.
19. Effective and Termination Dates. The Plan shall become effective onwhen the date itPlan is
approved and adopted by the holders of a
majority of the shares of Capital Stock then outstanding.Company's stockholders.
10. Term. The Plan shall terminate five years later, subject to earlier termination bycontinue in effect without limit unless and until
the Board pursuant to Section 11, after which no Awards may be made under the Plan, but
any such termination shall not affect Awards then outstanding or the authority
of the Committee to continue to administer the Plan.
IBM Notice of 1994 Annual Meeting and Proxy Statement 28
APPENDIX B
Federal Income Tax Consequences
The Company has been advised by counsel that, in general, under the Internal
Revenue Code, as presently in effect, an optionee will not be deemed to receive
any income for federal income tax purposes at the time an option or SAR is
granted or a restricted stock award is made, nor will the Company be entitled
to a tax deduction at that time. However, when any part of an option or SAR is
exercised, when restrictions on restricted stock lapse, or when an unrestricted
stock award is made, the federal income tax consequences may be summarized as
follows:
1. In the case of an exercise of a nonstatutory option, the optionee will
recognize ordinary income in an amount equal to the difference between the
option price and the Fair Market Value of the shares on the exercise date.
2. In the case of an exercise of an SAR, the optionee will recognize ordinary
income on the exercise date in the amount equal to any cash and unrestricted
shares, at Fair Market Value, received.
3. In the case of an exercise of an option or SAR payable in restricted stock,
or in the case of an award of restricted stock, the immediate federal income
tax effect for the recipient will depend on the nature of the restrictions.
Generally, the Fair Market Value of the stock will not be taxable to the
recipient as ordinary income until the year in which his or her interest in the
stock is freely transferable or is no longer subject to a substantial risk of
forfeiture. However, the recipient may elect to recognize income when the stock
is received, rather than when his or her interest in the stock is freely
transferable or is no longer subject to a substantial risk of forfeiture. If
the recipient makes this election, the amount taxed to the recipient as
ordinary income is determined as of the date of receipt of the restricted
stock.
4. In the case of ISO's, there is no tax liability at time of exercise.
However, the excess of the Fair Market Value of the stock on the exercise date
over the option price is included in the optionee's income for purposes of the
alternative minimum tax. If no disposition of the ISO stock is made before the
later of one year from the date of exercise and two years from the date of
grant, the optionee will realize a long-term capital gain or loss upon a sale
of the stock, equal to the difference between the option price and the sale
price. If the stock is not held for the required period, ordinary income tax
treatment will generally apply to the amount of any gain at sale or exercise,
whichever is less, and the balance of any gain or any loss will be treated as
capital gain or loss (long-term or short-term, depending on whether the shares
have been held for more than one year).
5. Upon exercise of a nonstatutory option or SAR, the award of stock, or the
recognition of income on restricted stock, the Company will generally be
allowed an income tax deduction equal to the ordinary income recognized by the
employee. The Company does not receive an income tax deduction as a result of
the exercise of an ISO, provided that the ISO stock is held for the required
period as described above. When a cash payment is made pursuant to the Award,
the recipient will recognize the amount of the cash payment as ordinary income,
and the Company will generally be entitled to a deduction in the same amount.
6. The Company may not deduct compensation of more than $1,000,000 that is paid
in a taxable year to an individual who, on the last day of the taxable year, is
the Company's chief executive officer or among one of its four other highest
compensated officers for that year. The deduction limit, however, does not
apply to certain types of compensation, including qualified performance-based
compensation. The Company believes that compensation attributable to stock
options and stock appreciation rights granted under the 1994 LTPP will be
treated as qualified performance-based compensation and therefore will not be
subject to the deduction limit.
IBM Notice of 1994 Annual Meeting and Proxy Statement 29otherwise determines.
IBM
Dear IBM Stockholder:
YOUR VOTE IS IMPORTANT. ATTACHED IS YOUR 1994Your vote is important. Attached is your 1995 IBM PROXY CARD. PLEASE
READ BOTH SIDES OF THE CARD, AND MARK, SIGN AND DATE IT. DETACH AND RETURN IT
PROMPTLY USING THE ENCLOSED ENVELOPE. WE URGE YOU TO VOTE YOUR SHARES.Proxy Card.
Please read both sides of the card, and mark, sign and date it.
Detach and return it promptly using the enclosed envelope. We
urge you to vote your shares.
You are invited to attend the Annual Meeting of Stockholders on
Monday,Tuesday, April 25, 1994,1995, at 10 a.m. in the Metro Toronto Convention Centre, 255 Front
St. W., Toronto, Ontario, Canada.Ovens Auditorium, 2700
East Independence Boulevard, Charlotte, North Carolina. If you
plan to attend the Annual Meeting, you should mark the box
provided on the attached Proxy Card. An admission ticket is
attached for your convenience.
As part of IBM's ongoing efforts to reduce expenses, we are
asking our stockholders to permit IBM to send only one copy of
stockholder publications to their household. If you are receiving
multiple copies of stockholder reports at your address and wish
to eliminate them for the account shown on the attached Proxy
Card, please mark the box provided on the card. You will continue
to receive your proxy mailings for shares held in this account.
Thank you very much for your cooperation and continued loyalty as
an IBM Stockholder.
/s/ John E. Hickey
- ----------------------------
John E. Hickey
Vice President and Secretary
/X/
/x/ Please mark your
votes as in this
example
Proxy Card IBM'sIBM Directors recommendrecombed a vote forFOR proposals 1
2,through 6 and 3,
and against shareholder proposal 4.AGAINST proposals A through E.
SHARES WILL BE SO VOTED UNLESS OTHERWISE
INDICATED.
IBM's Directors recommend a vote FOR proposals 1 2, and 3.through 6.
FOR WITHHELD
1. Election of
Directors / / / /
(see reverse)
For, except vote WITHHELD from the following nominee(s):
---------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Ratification of
Auditors' Appointmentappointment
of auditors / / / / / /
(page 16)20)
3. Adoption of Long-
Term PerformanceIBM
1995 Employees
Stock Purchase Plan / / / / / /
(page 21)
4. Adoption of IBM Non-
Employee Directors
Stock Option Plan to
replace annual stock
awards (page 17)22) / / / / / /
5. Approval of annual
incentive compen-
sation terms for
certain executives
(page 23) / / / / / /
6. Approval of long-
term performance
incentive compen-
sation terms for
certain executives
(page 25) / / / / / /
IBM's Directors recommend a vote AGAINST proposal 4.proposals A through E.
Stockholder Proposals on: FOR AGAINST ABSTAIN
4. Stockholder Proposal on
PoliticalA. Affirmation of
IBM's political
non-partisanship / / / / / /
Non-Partisanship
(page 19)27)
B. Elimination of
awards or bonuses
upon completion
of service / / / / / /
(page 28)
C. Variable exec-
utive and other
compensation / / / / / /
(page 28)
D. Withdrawal of
retirement plan
for non-employee
directors / / / / / /
(page 30)
E. Stock payments
to non-employee
directors / / / / / /
(page 31)
Will Attend Annual Meeting / /
Discontinue Mailing Publications
forto this Accountaccount / /
["IBM" logo]
SIGNATURE(S): DATE
-------------------------------------- ------------------Signature(s) ________________________________ Date ______ IBM
PLEASE SIGN AND DATE HERE, DETACH AND RETURN IN ENCLOSED
ENVELOPE.
Admission Ticket
to the 19941995 Annual Meeting of
IBM Stockholders
This is your admission ticket for the Annual Meeting of
Stockholdersstockholders to be held on Monday,Tuesday, April 25, 1994,1995, at 1010:00 a.m. in
the Metro Toronto Convention Centre,
265 Front St. W., Toronto, Ontario, Canada.Ovens Auditorium, 2700 East Independence Boulevard,
Charlotte, North Carolina.
Stockholders must have a ticket for admission to the meeting.
This ticket is issued to the stockholder whose name appears on it
and is non-transferable.
PROXY CARD
IBM International Business Machines
Corporation
Armonk, New York 10504
Proxy Solicited by the Board of Directors
Corporation for the Annual Meeting of Stockholders
Armonk, New York 10504 April 25, 19941995
Louis V. Gerstner, Jr., Paul J. Rizzo,Jerome B. York, and John E. Hickey, or
any of them individually and each of them with power of
substitution, are hereby appointed Proxies of the undersigned to
vote all common stock of International Business Machines
Corporation owned on the record date by the undersigned at the
Annual Meeting of Stockholders to be held in the Metro Toronto Convention Centre,
Toronto, Ontario, Canada,Ovens
Auditorium, Charlotte, North Carolina, at 1010:00 a.m. on Monday,Tuesday,
April 25, 1994,1995, or any adjournment thereof, upon such business as
may properly come before the meeting, including the items on the
reverse side of this form as set forth in the Notice of 19941995
Annual Meeting and the Proxy Statement dated March 14, 1994.
ELECTION OF DIRECTORS, NOMINEES:1995.
Election of Directors, Nominees:
H. Brown, J.E. Burke, F. Gerber, L.V. Gerstner, Jr., N.O. Keohane, C.F.C. F.
Knight, T.S. Murphy, P.J. Rizzo,L.A. Noto, J.B. Slaughter, A. Trotman, L.C. van Wachem,
E.S. Woolard, Jr.
(SHARES CANNOT BE VOTED UNLESS THIS PROXY CARD IS SIGNED AND RETURNED, OR OTHER
SPECIFIC ARRANGEMENTS ARE MADE TO HAVE THE SHARES REPRESENTED AT THE MEETING.C.M. Vest, J.B. York
(Shares cannot be voted unless this Proxy Card is signed and
returned, or other specific arrangements are made to have the
shares represented at the meeting.)
PLEASE DETACH AND PRESENT THIS TICKET FOR ADMISSION TO THE ANNUAL
MEETING