SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2)
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
International Business Machines Corporation
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No Fee Required
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
--------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
--------------------------------------------------------------------
4. Proposed maximum aggregate value transaction:
--------------------------------------------------------------------
5. Total fee paid:
--------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration number, or
the Form or Schedule and the date of its filing.
1. Amount previously paid:
--------------------------------------------------------------------
2. Form, Schedule or Registration Statement No.:
--------------------------------------------------------------------
3. Filing Party:
--------------------------------------------------------------------
4. Date Filed:
--------------------------------------------------------------------
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
[LOGO]
DEAR STOCKHOLDERS,
You are cordially invited to attend the Annual Meeting of Stockholders on
Tuesday, April 24, at 10 a.m., in the Savannah International Trade and
Convention Center in Savannah, Georgia 31402.
We are very pleased that Mr. Samuel J. Palmisano, president and chief operating
officer of IBM; Mr. Sidney Taurel, chairman, president and chief executive
officer of Eli Lilly and Company; and Mr. John M. Thompson, vice chairman of the
IBM Board of Directors are nominees for the first time. Messrs. Palmisano and
Thompson were elected to the Board in July 2000. Mr. Taurel was elected to the
Board effective January 2001.
Stockholders of record can vote their shares by using the Internet or the
telephone. Instructions for using these convenient services are set forth on the
enclosed proxy card. Of course, you also may vote your shares by marking your
votes on the enclosed proxy card, signing and dating it, and mailing it in the
enclosed envelope. If you will need special assistance at the meeting because of
a disability, please contact the Office of the Secretary, Armonk, N.Y. 10504.
Very truly yours,
/s/ Louis V. Gerstner, Jr.
Louis V. Gerstner, Jr.
Chairman of the Board
YOUR VOTE IS IMPORTANT
Please Vote by Using the Internet,
the Telephone, or by Signing, Dating, and Returning
the Enclosed Proxy Card
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
2
INTERNATIONAL BUSINESS MACHINES CORPORATION
Armonk, New York 10504
March 12, 2001
NOTICE OF MEETING
The Annual Meeting of Stockholders of International Business Machines
Corporation will be held on Tuesday, April 24, 2001, at 10 a.m., in the Savannah
International Trade and Convention Center, One International Drive, P.O. Box
248, Savannah, Georgia 31402. The items of business are:
1. Election of directors for a term of one year.
2. Ratification of the appointment of independent accountants.
3. Such other matters, including two stockholder proposals, as may properly
come before the meeting.
These items are more fully described in the following pages, which are hereby
made a part of this Notice. Only stockholders of record at the close of business
on March 1, 2001 (the "Record Date"), are entitled to vote at the meeting, or
any adjournment thereof. Stockholders are reminded that shares cannot be voted
unless the signed proxy card is returned, shares are voted over the Internet or
by telephone, or other arrangements are made to have the shares represented at
the meeting.
/s/ Daniel E. O'Donnell
Daniel E. O'Donnell
Vice President and Secretary
Admission to the Annual Meeting will be on a first-come, first-served basis and
an admission ticket and picture identification will be required to enter the
meeting. For stockholders of record, an admission ticket is attached to the
proxy card sent with this Proxy Statement. Stockholders holding stock in bank or
brokerage accounts can obtain an admission ticket in advance by sending a
written request, along with proof of ownership (such as a brokerage statement),
to our transfer agent at the address listed below. An individual arriving
without an admission ticket will not be admitted unless it can be verified that
the individual is an IBM stockholder as of the Record Date for the meeting.
Cameras, cell phones, recording equipment and other electronic devices will not
be permitted at the meeting.
This Proxy Statement and the accompanying form of proxy card are being mailed
beginning on or about March 12, 2001, to stockholders entitled to vote. The IBM
2000 Annual Report, which includes consolidated financial statements, is being
mailed with this Proxy Statement. Stockholders of record who did not receive an
annual report or who previously elected not to receive an annual report for a
specific account may request that IBM promptly mail IBM's 2000 Annual Report to
that account by writing to our transfer agent, EquiServe, the First Chicago
Trust Division, Mail Suite 4688, P.O. Box 2530, Jersey City, N.J. 07303-2530 or
by telephoning 201-324-0405.
3
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
TABLE OF CONTENTS
1. ELECTION OF DIRECTORS FOR A TERM OF ONE YEAR 5
General Information:
o Board of Directors 9
o Committees of the Board 9
o Other Relationships 10
o Directors' Compensation 10
o Section 16(a) Beneficial Ownership Reporting Compliance 11
o Ownership of Securities-Common Stock and
Total Stock-Based Holdings 11
Report on Executive Compensation 13
o Summary Compensation Table 16
o Performance Graph 21
Report of the Audit Committee of the Board of Directors 22
2. RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS 23
3. STOCKHOLDER PROPOSAL ON BOARD SERVICE 24
4. STOCKHOLDER PROPOSAL ON PENSION
AND RETIREMENT MEDICAL 24
Other Matters 26
Proxies and Voting at the Meeting 26
Appendix A: IBM Audit Committee Charter 28
4
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
1. ELECTION OF DIRECTORS FOR A TERM OF ONE YEAR
The Board proposes the election of the following directors of the Company for a
term of one year. Following is information about each nominee, including
biographical data for at least the last five years. Should one or more of these
nominees become unavailable to accept nomination or election as a director, the
individuals named as proxies on the enclosed proxy card will vote the shares
that they represent for the election of such other persons as the Board may
recommend, unless the Board reduces the number of directors.
[PHOTO]
Cathleen Black, 56, is president of Hearst Magazines, a division of
The Hearst Corporation, a diversified communications company. She is a member of
IBM's Directors and Corporate Governance Committee. Prior to joining Hearst
Magazines, she was president and chief executive officer of the Newspaper
Association of America from 1991 to 1996, president, then publisher, of USA
TODAY from 1983 to 1991, and also executive vice president/marketing for Gannett
Company, Inc. (USA TODAY parent company) from 1985 to 1991. She is a director of
The Hearst Corporation, The Coca-Cola Company, the Advertising Council and a
trustee of the University of Notre Dame. Ms. Black became an IBM director in
1995.
[PHOTO]
Kenneth I. Chenault, 49, is president and chief executive officer of
American Express Company, a financial services company. He is a member of IBM's
Executive Compensation and Management Resources Committee. Mr. Chenault joined
American Express in 1981 and was named president of the U.S. division of
American Express Travel Related Services Company, Inc., in 1993, vice chairman
of American Express Company in 1995, president and chief operating officer in
1997, and to his present position in 2000. Mr. Chenault is a member of the board
of directors of American Express Company, the National Collegiate Athletic
Association Foundation, Mount Sinai-NYU Medical Center and Health System and the
National Center on Addiction and Substance Abuse. He also serves on the Dean's
Advisory Board of Harvard Law School and is a member of the Council on Foreign
Relations. Mr. Chenault became an IBM director in 1998.
[PHOTO]
Juergen Dormann, 61, is chairman of the board of management of
Aventis S.A., a life sciences company. He is a member of IBM's Audit Committee.
Mr. Dormann joined Hoechst AG in 1963 and was elected finance and accounting
director in 1987, chairman of the management board in 1994 and to his present
position at Aventis in 1999. He is a director of ABB Ltd. and a member of the
supervisory board of Allianz AG. Mr. Dormann became an IBM director in 1996.
[PHOTO]
Louis V. Gerstner, Jr., 59, is chairman of the Board and chief
executive officer of IBM and chairman of IBM's Executive Committee. From 1989
until joining IBM in 1993, he was chairman of the board and chief executive
officer of RJR Nabisco Holdings Corp., an international consumer products
company. From 1985 to 1989, Mr. Gerstner was president of American Express
Company. He is a member of the board of directors of Bristol-Myers Squibb
Company. Mr. Gerstner co-chairs Achieve, an organization created by United
States governors and business leaders to establish high academic standards in
our nation's public schools. He is vice chairman of the board of Memorial
Sloan-Kettering Cancer Center, a director of the Council on Foreign
Relations, a member of the National Academy of Engineering, and a Fellow of the
American Academy of Arts and Sciences. Mr. Gerstner became an IBM director in
1993.
5
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
[PHOTO]
Nannerl O. Keohane, 60, is president and professor of political
science at Duke University. She is chairperson of IBM's Directors and Corporate
Governance Committee and a member of IBM's Executive Committee. She was formerly
president of Wellesley College and a former faculty member at Swarthmore College
and Stanford University. She is a member of the Council on Foreign Relations,
the American Philosophical Society and the American Academy of Arts and
Sciences. Dr. Keohane is a trustee of the Colonial Williamsburg Foundation and
has served as vice president of the American Political Science Association. Dr.
Keohane became an IBM director in 1986.
[PHOTO]
Charles F. Knight, 65, is chairman of the board of Emerson Electric
Co., a manufacturer of electrical, electromechanical and electronic products and
systems. He has served as chairman since 1974 and served as chief executive
officer until his retirement from that position in October 2000. He also served
as president from 1995 until 1997, and has been a director of Emerson since
1972. Mr. Knight is also a director of Anheuser-Busch Companies, Inc., SBC
Communications Inc., BP Amoco p.l.c. and Morgan Stanley Dean Witter & Co. He
became a director of IBM in 1993 and is chairman of the IBM Executive
Compensation and Management Resources Committee and a member of the Executive
Committee.
[PHOTO]
Minoru Makihara, 71, is chairman of Mitsubishi Corporation. He is a
member of IBM's Directors and Corporate Governance Committee. Mr. Makihara
joined Mitsubishi in 1956 and was elected president of Mitsubishi International
Corporation in 1987, chairman of Mitsubishi International Corporation in 1990,
president of Mitsubishi Corporation in 1992 and chairman in 1998. He is a vice
chairman of the Keidanren, chairman of the Japan-U.S. Business Council and a
member of the executive committee of the Trilateral Commission. Mr. Makihara
became an IBM director in 1997.
[PHOTO]
Lucio A. Noto, 62, is the retired vice chairman of Exxon Mobil
Corporation, an oil, gas and petrochemical company. He is a member of IBM's
Audit Committee. Mr. Noto was chairman and chief executive officer of Mobil
Corporation until its merger with Exxon in 1999. Mr. Noto is a director of
Philip Morris Companies Inc. He is a member of the Trilateral Commission and the
U.S. chair of the Council for the U.S. and Italy and the deputy chairman of the
Singapore-U.S. Business Council. Mr. Noto became an IBM director in 1995.
6
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
[PHOTO]
Samuel J. Palmisano, 49, is president and chief operating officer of
IBM. Mr. Palmisano joined IBM in 1973. He was elected senior vice president and
group executive of the Personal Systems Group in 1997, senior vice president and
group executive of IBM Global Services in 1998, senior vice president and group
executive of Enterprise Systems in 1999 and to his present position in 2000. He
is a director of Gannett Co., Inc. and a member of the Board of Trustees of The
Johns Hopkins University. Mr. Palmisano became an IBM director in 2000.
[PHOTO]
John B. Slaughter, 66, is president and chief executive officer of
the National Action Council for Minorities in Engineering, Inc. He is a member
of IBM's Audit Committee. Dr. Slaughter is president emeritus of Occidental
College and former Melbo Professor of Leadership in Education, University of
Southern California, a former chancellor of the University of Maryland and a
former director of the National Science Foundation. He is a director of Solutia,
Inc., and Northrop Grumman Corporation. He is a member of the National Academy
of Engineering, a fellow of the American Academy of Arts and Sciences, a fellow
of the American Association for the Advancement of Science, a fellow of the
Institute of Electrical and Electronics Engineers and a member of the Hall of
Fame of the American Society for Engineering Education. Dr. Slaughter became an
IBM director in 1988.
[PHOTO]
Sidney Taurel, 52, is chairman of the board, president and chief
executive officer of Eli Lilly and Company, a pharmaceutical company. He is a
member of IBM's Executive Compensation and Management Resources Committee. Mr.
Taurel joined Eli Lilly in 1971 and has held management positions in the
company's operations in South America and Europe. He was named president of Eli
Lilly International Corporation in 1986, executive vice president of the
Pharmaceutical Division in 1991, executive vice president of Eli Lilly and
Company in 1993, president and chief operating officer in 1996, chief executive
officer in 1998, and chairman of the board in 1999. Mr. Taurel is a director of
The McGraw-Hill Companies, Inc., a member of the Board of Overseers of the
Columbia Business School and a trustee of the Indianapolis Museum of Art. Mr.
Taurel became an IBM director in 2001.
[PHOTO]
John M. Thompson, 58, is vice chairman of the Board of IBM. Mr.
Thompson joined IBM in 1966 and became president and chief executive officer of
IBM Canada, Ltd., in 1986. He was elected senior vice president and group
executive of the Server Group in 1993, senior vice president and group executive
of the Software Group in 1995 and to his present position in 2000. Mr. Thompson
is a director of Hertz Corporation, Toronto-Dominion Bank and TD Waterhouse
Group, Inc. Mr. Thompson became an IBM director in 2000.
7
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
[PHOTO]
Alex Trotman, 67, is retired chairman and chief executive officer of
the Ford Motor Company, an automotive manufacturer. He is a member of IBM's
Directors and Corporate Governance Committee. Mr. Trotman joined Ford of Britain
in 1955 and was elected president of Ford Asia-Pacific in 1983 and chairman of
Ford of Europe in 1988. He became president and chief operating officer of Ford
Automotive Group and a director in 1993. He was chairman and chief executive
officer of the Ford Motor Company from 1993 to 1998. Mr. Trotman is a director
of the New York Stock Exchange and Imperial Chemical Industries PLC. Mr. Trotman
became an IBM director in 1994.
[PHOTO]
Lodewijk C. van Wachem, 69, is chairman of the supervisory board of
Royal Dutch Petroleum Company, an oil, gas and petrochemical company. He is
chairman of IBM's Audit Committee and a member of IBM's Executive Committee. In
1992, Mr. van Wachem retired as president of Royal Dutch Petroleum, a post he
had held since 1982. He is a director of ATCO Ltd., chairman of the supervisory
board of Philips Electronics N.V., vice chairman of Zurich Financial Services
and a member of the supervisory boards of Akzo Nobel N.V., Bavarian Motor Works
A.G. and Bayer A.G. Mr. van Wachem became an IBM director in 1992.
[PHOTO]
Charles M. Vest, 59, is president and professor of mechanical
engineering at the Massachusetts Institute of Technology. He is a member of
IBM's Executive Compensation and Management Resources Committee. Dr. Vest was
formerly the provost and vice president for Academic Affairs of the University
of Michigan. He is a director of E. I. du Pont de Nemours and Company, a fellow
of the American Association for the Advancement of Science, a member of the
National Academy of Engineering and the Corporation of Woods Hole Oceanographic
Institution and vice chair of the Council on Competitiveness. Dr. Vest became an
IBM director in 1994.
8
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
GENERAL INFORMATION
Board of Directors
The Board of Directors is responsible for supervision of the overall affairs of
the Company. To assist it in carrying out its duties, the Board has delegated
certain authority to several committees. The Board of Directors held 9 meetings
during 2000. Overall attendance at Board and committee meetings was 90 percent.
Attendance was at least 75 percent for each director except for Mr. Knight.
Following the Annual Meeting, the Board will consist of 15 directors. In the
interim between Annual Meetings, the Board has the authority under the By-laws
to increase or decrease the size of the Board and fill vacancies.
The IBM Board has long adhered to governance principles designed to assure the
continued vitality of the Board and excellence in the execution of its duties.
Since 1994, the Board has had in place a set of governance guidelines reflecting
these principles, including the Board's policy of requiring a majority of
independent directors, the importance of equity compensation to align the
interests of directors and stockholders, and the periodic review by the Board in
executive session of its own performance and of the performance of the chief
executive officer.
Committees of the Board
The Executive Committee, the Audit Committee, the Directors and Corporate
Governance Committee, and the Executive Compensation and Management Resources
Committee are the standing committees of the Board of Directors.
Executive
Directors Compensation and
and Corporate Management
Executive Audit Governance Resources
- --------------------------------------------------------------------------------
L.V. Gerstner, Jr.* L.C. van Wachem* N.O. Keohane* C.F. Knight*
N.O. Keohane J. Dormann C. Black C.I. Chenault
C.F. Knight L.A. Noto M. Makihara S. Taurel
L.C. van Wachem J.B. Slaughter A. Trotman C.M. Vest
* Chair
Executive Committee
The Executive Committee is empowered to act for the full Board in intervals
between Board meetings, with the exception of certain matters that by law may
not be delegated. The committee meets as necessary, and all actions by the
committee are reported at the next Board of Directors meeting. The committee did
not meet in 2000.
Audit Committee
The Audit Committee is responsible for reviewing reports of the Company's
financial results, audits, internal controls, and adherence to its Business
Conduct Guidelines in compliance with federal procurement laws and regulations.
The committee recommends to the Board of Directors the selection of the
Company's independent accountants and reviews their procedures for ensuring
their independence with respect to the services performed for the Company. The
IBM Board of Directors has adopted a written charter for the Audit Committee, a
copy of which is attached as Appendix A to this proxy statement.
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 and as
"independent" is defined under the standards of the New York Stock Exchange,
these directors are independent of management and free of any relationship that
would interfere with their exercise of independent judgment as members of this
committee. The committee held 4 meetings in 2000.
9
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
Directors and Corporate Governance Committee
The Directors and Corporate Governance Committee was formed in 1993 and is
devoted primarily to the continuing review and articulation of the governance
structure of the Board of Directors. The committee is responsible for
recommending qualified candidates to the Board for election as directors of the
Company, including the slate of directors that the Board proposes for election
by stockholders at the Annual Meeting.
The committee advises and makes recommendations to the Board on all
matters concerning directorship practices, including retirement policies and
compensation for non-employee directors, and recommendations concerning the
functions and duties of the committees of the Board.
The committee reviews and considers the Company's position and practices
on significant issues of corporate public responsibility, such as workforce
diversity, protection of the environment, and philanthropic contributions, and
it reviews and considers stockholder proposals dealing with issues of public and
social interest. Members of the committee are outside directors who are not
officers or employees of IBM or its subsidiaries. In the opinion of the Board,
these directors are independent of management and free of any relationship that
would interfere with their exercise of independent judgment as members of this
committee. The committee held 3 meetings in 2000.
Stockholders wishing to recommend director candidates for consideration by
the committee may do so by writing to the Secretary of the Corporation, giving
the recommended candidate's name, biographical data, and qualifications.
Executive Compensation and Management Resources Committee
The Executive Compensation and Management Resources Committee has responsibility
for administering and approving all elements of compensation for elected
corporate officers and certain other senior management positions. It also
approves, by direct action or through delegation, participation in, and all
awards, grants, and related actions under the provisions of the IBM Stock Option
Plans and the Long-Term Performance Plans, reviews changes in the IBM Personal
Pension Plan primarily affecting IBM corporate officers, and manages the
operation and administration of the IBM Executive Deferred Compensation Plan and
the IBM Supplemental Executive Retention Plan. The committee reports to
stockholders on executive compensation items as required by the Securities and
Exchange Commission (page 13). 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 6 meetings in 2000.
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 2000, none of these transactions was
individually significant or reportable.
The Company has renewed its directors and officers indemnification
insurance coverage. This insurance covers directors and officers individually
where exposures exist other than those for which the Company is able to provide
direct or indirect indemnification. These policies run from June 30, 2000,
through June 30, 2001, at a total cost of $724,531. The primary carrier is
Federal Insurance Company.
On October 26, 2000, the Company extended a short-term loan to John R.
Joyce, an executive officer of the Company, in the amount of $750,000 without
interest, for use by Mr. Joyce in the purchase of his principal residence. The
loan was repaid in full within 10 business days, on November 9, 2000.
Directors' Compensation
Directors who are not employees of the Company receive an annual retainer of
$70,000 and each committee chair receives an additional annual retainer of
$5,000. Sixty percent of the annual retainer fees is paid in Promised Fee Shares
of IBM common stock under the Directors Deferred Compensation and Equity Award
Plan (the "DCEAP"). Under the DCEAP, outside directors may defer all or part of
their remaining cash compensation, to be paid either with interest at a rate
equal to the rate on 26-week U.S. Treasury bills updated each January and July,
or in Promised Fee Shares, with dividends used to buy additional Promised Fee
Shares. Promised Fee Shares are valued based on the market price of IBM common
stock and are payable in the form of IBM shares or cash. All amounts under the
DCEAP are to be paid only upon retirement or other completion of service as a
director. Employee directors receive no additional compensation for service on
the Board of Directors or its committees.
10
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
Under the IBM Non-Employee Directors Stock Option Plan, each outside
director receives an annual grant of options to purchase 4,000 shares of IBM
common stock. The exercise price of the options is the fair market value of IBM
common stock on the date of grant, and each option has a term of ten years and
becomes exercisable in four equal installments commencing on the first
anniversary of the date of grant and continuing for the three successive
anniversaries thereafter. In the event of the retirement (as defined in the
plan) or death of an outside director, all options granted to such director
shall become immediately exercisable. Outside directors are provided group life
insurance of up to $50,000 and travel accident insurance in the amount of
$300,000. Directors are also eligible to participate in the Company's Matching
Grants Program on the same basis as the Company's employees.
The Directors and Corporate Governance Committee of the Board periodically
reviews IBM's director compensation practices and compares them against the
practices of the largest U.S. companies in terms of market capitalization. In
performing this review, the committee focuses on ensuring that the Company's
outside directors have a proprietary stake in the Company and that the interests
of the directors continue to be closely aligned with the interests of the
Company's stockholders. The committee believes that the Company's total director
compensation package continues to be competitive with the compensation offered
by other companies and is fair and appropriate in light of the responsibilities
and obligations of the Company's outside directors.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that all reports for the Company's executive officers and
directors that were required to be filed under Section 16 of the Securities
Exchange Act of 1934 were timely filed, except that three reports were not
timely filed to reflect three transactions executed on Mr. Palmisano's behalf
without his knowledge by his financial advisor.
Ownership of Securities-Common Stock and Total Stock-Based Holdings
The following table reflects shares of IBM common stock beneficially owned by
the named persons, and the directors and executive officers as a group, as of
December 31, 2000.
The table sets forth the beneficial ownership of shares of the Company's
common stock, as well as all other IBM stock-based holdings as of December 31,
2000, by IBM's current directors and nominees, the executive officers named in
the Summary Compensation Table on page 16, and the directors and officers as a
group, as of December 31, 2000. The table indicates the alignment of these
individuals' personal financial interests with the interests of the Company's
stockholders, because the value of their holdings will increase or decrease in
line with the price of IBM stock.
The table indicates whether voting power and investment power in IBM
common stock are solely exercisable by the person named or shared with others.
Voting power includes the power to direct the voting of the shares held, and
investment power includes the power to direct the disposition of shares held.
Also shown are shares over which the named person could have acquired such
powers within 60 days. Since some shares may appear under both the Voting and
Investment Power columns, and since other types of holdings are listed only in
the Stock or Total column, the individual columns will not add across to the
Total column.
11
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
- ------------------------------------------------------------------------------------------------------------------------
Voting Power Investment Power Total Acquirable
--------------------------------------------------- Stock-based within 60
Name Sole Shared Sole Shared Stock(1) holdings(2) days(3)
- ------------------------------------------------------------------------------------------------------------------------
C. Black 4,000 324 10,672 324 10,996 11,352 10,000
K.I. Chenault 0 1,000 1,185 1,000 2,185 2,185 1,000
N.M. Donofrio 69,971 40 44,771 40 155,971 159,531 760,911
J. Dormann 4,000 0 7,311 0 7,311 7,311 10,000
L.V. Gerstner, Jr. 428,719 912 428,719 912 754,479 902,817 4,371,341
N.O. Keohane 0 2,046 19,569 2,046 21,615 24,851 14,000
C.F. Knight 9,946 0 21,850 0 21,850 23,723 14,000
M. Makihara 1,000 0 3,754 0 3,754 3,754 3,000
L.A. Noto 3,556 3,904 11,171 3,904 15,075 15,580 14,000
S.J. Palmisano 33,102 320 33,102 320 148,302 160,083 514,617
L.R. Ricciardi 25,037 34,220 25,037 34,220 142,057 145,135 144,999
J.B. Slaughter 200 200 16,051 200 16,251 20,248 14,000
S. Taurel 5,265 0 5,265 0 5,265 5,265 0
J.M. Thompson 141,259 0 120,695 0 247,819 250,019 360,001
A. Trotman 0 8,000 7,624 8,000 15,624 16,300 14,000
L.C. van Wachem 4,000 0 9,617 0 9,617 12,679 14,000
C.M. Vest 400 0 5,019 0 5,019 5,843 14,000
- ------------------------------------------------------------------------------------------------------------------------
Directors and executive
officers as a group (4) 985,691 93,065 1,022,452 93,065 2,492,489* 2,716,908 8,340,112*
- ------------------------------------------------------------------------------------------------------------------------
* The total of these two columns represents less than 1% of the outstanding
shares. No individual's beneficial holdings totaled more than 1/3 of 1% of
the outstanding shares. These holdings do not include 1,678,167 shares
held by the IBM Personal Pension Plan Trust Fund, over which the members
of the Board have the right to acquire shared investment power by
withdrawing authority now delegated to the Retirement Plans Committee, a
management committee. The directors and officers included in the table
disclaim beneficial ownership of shares beneficially owned by family
members who reside in their households. The shares are reported in such
cases on the presumption that the individual may share voting and/or
investment power because of the family relationship.
(1) For executive officers, this column includes shares shown in the "Voting
Power" and "Investment Power" columns, as well as restricted stock units.
For non-employee directors, this column includes shares earned and accrued
under the Directors Deferred Compensation and Equity Award Plan. They have
no voting power over such shares and investment power only with regard to
such shares acquired as a result of deferring fees paid to them.
(2) This column shows the total IBM stock-based holdings, including the
securities shown in the "Stock" column and other IBM stock-based
interests, including, as appropriate, employee contributions into the IBM
Stock Fund under the IBM Executive Deferred Compensation Plan ("EDCP") and
all Company matching contributions under the EDCP. For non-employee
directors, this column also includes the Promised Fee Shares payable in
cash that were credited to the non-employee directors in connection with
the elimination of pension payments to such directors.
(3) Shares that can be purchased under an IBM stock option plan.
(4) None of the directors or executive officers own any IBM preferred stock.
12
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation and Management Resources Committee (the "Committee")
is responsible for administering the Company's executive compensation policies
and practices, and it approves all elements of compensation for elected
corporate officers. In carrying out its duties, the Committee has direct access
to independent compensation consultants and outside survey data. The Committee
reports regularly to the Board of Directors on its activities and obtains
ratification by the non-employee members of the Board of all items of
compensation for the two highest-paid executives. The Committee is comprised of
four outside directors who are not eligible to participate in any of the plans
or programs that it administers.
Compensation Philosophy and Practices
The Board believes that leadership and motivation of the Company's executives
are critical to establishing IBM's preeminence both in the marketplace and as an
investment for stockholders. The Committee is responsible to the Board for
ensuring that the individuals in executive positions are highly qualified and
that they are compensated in a manner that furthers the Company's business
strategies and aligns their interests with those of the stockholders. To support
this philosophy, the following principles provide a framework for the
compensation program:
o offer competitive total compensation value that will attract the best
talent to IBM; motivate individuals to perform at their highest levels;
reward outstanding achievement; and retain those individuals with the
leadership abilities and skills necessary for building long-term
stockholder value.
o maintain a significant portion of executives' total compensation at risk,
tied both to annual and long-term financial performance of the Company as
well as to the creation of stockholder value.
o encourage executives to manage from the perspective of owners with an
equity stake in the Company.
Beginning in 1994, section 162(m) of the U.S. Internal Revenue Code of
1986 limits deductibility of compensation in excess of $1 million paid to the
Company's chief executive officer and to each of the other four highest-paid
executive officers unless this compensation qualifies as "performance-based."
Based on the applicable tax regulations, any taxable compensation derived from
the exercise of stock options or stock appreciation rights under the IBM 1999
Long-Term Performance Plan and any prior plans should qualify as
performance-based. The IBM Executive Deferred Compensation Plan (EDCP) permits
an executive officer who is subject to section 162(m) and whose salary is above
$1 million to defer payment of a sufficient amount of the salary to bring it
below the section 162(m) limit. The Company's stockholders have previously
approved terms under which the Company's annual and long-term performance
incentive awards should qualify as performance-based. These terms do not
preclude the Committee from making any payments or granting any awards whether
or not such payments or awards qualify for tax deductibility under section
162(m).
The Committee makes annual incentive awards based on its assessment of the
Company's performance as measured against predetermined financial targets,
taking into account various quantitative and qualitative factors. The primary
quantitative factors reviewed by the Committee include such financial measures
as net income, cash flow, revenue, earnings-per-share, and market capitalization
of the Company. Among the qualitative factors evaluated by the Committee are the
Company's performance relative to other leading multinational corporations,
progress toward achievement of the Company's short-term and long-term business
goals, and the global business and economic environment. In addition, every
executive is expected to uphold and comply with IBM's Business Conduct
Guidelines, which require the individual to maintain the Company's
discrimination-free workplace and high standards of environmental protection.
Upholding the Business Conduct Guidelines contributes to the success of the
individual executive, and to IBM as a whole.
IBM's compensation program for executive officers is targeted to provide
highly competitive total compensation levels (including both annual and
long-term incentives) for highly competitive performance. Compensation is
benchmarked against data developed by independent consultants using surveys of
both the information technology industry and the largest U.S. market-capitalized
companies and is set to reflect the 75th percentile of the compensation
practices of comparator companies. These companies have executive positions
similar to those at IBM in magnitude, complexity and scope of responsibility,
and they are representative
13
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
of the various markets in which IBM competes for executive talent. This is a
broader and more diverse set of companies than those included in the S&P
Computers (Hardware) Index used for the Performance Graph on page 21.
Stock ownership guidelines have been established for members of senior
management to increase their equity stake in the Company and more closely link
their interests with those of the stockholders. These guidelines provide that
within a five-year period senior executives should attain an investment position
in IBM stock or stock units of two to four times the sum of their base salary
and annual incentive target depending on the individual's scope of
responsibilities.
Components of Executive Compensation
The compensation program for executive officers consists of the following
components:
Annual Cash Compensation: includes base salary and any cash incentive or bonus
award earned for the year's performance. Both salary and the annual incentive
target opportunity are established for each executive officer based on job
responsibilities, level of experience, overall business performance and
individual contribution to the business, as well as analyses of competitive
industry practice. Actual annual incentive awards for 2000 are based on an
assessment of these factors and various other quantitative and qualitative
performance factors. Financial measures include net income and cash flow (with
most of the weighting on net income) and directly align executive pay with
Company profitability. Qualitative measures include achievements in areas such
as product and technology leadership, growth in market share, revenue growth,
implementation of key business programs and customer satisfaction. Final
incentive amounts for the named executive officers are reported in the Summary
Compensation Table. Effective January 1, 1998, the Committee amended the EDCP to
permit participants to defer up to 15% of pay, in order to maintain parallel
deferral limits between the EDCP and the qualified all-employee Tax Deferred
Savings Plan 401(k).
Long-Term Incentive Compensation: includes stock options, long-term incentive
program awards, and restricted stock or restricted stock unit awards. The
objectives for these awards are to closely align executive interests with the
longer-term interests of stockholders by encouraging equity participation and to
retain the skills that are critical to the future success of the business. Stock
options and long-term incentive program opportunities depend on the creation of
incremental stockholder value or the attainment of cumulative financial targets
over three-year periods. These long-term grants represent a significant portion
of the total compensation value provided to executive officers. Award sizes are
based both upon individual performance, level of responsibility and potential to
make significant contributions to the Company, as well as upon award levels at
other companies included in the competitive surveys. In addition, long-term
incentives granted in prior years are taken into consideration.
o STOCK OPTIONS are generally granted annually to executives and
periodically to other selected employees whose contributions and skills
are critical to the long-term success of the Company. Options are granted
with an exercise price equal to the market price of the Company's common
stock on the date of grant and generally vest over a period of at least
four years and expire after ten years. These options only have value to
the recipients if the price of the Company's stock appreciates after the
options are granted.
o LONG-TERM INCENTIVE PROGRAM (LTIP) awards provide senior management with
an incentive linked to both multiple-year corporate financial performance
and stockholder value. Awards are intended to be made annually in the form
of performance stock units. For awards made in 2000 covering the period
2000-2002, the stock units can be earned based on achieving cumulative
financial goals of earnings-per-share and cash flow (with most of the
weighting on earnings-per-share). Depending on the level of performance
against the three-year goals, payout of the stock units can range between
0% to 150% of the target awards, as shown in the table on page 18. The
stock units are valued based upon the market price of the Company's common
stock. For LTIP awards made in 1998 covering the three-year period through
2000, the financial goals were earnings-per-share and cash flow weighted
80/20. Based on the Company's performance for this period, 120% of the
stock units were earned by the participants. Payouts for the named
executives are reported in the Summary Compensation Table on page 16.
o RESTRICTED STOCK UNIT awards are designed to provide long-term retention
incentives for certain key members of senior management. These awards are
highly selective, limited to a very small group of executives, and
equity-based so as to tie them directly to stockholder return. The
restriction period is generally five years or longer.
14
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
Compensation for the Chairman and Chief Executive Officer
In his eighth year as chairman and chief executive officer, Mr. Gerstner
continues to demonstrate highly effective leadership and vision in a marketplace
of unique complexity and speed of change. Since assuming his role in April of
1993, Mr. Gerstner has returned IBM to strength and has executed upon his
strategic vision of positioning IBM as a diversified leader at the center of the
e-business marketplace with a breadth of products and services unparalleled in
the industry. As a result, during his tenure through the end of January 2001,
stockholders have experienced an 856% increase in total stockholder return.
In a year which included the challenge of rebounding from the Year 2000
slowdown, IBM achieved record revenues of $88.4 billion, record after-tax profit
of $8.1 billion, and earnings-per-share improvement of 19% year-to-year (after
excluding an after-tax benefit from the sale of the IBM Global Network and other
1999 actions) to a record $4.44 per share. These results in a turbulent market
reinforce the strength of IBM's portfolio of businesses. Some highlights of
IBM's business performance include a strong finish to the year with fourth
quarter revenue growth of 12% over the year-earlier period at constant currency
and earnings-per-share improvement of 32% for the same period, full year
e-business services revenues up more than 70%, the return to profitability of
the Personal Systems business in the second half of the year, and strong
full-year results in Asia-Pacific ($17.7 billion of revenue, up 15%
year-to-year) and in the strategic growth areas of services ($55 billion of
services signings, up 44% year-to-year), advanced custom chips (up 78%
year-to-year) and software initiatives such as WebSphere (up 221% year-to-year)
and the MQSeries (up 65% year-to-year). IBM was able to achieve these results
while increasing spending on strategic initiatives such as the $5 billion
investment commitment to expand semiconductor manufacturing capacity, including
the world's most technologically advanced chip-making facility, and while
continuing to improve its expense-to-revenue ratio.
In addition, Mr. Gerstner has positioned IBM for the future by developing
a strong team of senior leaders and has realigned the company's senior
management to drive operational execution and strategic initiatives, as
reflected in the two new offices of President and Chief Operating Officer and
Vice Chairman of the Board.
The Committee's criteria for determining Mr. Gerstner's compensation are
driven by three factors: the competitive marketplace, the complexity inherent in
leading IBM (because of its size, breadth of product and service offerings,
global reach, technology dependency, number of competitors and the rate/speed of
change in the IT industry) and, most importantly, Mr. Gerstner's performance.
The Committee believes that, in a year of unprecedented volatility and challenge
in the marketplace, Mr. Gerstner's performance and leadership in reaffirming IBM
as the industry's premier e-business company and in positioning IBM for
continued growth was outstanding. This is reflected in Mr. Gerstner's annual
incentive award of $8,000,000 for 2000, which is reported in the "Bonus" column
of the Summary Compensation Table on page 16. He also earned a payout from the
1998-2000 long-term incentive program award based on the Company's cumulative
financial results over the three-year period. In 2000, the Committee granted Mr.
Gerstner a stock option covering 650,000 shares of IBM common stock. This award
will vest in two equal installments over two years. The Committee made this
award to provide an additional performance incentive to Mr. Gerstner, to
recognize his outstanding performance and leadership and to ensure that he
receives competitive total pay for performance in line with other top-performing
chief executive officers, using data prepared by independent consultants. The
terms of Mr. Gerstner's employment agreement, including his annual long-term
incentive program target opportunity, are described in the section entitled,
"Employment Agreements and Change-in-Control Arrangements" on page 20.
Charles F. Knight (chairman)
Kenneth I. Chenault
Sidney Taurel
Charles M. Vest
15
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation(1)
------------------------------------
Annual Compensation Awards Payouts
------------------------------------------- ------------------------------------
Other Restricted Securities
Name and Annual Stock Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation(2) Awards Options(#) Payouts Compensation
- --------------------------------------------------------------------------------------------------------------------------------
L.V. Gerstner, Jr. 2000 $ 2,000,000 $ 8,000,000 $ 96,400 $ 0 650,000 $ 3,585,407 $ 276,000(3)
Chairman and CEO 1999 2,000,000 7,200,000 66,376 0 0 5,250,717 285,000
1998 1,875,000 7,500,000 12,384 0 0 4,145,419 191,250
S.J. Palmisano 2000 797,917 1,250,000 18,622 0 180,000 2,445,360 47,188(3)
President and COO 1999 575,000 775,000 0 6,312,500 100,000 2,019,686 44,250
1998 481,250 900,000 0 0 120,000 1,160,702 32,588
J.M. Thompson 2000 793,750 1,000,000 24,354 0 155,000 2,445,360 50,813(3)
Vice Chairman 1999 662,500 900,000 5,122 0 100,000 3,029,530 49,875
1998 612,500 1,000,000 0 0 120,000 1,785,696 43,125
N.M. Donofrio 2000 550,000 725,000 1,501 2,812,500 50,000 1,956,288 36,000(3)
Senior VP 1999 550,000 650,000 729 0 60,000 3,029,530 36,000
1998 550,000 650,000 0 0 100,000 1,488,080 34,800
L.R. Ricciardi 2000 518,750 700,000 19,839 0 60,000 2,445,360 37,313(3)
Senior VP and 1999 500,000 725,000 276 0 80,000 2,524,608 40,500
General Counsel 1998 492,500 850,000 1,458 0 120,000 1,488,080 38,775
- --------------------------------------------------------------------------------------------------------------------------------
(1) At the end of 2000, Mr. Gerstner held 70,402 performance stock units and
44,748 restricted stock units having a combined value of $9,787,750; Mr.
Palmisano held 50,000 performance stock units and 104,880 restricted stock
units having a combined value of $13,164,800; Mr. Thompson held 50,000
performance stock units, 106,560 restricted stock units, and 20,564 shares
of restricted stock having a combined value of $15,055,540; Mr. Donofrio
held 34,000 performance stock units, 85,960 restricted stock units, and
25,200 shares of restricted stock having a combined value of $12,338,600;
and Mr. Ricciardi held 43,400 performance stock units and 82,800
restricted stock units having a combined value of $10,727,000. Restricted
stock and restricted stock units earn dividends and dividend equivalents
at the same rate as dividends paid to shareholders; otherwise, restricted
stock/unit awards have no value to the recipient until the restrictions
are released. No dividend equivalents are paid on outstanding performance
stock units.
(2) For Mr. Gerstner, in 2000 this amount includes perquisites and personal
benefits in excess of reporting thresholds, including $36,778 for the use
of corporate aircraft.
(3) Represents the Company's contributions to the IBM Tax Deferred Savings
Plan ("TDSP 401(k)") and the Executive Deferred Compensation Plan
("EDCP").
16
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR(1)
- ----------------------------------------------------------------------------------------------------------------------------------
Individual Grants
-------------------------------------------------------------- Potential Realizable Value at
Number % of Total Assumed Annual Rates of
of Securities Options/SARs Stock Price Appreciation for
Underlying Granted to Exercise Ten-Year Option Term (3)
Options/SARs Employees in Price Expiration --------------------------------------
Name Granted(2) Fiscal Year per Share Date 0% 5% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
L.V. Gerstner, Jr. 650,000 1.53% $109.62 4/24/10 $0 $ 44,811,000 $ 113,559,000
S.J. Palmisano 80,000 0.19% 103.25 2/28/10 0 5,195,000 13,164,000
100,000 0.23% 120.12 9/25/10 0 7,554,000 19,144,000
J.M. Thompson 80,000 0.19% 103.25 2/28/10 0 5,195,000 13,164,000
75,000 0.18% 120.12 9/25/10 0 5,666,000 14,358,000
N.M. Donofrio 50,000 0.12% 103.25 2/28/10 0 3,247,000 8,228,000
L.R. Ricciardi 60,000 0.14% 103.25 2/28/10 0 3,896,000 9,873,000
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in market value of IBM common stock for all stockholders 5% (to $179/share) 10% (to $284/share)
at assumed annual rates of stock price appreciation (as used in the ------------------ -------------------
table above) from $109.62 per share, over the ten-year period, $ 120.2 billion $ 304.6 billion
based on 1,743.2 million shares outstanding on December 31, 2000.
- ----------------------------------------------------------------------------------------------------------------------------------
(1) No Stock Appreciation Rights (SARs) were granted to the named executive
officers during 2000.
(2) Included in the total aggregate exercise price of the grants made to each
of Messrs. Palmisano, Thompson, Donofrio and Ricciardi is approximately
$100,000 of Incentive Stock Options, which become exercisable along with
the balance of their grants in four equal installments commencing on the
first anniversary date. Mr. Gerstner's grant becomes exercisable in two
equal installments, on March 1, 2001 and March 1, 2002.
(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
$109.62 per share price with a 5% annual growth rate results in a stock
price of $179 per share and a 10% rate results in a price of $284 per
share. Actual gains, if any, on stock option exercises are dependent on
the future performance of the stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTIONS/SAR VALUES
- ---------------------------------------------------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options/
Shares Options/SARs at Fiscal Year-End SARs at Fiscal Year-End
Acquired on Value -------------------------------------------------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------------------------------------------------------------------------------------------------------------
L.V. Gerstner, Jr. 703,156 $ 59,887,423 4,071,341 2,949,307 $ 179,014,740 $ 90,008,336
S.J. Palmisano 0 0 439,618 355,000 21,083,667 3,735,440
J.M. Thompson 0 0 285,002 340,000 12,037,806 4,477,574
N.M. Donofrio 0 0 708,412 195,000 40,960,665 4,139,125
L.R. Ricciardi 95,002 6,576,863 80,000 225,000 2,030,700 4,232,888
- ---------------------------------------------------------------------------------------------------------------------------
17
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
LONG-TERM INCENTIVE PLANS-AWARDS IN LAST FISCAL YEAR
Performance or Estimated Future Payouts under
Number of Other Period Non-Stock Price-Based Plans(1)
Shares, Units Until Maturation ---------------------------------------------
Name or Other Rights or Payout Threshold (#)(2) Target (#) Maximum (#)
- -----------------------------------------------------------------------------------------------------------
L.V. Gerstner, Jr. 24,214 1/00-12/02 6,054 24,214 36,321
S.J. Palmisano 13,400 1/00-12/02 3,350 13,400 20,100
J.M. Thompson 13,400 1/00-12/02 3,350 13,400 20,100
N.M. Donofrio 8,000 1/00-12/02 2,000 8,000 12,000
L.R. Ricciardi 10,000 1/00-12/02 2,500 10,000 15,000
- -----------------------------------------------------------------------------------------------------------
(1) Long-Term Incentive Program (LTIP) awards are denominated in Performance
Stock Units (PSUs), which are equivalent in value to IBM common stock.
PSUs are earned for achieving specified cumulative business objectives of
earnings-per-share and cash flow, weighted 80/20 respectively, over a
three-year performance period beginning 1/1/00 and ending 12/31/02.
Performance against each of the targets will be subject to separate payout
calculations. The target number of PSUs will be earned if 100% of the
objectives are achieved. The threshold number will be earned for the
achievement of 70% of the objectives, and the maximum number will be
earned for achieving 120% of the objectives. No payout will be made for
performance below the threshold.
After the performance period, one-half of the earned PSUs will be paid in
cash. The cash value for each PSU will be equal to the average closing
price of one share of IBM common stock for the month of January 2003. The
balance of the earned PSUs will be paid in an equivalent number of stock
units, which will be restricted for a two-year period ending 12/31/04.
(2) The amounts in this column represent the threshold number that can be
earned if 70% attainment of both business objectives is achieved. In the
event that only one objective is achieved (at the 70% level), then the
number of performance stock units earned would be 80% of the threshold
number based on earnings-per-share achievement or 20% based on cash flow
achievement.
Retirement Plans
Retirement benefits are provided to the executive officers of the Company,
including the named executive officers, under an unfunded, non-qualified defined
benefit pension plan known as the Supplemental Executive Retention Plan
("SERP"). Benefits under the SERP are offset by benefits under the Company's
funded, tax-qualified defined benefit pension plan known as the IBM Personal
Pension Plan. The SERP and the IBM Personal Pension Plan are referred to
collectively as the "Plans".
Effective July 1, 1999, the SERP was amended in line with amendments to
the IBM Personal Pension Plan. As with the changes to the IBM Personal Pension
Plan, transition provisions for executives close to retirement are applicable.
Executives who were within five years of retirement eligibility on July 1, 1999,
remain eligible under the prior SERP provisions.
For purposes of the Plans, average annual compensation is equal to the
average annual salary and bonus over the final five years of employment or the
highest consecutive five calendar
18
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
years of compensation, whichever is greater. The annual salary and bonus for the
current year for the named executive officers is indicated in the Annual
Compensation column of the Summary Compensation Table. The years of service for
each of the named executive officers under the Plans, as of December 31, 2000,
are: Mr. Gerstner, 7 years; Mr. Palmisano, 27 years; Mr. Thompson, 34 years; Mr.
Donofrio, 33 years; and Mr. Ricciardi, 5 years. No additional benefits are
payable under the Plans for years of service in excess of 35 years.
Benefits under the Plans are computed on the basis of a single life
annuity and are payable, subject to reduction, in any annuity form permitted
under the applicable IBM Personal Pension Plan formula. Benefits are paid from
the trust under the IBM Personal Pension Plan, to the extent permitted by law,
and are not subject to reduction for Social Security benefits or other offset
amounts.
The following tables set out the estimated annual retirement benefit
payable under the Plans in 2000 for a participant at age 65, for various levels
of average annual compensation (as defined above) and years of service, under
the prior SERP provisions and under the SERP provisions effective July 1, 1999.
The 5 named executive officers are eligible for retirement benefits under the
prior SERP provisions, as supplemented in the case of Mr. Gerstner by a separate
arrangement.
Mr. Gerstner's annual pension from the Company under his employment
agreement has been set at approximately $1,140,000 at age 60.
Table 1. Estimated Annual Retirement Benefits Payable under the Plans in 2000 at
Age 65 under prior SERP Provisions
- ----------------------------------------------------------------------------------------------------------------
Five-Year Years of Service
Average ---------------------------------------------------------------------------------------------
Compensation 5 15 20 25 30 35
- ----------------------------------------------------------------------------------------------------------------
$ 200,000 $ 17,000 $ 51,000 $ 68,000 $ 81,000 $ 94,000 $ 101,500
250,000 23,307 69,921 93,228 109,478 125,728 135,103
400,000 42,432 127,296 169,728 195,728 221,728 236,728
600,000 67,932 203,796 271,728 310,728 349,728 372,228
800,000 93,432 280,296 373,728 425,728 477,728 507,728
1,000,000 118,932 356,796 475,728 540,728 605,728 643,228
1,500,000 182,682 548,046 730,728 828,228 925,728 981,978
2,000,000 246,432 739,296 985,728 1,115,728 1,245,728 1,320,728
- ----------------------------------------------------------------------------------------------------------------
Table 2. Estimated Annual Retirement Benefits Payable under the Plans in 2000 at
Age 65 under SERP Provisions effective July 1, 1999
- ----------------------------------------------------------------------------------------------------------------
Five-Year Years of Service
Average ---------------------------------------------------------------------------------------------
Compensation 5 15 20 25 30 35
- ----------------------------------------------------------------------------------------------------------------
$ 200,000 n/a n/a n/a n/a n/a n/a
250,000 n/a n/a n/a n/a n/a n/a
400,000 $ 30,313 $ 90,938 $ 121,250 $ 151,563 $ 181,875 $ 212,188
600,000 55,313 165,938 221,250 276,563 331,875 387,188
800,000 74,286 222,857 297,143 371,429 445,714 520,000
1,000,000 92,857 278,571 371,429 464,286 557,143 650,000
1,500,000 139,286 417,857 557,143 696,429 835,714 975,000
2,000,000 185,714 557,143 742,857 928,571 1,114,286 1,300,000
- ----------------------------------------------------------------------------------------------------------------
19
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
Other Deferred Compensation Plans
The IBM TDSP 401(k) (the "TDSP") (previously known as the IBM Tax Deferred
Savings Plan) allows all eligible employees to defer up to 15% of their income
on a tax-favored basis into a tax exempt trust pursuant to Internal Revenue
Service guidelines. IBM matches these deferrals at the rate of 50% for the first
6% of compensation deferred. The employee accounts are invested by the plan
trustee in a selection of investment funds, including an IBM Stock Fund, as
directed by the employees. Corporate officers participate in the TDSP on the
same basis as all other employees. Internal Revenue Service limits on the TDSP
preclude an annual investment of more than $10,500 or an eligible compensation
base of more than $170,000 for any one employee.
IBM established the Executive Deferred Compensation Plan (the "EDCP") in
1995. The EDCP allows any U.S. executive, including officers, to defer
additional monies and receive a Company match on the same basis as the TDSP
except that the Company match for the EDCP is credited only in units of IBM
common stock, which are not transferable to other investment alternatives during
employment. In addition, participants can defer all or a portion of their annual
incentive until termination of employment under the EDCP. In the event that the
salary of a Company officer who is subject to the limits of section 162(m) of
the Code exceeds $1,000,000, such officer may defer up to 100 percent of his or
her salary. The EDCP is not funded and participants are general creditors of the
Company. All investments in the EDCP earn income based on the results of the
actual TDSP funds' performance, but the income is paid out of Company funds
rather than the actual returns on a dedicated investment portfolio.
Employment Agreements and Change-in-Control Arrangements
The Company entered into an employment agreement with Mr. Gerstner as of March
26, 1993, whereby he serves as the chairman and chief executive officer of the
Company. Effective January 1, 1996, the employment agreement was amended to
provide that Mr. Gerstner's annual salary is at least $1,500,000, his annual
incentive target award opportunity is at least $2,000,000, and his annual
long-term incentive program target award opportunity is at least $1,500,000. In
addition, the agreement provides Mr. Gerstner with an annual pension from IBM at
age 60 of approximately $1,140,000.
Effective November 17, 1997, the agreement was further amended to provide
that Mr. Gerstner will become a consultant to the Company for a period of 10
years following his retirement. During this period, for each day he renders
services, he will receive a daily consulting fee based on his daily salary rate
at the time of his retirement plus reasonable expense reimbursement, and he will
adhere to Company rules prohibiting competition, solicitation of employees and
other activities detrimental to the Company. In addition, he will continue to
have use of Company facilities and services, such as aircraft, cars, office, and
financial planning. He will also be treated as a retired employee of IBM for
purposes of retiree medical benefit coverage for him and his spouse and the
vesting and payout terms of awards pursuant to the Long-Term Performance Plan.
He receives these benefits only if he remains until age 60, leaves earlier with
the consent of the Board, becomes disabled or is terminated without cause. If he
leaves the Company before age 60 with the consent of the Board, he will receive
the benefits to which the March 1993 agreement otherwise entitled him for a
termination without cause. This amendment also provides that his base salary
prior to the January 1, 1996, amendment (and any increases in his base salary)
will be deemed to be his base salary for purposes of the guaranteed payments he
would receive pursuant to the agreement in the event of a termination without
cause. It is not possible to predict the value of the consulting agreement or
the other benefits described above. The foregoing description has been provided
on the assumption that such value may exceed $100,000.
In the event of termination without cause, or due to a "change-in-control"
of the Company, as defined in the agreement, Mr. Gerstner would receive salary
for the period of time remaining until he reaches age 60, prorated incentive
payments, the right to exercise all stock options, and other specified benefits.
The Company has no other change-in-control arrangements with any of its
executive officers. There are no employment agreements with the named executive
officers, other than Mr. Gerstner, that provide for their continuing service.
20
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
PERFORMANCE GRAPH
Comparison of Five-Year Cumulative Total Return for IBM, S&P 500 Stock Index,
and S&P Computers (Hardware) Index (excluding IBM)
[LINE GRAPH OMITTED]
1995 1996 1997 1998 1999 2000
- ------------------------------------------------------------------------------------------------------
IBM Common Stock 100 167.67 233.61 414.61 487.17 385.63
S & P 500 Stock Index 100 122.96 163.98 210.84 255.22 231.98
S & P Computers (Hardware)
Index (excluding IBM) 100 133.74 209.10 378.04 609.81 311.76
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. The S&P Computers (Hardware) Index is such an index. The
results for this index exclude IBM.
The graph assumes $100 invested on December 31, 1995, 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.
21
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The Audit Committee hereby reports as follows:
1. The Audit Committee has reviewed and discussed the audited financial
statements with IBM's management.
2. The Audit Committee has discussed with PricewaterhouseCoopers LLP, the
Company's independent accountants, the matters required to be discussed by
SAS 61 (Communication with Audit Committees).
3. The Audit Committee has received the written disclosures and the letter
from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees), and has
discussed with PricewaterhouseCoopers LLP their independence.
4. Based on the review and discussion referred to in paragraphs (1) through
(3) above, the Audit Committee recommended to the Board of Directors of
IBM, and the Board has approved, that the audited financial statements be
included in IBM's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000, for filing with the Securities and Exchange Commission.
L.C. van Wachem (chair)
J. Dormann
L. A. Noto
J.B. Slaughter
AUDIT AND NON-AUDIT FEES
For the fiscal year ended December 31, 2000, fees for services provided by
PricewaterhouseCoopers LLP were as follows:
(Dollars in millions)
A. Audit $12.2
B. Financial Information Systems
Design and Implementation 16.4
C. All Other (including tax assistance for
employees on overseas assignment ($10.6),
corporate tax consulting ($7.9), acquisition
and divestiture support ($2.2) and other
services ($13.9) 34.6
22
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has appointed the firm of PricewaterhouseCoopers LLP,
independent accountants, to be IBM's auditors for the year 2001 and recommends
to stockholders that they vote for ratification of that appointment.
PricewaterhouseCoopers LLP served in this capacity for the year 2000. 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 independent accountants is approved annually by the
Board and subsequently submitted to the stockholders for ratification. The
decision of the Board is based on the recommendation of the Audit Committee,
which reviews and approves in advance the audit scope, the types of nonaudit
services, and the estimated fees for the coming year. The committee also reviews
and approves nonaudit services to ensure that they will not impair the
independence of the accountants.
Before making its recommendation to the Board for appointment of
PricewaterhouseCoopers LLP, the Audit Committee carefully considered that firm's
qualifications as independent accountants for the Company. This included a
review of its performance in prior years, as well as its reputation for
integrity and competence in the fields of accounting and auditing. The committee
has expressed its satisfaction with PricewaterhouseCoopers LLP in all of these
respects. The committee's review included inquiry concerning any litigation
involving PricewaterhouseCoopers LLP and any proceedings by the Securities and
Exchange Commission against the firm. In this respect, the committee has
concluded that the ability of PricewaterhouseCoopers LLP to perform services for
the Company is in no way adversely affected by any such investigation or
litigation.
The IBM Board of Directors unanimously recommends a vote FOR this Proposal.
23
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
STOCKHOLDER PROPOSALS
Stockholder proposals may be submitted for inclusion in IBM's 2002 proxy
material after the 2001 Annual Meeting but must be received no later than 5 p.m.
EST on November 12, 2001. Proposals should be sent via registered, certified, or
express mail to: Office of the Secretary, International Business Machines
Corporation, New Orchard Road, Armonk, N.Y. 10504.
Management carefully considers all proposals and suggestions from
stockholders. When adoption is clearly in the best interest of the Company and
stockholders, and can be accomplished without stockholder approval, the proposal
is implemented without inclusion in the proxy material.
Examples of stockholder proposals and suggestions that have been adopted
over the years include stockholder ratification of the appointment of
independent accountants, improved procedures involving dividend checks and
stockholder publications, and changes or additions to the proxy material
concerning such matters as abstentions from voting, appointment of alternative
proxy, inclusion of a table of contents, proponent disclosure, and secrecy of
stockholder voting.
Management opposes the following proposals for the reasons stated after the
proposals.
3. STOCKHOLDER PROPOSAL ON BOARD SERVICE
Management has been advised that Mrs. Evelyn Y. Davis, Watergate Office
Building, 2600 Virginia Avenue, N.W., Suite 215, Washington, D.C. 20037, the
owner of 200 shares, intends to submit the following proposal at the meeting:
RESOLVED: "That the stockholders of IBM recommend that the Board take the
necessary steps so that future outside directors shall not serve for more than
six years."
REASONS: "The President of the U.S.A. has a term limit, so do Governors of many
states."
"Newer directors may bring in fresh outlooks and different approaches with
benefits to all shareholders."
"No director should be able to feel that his or her directorship is until
retirement."
"If you AGREE, please mark your proxy FOR this resolution."
- --------------------------------------------------------------------------------
The IBM Board of Directors unanimously recommends a vote AGAINST this Proposal.
The goal of the Board is to have the most competent, distinguished and
diverse Board as possible, and all of the Board's current members are leaders in
their fields, bringing to the Company a unique and varied array of talents and
perspectives. As part of its ongoing review of governance trends and
developments, the Directors and Corporate Governance Committee considered term
limits for directors and concluded that term limits could operate in an
arbitrary and formulaic fashion, without regard to the contributions of a
particular director. In lieu of term limits, the Directors and Corporate
Governance Committee recommended, and the Board approved, guidelines requiring
that a director's continued tenure on the Board be reviewed whenever the
director's principal occupation changes, as a way to assure that the director's
skills and experience continue to match the needs of the Board. In addition, the
Directors and Corporate Governance Committee reviews the qualifications and
independence of directors in connection with its nomination of the slate of
directors that the Board proposes for election by stockholders each year. The
Board believes that these practices better serve the Company and its
stockholders by providing for a continuing review of a director's contributions
to the Board without the potential arbitrary impact of term limits. The Board
therefore unanimously recommends a vote AGAINST this Proposal.
4. STOCKHOLDER PROPOSAL ON PENSION AND RETIREMENT MEDICAL
Management has been advised that Mr. James Leas, 37 Butler Drive, South
Burlington, VT 05403, the holder of 416 shares of IBM stock, on behalf of
himself and 321 co-filers of the proposal, whose names, addresses and IBM
stockholdings are available upon request, intends to submit the following
proposal at the meeting:
In 1999 IBM announced new pension and retirement medical insurance plans
and revoked long-promised plans for over 100,000 employees. Indignation swelled
at packed town meetings organized by employees. Management was flooded with
e-mail, and the Internet provided a vehicle for a massive outpouring of dissent.
Just before a Senate hearing scheduled in response to the growing criticism, IBM
doubled the number of employees eligible to choose the old, promised retirement
plan. Three days after the hearing IBM quietly announced that these additional
employees would not receive the old retirement medical. And those under 40 years
old were locked into both the new medical and the new retirement. Employees were
thus divided into three permanent groups based on age; IBM broke its highly
touted and unqualified promise to employees not to discriminate based on age.
IBM openly acknowledged that the average employee would lose 20% of
retirement pay under the new plan. But on September 20, 1999, the Wall Street
Journal reported losses as high as 50%. Although the portability feature of the
new plan is
24
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
advantageous to employees who plan to leave the company, an IBM engineer showed
that workers accrue retirement pay at only about 1/3 to 1/2 the rate they did
under the old plan; further, their opening balances include only a fraction of
the amount vested under the old plan. Thus, only those who leave the company
derive any benefit from the new plan. Younger employees who stay with IBM
throughout their career suffer the most loss.
IBM also acknowledged to some employees that their new individual medical
insurance accounts would probably run out of money as they approach old age. The
new plan's limited medical insurance is especially a problem for lower-paid
workers.
Feeding the outrage was IBM's declaration that it planned to use the $200
million saved to fund stock options for executives and other targeted employees.
Many of IBM's most talented employees do not feel comfortable with a deserved
bonus being tied to reducing promised retirement pay and medical insurance for
fellow employees.
IBM management argues that to compete for talented younger workers, it
must offer a portable retirement plan. If so, why are younger workers the only
ones not offered a choice? How will IBM attract new talent by outraging its
loyal, talented, successful, and vocal workforce? How does IBM become more
attractive by blowing away the trust it built up over generations? If IBM
management succeeded, management would not have incited huge protest meetings,
union organizing, adverse media coverage, and Senate hearings.
Resolved: the shareholders request that the IBM Board of Directors adopt
the following policy: (1) all employees, regardless of age, will receive the
same long-promised retirement medical insurance and pension choice as employees
who are within five years of retirement. (2) the portable cash balance plan will
provide a monthly annuity equal to that expected under the old pension plan or a
lump sum that is actuarially equivalent.
- --------------------------------------------------------------------------------
The IBM Board of Directors unanimously recommends a vote AGAINST this Proposal.
To stay competitive in the marketplace, we have to attract and keep the
industry's most talented people. We do that, in part, by offering compensation
and benefit programs that provide value to our employees. In this context, IBM
is convinced that the changes made to its pension and retirement medical
insurance plans in May 1999 were the right thing to do. When IBM announced these
changes in May 1999, it did so after an exhaustive analysis of the practices of
the companies against which it competes for employee talent, collecting
information from over 75 companies on all aspects of their compensation and
benefit plans and programs, including salary, bonuses, equity award programs,
medical benefits and pensions.
As a result of these studies, IBM found that a number of its programs and
plans were significantly out of line with what the competition was offering
their employees.
o In pensions, IBM found that 75% of its competitors do not offer a pension
plan and even fewer offer retiree medical.
o For certain job categories, IBM's cash compensation programs were below
the industry norm, and as a result IBM has embarked on an effort to
deliver greater cash value to these positions, funding a very competitive
salary increase program for 2001 under which the Company expects to pay
out more than $1.8 billion in bonus pay to non-executive employees, up
over 100% from 1995.
o IBM also found that its equity award programs lagged behind the programs
of its competitors, and since 1995, IBM has increased the number of
non-executive employees receiving stock options by 3,000%, growing from
1,000 to approximately 35,000 in 2000 (and the percentage of optionees who
are non-executives has grown from 40% in 1995 to over 90% in 2000).
Further, as part of its commitment to deliver greater flexibility to
employees and to offer better ways to plan for the future, IBM adopted a
significantly enhanced Employees Stock Purchase Plan, with 6-month, rather
than yearly, offering periods, providing employees with the opportunity to
buy shares at a 15% discount from the better of the price at the beginning
of the offering period or the price on the date the shares are actually
purchased. Participation in this enhanced plan for the first offering
period in July 2000 is up more than 30% over the former plan.
In sum, management and the Board are committed to a cash-balance pension plan
design, as it better reflects the reality of today's marketplace, both in terms
of employee career expectations and the competitiveness of our total
compensation programs. Going forward, IBM will continually review its plans and
programs, making changes where appropriate to provide its employees with a total
compensation and benefits package that is competitive and that serves to attract
and retain the best performers.
For all of these reasons, the Board unanimously recommends a vote AGAINST this
Proposal.
25
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
OTHER MATTERS
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 at the
meeting, the individuals named as proxies on the enclosed proxy card are also
authorized to vote upon such matters utilizing their own discretion. Under the
terms of the Company's By-laws, stockholders who intend to present an item of
business at the 2002 annual meeting of stockholders (other than a proposal
submitted for inclusion in the Company's proxy materials) must provide notice of
such business to the Company's secretary no earlier than October 13, 2001 and no
later than November 12, 2001, as set forth more fully in such By-laws.
PROXIES AND VOTING AT THE MEETING
The $.20 par value capital stock of the Company (its common stock) is its only
class of security entitled to vote at the April 24, 2001, meeting. Each
stockholder of record at the close of business as of March 1, 2001 (the "Record
Date"), is entitled to one vote for each share held at the meeting, or any
adjournment thereof. On February 9, 2001, there were 1,761,967,253 common shares
entitled to be voted.
Directors are elected by a plurality of votes cast. A majority of the
votes cast is required to ratify the appointment of independent accountants and
to recommend that the Board consider adoption of a stockholder proposal. Under
the law of New York, IBM's state of incorporation, "votes cast" at a meeting of
stockholders by the holders of shares entitled to vote are determinative of the
outcome of the matter subject to vote. Abstentions, broker non-votes, and
withheld votes will not be considered "votes cast" based on current state law
requirements and IBM's Certificate of Incorporation and By-laws.
All stockholder meeting proxies, ballots, and tabulations that identify
individual stockholders are kept secret, and no such document shall be available
for examination, nor shall the identity or the vote of any stockholder be
disclosed except as may be necessary to meet legal requirements under the laws
of New York, IBM's state of incorporation. Votes are counted by employees of
EquiServe, the First Chicago Trust Division, IBM's independent transfer agent
and registrar, and certified by the Inspectors of Election who are employees of
IVS Associates, Inc.
Shares cannot be voted unless a signed proxy card is returned, shares are
voted using the Internet or the telephone, or other specific arrangements are
made to have shares represented at the meeting. Any stockholder giving a proxy
may revoke it at any time before it is voted. If a stockholder of record wishes
to give a proxy to someone other than the individuals named as proxies on the
proxy card, he or she may cross out the names appearing on the enclosed proxy
card, insert the name of some other person, sign, and give the proxy card to
that person for use at the meeting.
Stockholders are encouraged to specify their choices by marking the
appropriate boxes on the enclosed proxy card. Shares will be voted in accordance
with such instructions. However, it is not necessary to mark any boxes if you
wish to vote in accordance with the Board of Directors' recommendations; merely
sign, date, and return the proxy card in the enclosed envelope.
Alternatively, in lieu of returning signed proxy cards, IBM stockholders
of record can vote their shares over the Internet, or by calling a specially
designated telephone number. These Internet and telephone voting procedures are
designed to authenticate stockholders' identities, to allow stockholders to
provide their voting instructions, and to confirm that their instructions have
been recorded properly. IBM has been advised by competent counsel that the
procedures which have been put in place are consistent with the requirements of
applicable law. Specific instructions for stockholders of record who wish to use
the Internet or telephone voting procedures are set forth on the enclosed proxy
card. A proxy may be revoked at any time prior to the voting at the meeting by
submitting a later dated proxy (including a proxy via the Internet or by
telephone) or by giving timely written notice of such revocation to the
Secretary of the Company.
The proxy card covers the number of shares to be voted, including any
shares held for participants in the IBM Investor Services Program and Employees
Stock Purchase Plans. For those stockholders who are participants in the IBM
Stock Fund investment alternative under the IBM Tax Deferred Savings Plan (the
"TDSP"), the enclosed proxy card also serves as a voting instruction to the
Trustee of the TDSP for IBM shares held in the IBM Stock Fund as of the Record
Date, provided that instructions are furnished over the Internet or by telephone
by April 18, 2001, or that the card is signed, returned, and received by April
18, 2001. If instructions are not received over the Internet or by
26
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
telephone by April 18, 2001, or if the signed proxy card is not returned and
received by such date, the IBM shares in the IBM Stock Fund under the TDSP will
be voted by the Trustee in proportion to the shares for which the Trustee timely
receives voting instructions.
Solicitation of proxies is being made by the Company through the mail, in
person, and by telecommunications. The cost thereof will be borne by the
Company. In addition, management has retained Morrow & Co., Inc., to assist in
soliciting proxies for a fee of approximately $40,000, plus reasonable
out-of-pocket expenses.
/s/ Daniel E. O'Donnell
Daniel E. O'Donnell
Vice President and Secretary
March 12, 2001
27
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
APPENDIX A.
IBM Audit Committee Charter
Purpose
The Audit Committee will assist the Board of Directors in fulfilling its
oversight responsibilities by reviewing the financial reporting process, the
system of internal control, accounting policies and procedures, the audit
process and by overseeing the relationship with our independent accountants, who
are ultimately responsible to the Audit Committee and the Board of Directors.
The Committee should keep an open line of communication between the Committee,
the independent accountants, the internal auditors and financial management.
In carrying out its responsibilities, the Audit Committee believes that
the policies and procedures delineated in this Charter should remain flexible,
in order to react best to changing business and regulatory requirements.
Organization
The Audit Committee will be composed of at least three outside directors who are
not officers or employees of IBM or its subsidiaries, are independent of
management, and are free of any relationship that would interfere with the
exercise of independent judgment as a Committee member.
The members of the Audit Committee must each be financially literate, and
at least one member of the Audit Committee must have accounting or financial
management expertise. The Board of Directors judges the qualification and
independence of directors for service on the Audit Committee.
Roles and Responsibilities
Financial Reporting
1. Review the financial section of the IBM Annual Report on form 10-K prior to
its release to shareholders and filing with the SEC. Recommend to the Board of
Directors that the audited financial statements be included in the Company's
Annual Report on form 10-K. As part of this review, discuss with senior
financial management and the independent accountants the accounting principles
as applied, their quality and significant assumptions, estimates and judgments
used in the preparation of the consolidated financial statements.
2. Discuss as appropriate with senior financial management and as necessary with
the independent accountants, significant assumptions, estimates, and judgments
used in the preparation of the consolidated financial statements.
3. Review any significant changes in accounting principles or developments in
accounting practices.
Independent Accountant
4. Select, evaluate and nominate the independent accountant to be proposed for
shareholder approval in a proxy statement, and recommend to the Board of
Directors the appointment of the independent accountant.
5. On an annual basis, review the audit and non-audit fees and services provided
by the independent accountant. Approve the fees to be paid to the independent
accountant.
6. To review the independent accountant's independence, annually review the
independent accountant's report of the relationships between the independent
accountant and the company. Discuss any disclosed relationships or services that
may impact the objectivity and independence. Recommend to the Board of Directors
any appropriate actions in response to these reports.
Audit Function and Process
7. Assess the effectiveness of the audit effort through regular meetings with
the independent accountant and internal auditors. Review the performance of the
general auditor. Conduct private review sessions annually with the general
auditor and the independent accountant.
8. Review the scope of the independent accountant's proposed audit for the
current year and review the annual audit report which is subsequently produced.
28
IBM NOTICE of 2001 ANNUAL MEETING and PROXY STATEMENT
Internal Controls
9. Review with the internal auditors the adequacy of the system of internal
controls and the responsiveness of management in correcting audit-related
deficiencies.
10. Review the implementation of the Business Conduct Guidelines and
management's system to monitor compliance with the Guidelines.
11. Review the adequacy of internal controls and procedures related to officers'
expense accounts.
12. Review litigation issues and any other risks or exposures as deemed
appropriate by the Committee.
Committee Functions
13. Following each meeting, report on the proceedings of the Audit Committee to
the full Board of Directors.
14. Reassess the adequacy of the Audit Committee charter annually.
15. Meet periodically in executive session to discuss the Company's financial
results as reported in the Quarterly and Annual Reports and hold other executive
sessions as necessary.
29
[LOGO]
[Printed with Soy Ink]
[RECYCLE LOGO] Printed on recycled paper and recyclable
[LOGO]
Dear IBM Stockholder:
Your vote is important. Please read both sides of the attached 2001 IBM
Proxy/Voting Instruction Card. You can vote your shares through the Internet, by
telephone or by marking, signing and returning the card. If you vote through the
Internet or by the telephone, there is no need to mail your card.
You are invited to attend the Annual Meeting of Stockholders on Tuesday, April
24, 2001, at 10 a.m. in the Savannah International Trade and Convention Center,
One International Drive, Savannah, Georgia. If you plan to attend the Annual
Meeting, you should either mark the box provided on the attached card or signify
your intention to attend when you access the Internet or telephone voting
system. An admission ticket is attached for your convenience.
As part of IBM's strategy to utilize the Internet in providing stockholder
services, we are giving our stockholders the opportunity to receive IBM's Annual
Report and Proxy Statement online. If you have not signed up for this service
and you wish to receive future copies of this material through the Internet, you
may do so by submitting IBM's Paperless Annual Meeting Material Consent form
online through the internet at:
http://www.ibm.com/investor/form
We urge you to vote your shares. Thank you very much for your cooperation and
continued loyalty as an IBM Stockholder.
/s/ Daniel E. O'Donnell
Daniel E. O'Donnell
Vice President and Secretary
- --------------------------------------------------------------------------------
|X| Please mark your
votes as in this
example
Proxy/Voting
Instruction Card
IBM's Directors recommend a vote FOR proposals 1 and 2 and AGAINST stockholder
proposals 3 and 4. SHARES WILL BE SO VOTED UNLESS OTHERWISE INDICATED.
- --------------------------------------------------------------------------------
IBM's Directors recommend a vote FOR proposals 1 and 2.
- --------------------------------------------------------------------------------
1. Election of Directors FOR WITHHELD
(see reverse) |_| |_|
2. Ratification of Appointment of FOR AGAINST ABSTAIN
Independent Accountants (page 23) |_| |_| |_|
FOR, except vote WITHHELD from the following nominee(s):
________________________________________________________________________________
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IBM's Directors recommend a vote AGAINST proposals 3 and 4.
- --------------------------------------------------------------------------------
Stockholder Proposals on:
3. Board Services (page 24) FOR AGAINST ABSTAIN
|_| |_| |_|
4. Pension and Retirement Medical
(page 24) |_| |_| |_|
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Will attend Annual Meeting |_|
- --------------------------------------------------------------------------------
SIGNATURE(S) ____________________________________________DATE___________________
[LOGO]
PLEASE SIGN AND DATE HERE, DETACH AND RETURN IN ENCLOSED ENVELOPE OR VOTE BY
USING THE INTERNET OR TELEPHONE.
- --------------------------------------------------------------------------------
ELECTRONIC VOTING INSTRUCTIONS
[GRAPHIC] [GRAPHIC]
To vote through the Internet log on
to http://www.ibm.com/investor/vote
To vote by telephone call the
toll-free number, 877-779-8683.
Stockholders residing outside the
United States, Canada and Puerto
Rico should call 201-536-8073.
If you vote through the Internet or
by telephone, use the control number
in the box on the left just below
the perforation.
___________________________________________
Admission Ticket
This is your admission ticket for
the Annual Meeting of Stockholders
to be held on Tuesday, April 24,
2001, at 10 a.m. in the Savannah
International Trade and Convention
Center, One International Drive,
Savannah, Georgia. Please detach and
present this ticket and picture
identification for admission to the
Annual Meeting.
Stockholders must have a ticket for
admission to the meeting. This
ticket is issued to the stockholder
whose name appears on it and is
non-transferable.
___________________________________________
PLEASE DETACH AND PRESENT THIS TICKET
AND PICTURE IDENTIFICATION FOR ADMISSION
TO THE ANNUAL MEETING [LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
PROXY/VOTING
INSTRUCTION
CARD
International Business Machines Proxy Solicited by the Board of Directors
Corporation for the Annual Meeting of Stockholders
Armonk, New York 10504 April 24, 2001
Louis V. Gerstner, Jr., Lawrence R. Ricciardi, and Daniel E. O'Donnell, or any
of them individually and each of them with the power of substitution, are hereby
appointed Proxies of the undersigned to vote all common stock of International
Business Machines Corporation owned on the record date by the undersigned at the
Annual Meeting of Stockholders to be held in the Savannah International Trade
and Convention Center, One International Drive, Savannah, Georgia, at 10 a.m. on
Tuesday, April 24, 2001, or any adjournment thereof.
THE PROXIES WILL VOTE USING THE DIRECTIONS PROVIDED ON THE REVERSE SIDE OF THIS
CARD. IF NO DIRECTION IS PROVIDED, THIS PROXY WILL BE VOTED AS RECOMMENDED BY
THE BOARD OF DIRECTORS. THE PROXIES ARE ALSO AUTHORIZED TO VOTE UPON ALL OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEREOF,
UTILIZING THEIR OWN DISCRETION AS SET FORTH IN THE NOTICE OF 2001 ANNUAL MEETING
AND PROXY STATEMENT.
THIS CARD WILL ALSO BE USED TO PROVIDE VOTING INSTRUCTIONS TO THE TRUSTEE FOR
ANY SHARES OF COMMON STOCK OF INTERNATIONAL BUSINESS MACHINES CORPORATION HELD
IN THE IBM STOCK FUND INVESTMENT ALTERNATIVE UNDER THE IBM TAX DEFERRED SAVINGS
PLAN ON THE RECORD DATE, AS SET FORTH IN THE NOTICE OF 2001 ANNUAL MEETING AND
PROXY STATEMENT.
Election of Directors, Nominees:
01. C. Black, 02. K.I. Chenault, 03. J. Dormann, 04. L.V. Gerstner, Jr., 05.
N.O. Keohane, 06. C. F. Knight, 07. M. Makihara, 08. L.A. Noto, 09. S.J.
Palmisano, 10. J.B. Slaughter, 11. S. Taurel, 12. J.M. Thompson, 13. A. Trotman,
14. L.C. van Wachem, 15. C.M. Vest
(Shares will be voted as directed if this card is: 1. signed and returned or 2.
shares are voted over the Internet or by telephone or 3. other specific
arrangements are made to have the shares represented at the meeting.)
- --------------------------------------------------------------------------------
PLEASE DETACH AND PRESENT THIS TICKET AND PICTURE IDENTIFICATION FOR ADMISSION
TO THE ANNUAL MEETING
- --------------------------------------------------------------------------------