EXHIBIT 10.5


 


Note:  This
exhibit reflects an amendment to Section 15 of this long-term performance plan
to provide that certain adjustments shall be mandatory.


 


IBM 1994
Long-Term Performance Plan


 


1. Objectives.


 


The IBM 1994 Long-Term
Performance Plan (the “Plan”) is designed to attract and retain executives and
other selected employees whose skills and talents are important to the Company’s
operations, and reward them for making major contributions to the success of
the Company. These objectives are accomplished by making long-term incentive
awards under the Plan, thereby providing Participants with a proprietary
interest in the growth and performance of the Company.


 


2. Definitions.


 


(a) “Award” - The grant
of any form of stock option, stock appreciation right, stock or cash award,
whether granted singly, in combination or in tandem, to a Plan Participant
pursuant to such terms, conditions, performance requirements, and limitations
as the Committee may establish in order to fulfill the objectives of the Plan.


 


(b) “Award Agreement” -
An agreement between the Company and a Participant that sets forth the terms,
conditions, performance requirements, and limitations applicable to an Award.


 


(c) “Board” - The Board
of Directors of International Business Machines Corporation.


 


(d) “Capital Stock” or “stock”
- Authorized and issued or unissued $1.25 Par Value Capital Stock of the
Company.


 


(e) “Code” - The Internal
Revenue Code of 1986, as amended from time to time.


 


(f) “Committee” - The
committee designated by the Board to administer the Plan. The Committee shall
be constituted to permit the Plan to comply with Rule 16b-3 promulgated under
the Securities Exchange Act of 1934 or any successor rule. No member of the
Committee may receive Awards under the Plan.


 


(g) “Company” -
International Business Machines Corporation (“IBM”) and its subsidiaries
including subsidiaries of subsidiaries and partnerships and other business
ventures in which IBM has a significant equity interest, as determined in the
sole discretion of the Committee.


 


(h) “Fair Market Value” -
The average of the high and low prices of Capital Stock on the New York Stock
Exchange for the date in question, provided that, if no sales of Capital Stock
were made on said exchange on that date, the average of the high and low prices
of Capital Stock as reported for the most recent preceding day on which sales
of Capital Stock were made on said exchange.


 

















 


(i) “Participant” - An
employee of the Company to whom an Award has been made under the Plan.


 


3. Eligibility.


 


Employees of the Company
eligible for an Award under the Plan are those who hold positions of
responsibility and whose performance, in the judgment of the Committee or the
management of the Company, can have a significant effect on the success of the
Company.


 


4. Capital Stock
Available for Awards.


 


The number of shares that
may be issued under the Plan for Awards granted wholly or partly in stock
during the term of the Plan is 29,105,600, which is 5% of the outstanding
Capital Stock as determined on February 10, 1994. Included in this share limit
are Awards denominated in units of stock that may be redeemed or exercised for
cash as well as for stock. As soon as possible after adoption of the Plan by
the Company’s stockholders, the Company shall take whatever actions are
necessary to file required documents with the U.S. Securities and Exchange
Commission and any other appropriate governmental authorities and stock
exchanges to make shares of Capital Stock available for issuance pursuant to
Awards. Capital Stock related to Awards that are forfeited, terminated, expire
unexercised, settled in cash in lieu of stock or in such manner that all or
some of the shares covered by an Award are not issued to a Participant, or are
exchanged for Awards that do not involve Capital Stock, shall immediately
become available for Awards.


 


5. Administration.


 


The Plan shall be
administered by the Committee, which shall have full and exclusive power to
interpret the Plan, to grant waivers of Award restrictions, and to adopt such
rules, regulations and guidelines for carrying out the Plan as it may deem
necessary or proper, all of which powers shall be executed in the best
interests of the Company and in keeping with the objectives of the Plan. These
powers include, but are not limited to, the adoption of modifications,
amendments, procedures, subplans and the like as are necessary to comply with
provisions of the laws and regulations of the countries in which the Company
operates in order to assure the viability of Awards granted under the Plan and
to enable Participants regardless of where employed to receive advantages and
benefits under the Plan and such laws and regulations.


 


6. Delegation of
Authority.


 


The Committee may
delegate to the chief executive officer and to other senior officers of the
Company its duties under the Plan pursuant to such conditions or limitations as
the Committee may establish, except that only the Committee may select, and
grant Awards to, Participants who are subject to Section 16 of the Securities
Exchange Act of 1934.


 

















 


7. Awards.


 


The Committee shall
determine the type or types of Award(s) to be made to each Participant and
shall set forth in the related Award Agreement the terms, conditions,
performance requirements, and limitations applicable to each Award. Awards may
include but are not limited to those listed in this Section 7. Awards may be
granted singly, in combination or in tandem. Awards may also be made in
combination or in tandem with, in replacement of, or as alternatives to, grants
or rights under any other employee plan of the Company, including the plan of
any acquired entity. No Participant may receive, under the Plan, stock options
or stock appreciation rights the aggregate of which shall exceed 1,455,280
shares, which is 5% of the shares authorized for issuance hereunder.


 


(a) Stock Option - A
grant of a right to purchase a specified number of shares of Capital Stock the
purchase price of which shall be not less than 100% of Fair Market Value on the
date of grant of such right, as determined by the Committee. A stock option may
be in the form of an incentive stock option (“ISO”) which, in addition to being
subject to applicable terms, conditions and limitations established by the
Committee, complies with Section 422 of the Code which, among other
limitations, provides that the aggregate Fair Market Value (determined at the
time the option is granted) of Capital Stock for which ISO’s are exercisable
for the first time by a Participant during any calendar year shall not exceed $100,000;
that ISO’s shall be priced at not less than 100% of the Fair Market Value on
the date of the grant; and that ISO’s shall be exercisable for a period of not
more than ten years. The number of shares of stock that shall be available for
ISO’s granted under the Plan is limited to ten million.


 


(b) Stock Appreciation
Right - A right to receive a payment, in cash and/or Capital Stock, equal to
the excess of the Fair Market Value of a specified number of shares of Capital
Stock on the date the stock appreciation right (SAR) is exercised over the Fair
Market Value on the date of grant of the SAR as set forth in the applicable
Award Agreement.


 


(c) Stock Award - An
Award made in stock or denominated in units of stock. All or part of any stock
award may be subject to conditions established by the Committee, and set forth
in the Award Agreement, which may include, but are not limited to, continuous
service with the Company, achievement of specific business objectives,
increases in specified indices, attaining growth rates, and other comparable
measurements of Company performance. Such Awards may be based on Fair Market
Value or other specified valuation.


 


(d) Cash Award - An Award
denominated in cash with the eventual payment amount subject to future service
and such other restrictions and conditions as may be established by the
Committee, and as set forth in the Award Agreement, including, but not limited
to continuous service with the Company, achievement of specific business
objectives, increases in specified indices, attaining growth rates, and other
comparable measurements of Company performance. Awards payable, in whole or in
part, in stock must be held for at least six months (i) in the case of a stock
option or SAR, from the 


 

















 


date of grant to the date
of exercise and (ii) in the case of other Awards, from the date of acquisition
to the date of disposition.


 


8. Payment of Awards.


 


Payment of Awards may be
made in the form of cash, stock or combinations thereof and may include such
restrictions as the Committee shall determine, including in the case of stock,
restrictions on transfer and forfeiture provisions. When transfer of stock is
so restricted or subject to forfeiture provisions, it is referred to as “Restricted
Stock.” Further, with Committee approval, payments may be deferred, either in
the form of installments or as a future lump sum payment. The Committee may
permit selected Participants to elect to defer payments of some or all types of
Awards in accordance with procedures established by the Committee which are
intended to permit such deferrals to comply with applicable requirements of the
Code including, at the choice of Participants, the capability to make further
deferrals for payment after retirement. Any deferred payment, whether elected by
the Participant or specified by the Award Agreement or by the Committee, may
require the payment to be forfeited in accordance with the provisions of
Section 13 of the Plan. Dividends or dividend equivalent rights may be extended
to and made part of any Award denominated in stock or units of stock, subject
to such terms, conditions and restrictions as the Committee may establish. The
Committee may also establish rules and procedures for the crediting of interest
on deferred cash payments and dividend equivalents for deferred payments
denominated in stock or units of stock. At the discretion of the Committee, a
Participant may be offered an election to substitute an Award for another Award
or Awards of the same or different type.


 


9. Stock Option Exercise.


 


The price at which shares
of Capital Stock may be purchased under a Stock Option shall be paid in full at
the time of the exercise in cash or, if permitted by the Committee, by means of
tendering Capital Stock or surrendering another Award, including Restricted
Stock, valued at Fair Market Value on the date of exercise, or any combination
thereof. The Committee shall determine acceptable methods for tendering Capital
Stock or other Awards and may impose such conditions on the use of Capital
Stock or other Awards to exercise a Stock Option as it deems appropriate. In
the event shares of Restricted Stock are tendered as consideration for the
exercise of a Stock Option, a number of the shares issued upon the exercise of
the Stock Option, equal to the number of shares of Restricted Stock used as
consideration therefor, shall be subject to the same restrictions as the
Restricted Stock so submitted plus any additional restrictions that may be
imposed by the Committee.


 


10. Tax Withholding.


 


The Company shall have the
right to deduct applicable taxes from any Award payment and withhold, at the
time of delivery or vesting of shares under the Plan, an appropriate number of
shares for payment of taxes required by law or to take such other action as may
be necessary in the opinion of the Company to satisfy all obligations for
withholding of such taxes. If Capital Stock or Restricted Stock is used to
satisfy tax withholding, 


 

















 


such stock shall be
valued based on the Fair Market Value when the tax withholding is required to
be made.


 


11. Amendment,
Modification, Suspension or Discontinuance of the Plan.


 


The Board may amend,
modify, suspend or terminate the Plan for the purpose of meeting or addressing
any changes in legal requirements or for any other purpose permitted by law.
Subject to changes in law or other legal requirements that would permit
otherwise, the Plan may not be amended without the consent of the holders of a
majority of the shares of Capital Stock then outstanding, to (i) increase the
aggregate number of shares of Capital Stock that may be issued under the Plan
(except for adjustments pursuant to Section 15 of the Plan), (ii) decrease the
option price, (iii) materially modify the requirements as to eligibility for
participation in the Plan, (iv) withdraw administration of the Plan from the
Committee, or (v) extend the period during which Awards may be granted.


 


12. Termination of
Employment.


 


If the employment of a
Participant terminates, other than pursuant to paragraphs (a) through (c) of
this Section 12, all unexercised, deferred and unpaid Awards shall be canceled
immediately, unless the Award Agreement provides otherwise.


 


(a) Retirement under a
Company Retirement Plan. When a Participant’s employment terminates as a result
of retirement with management approval in accordance with the terms of a
Company retirement plan, the Committee (in the form of an Award Agreement or
otherwise) may permit Awards to continue in effect beyond the date of
retirement in accordance with the applicable Award Agreement and the
exercisability and vesting of any Award may be accelerated.


 


(b) Resignation in the
Best Interests of the Company. When a Participant resigns from the Company and,
in the judgment of the chief executive officer or other senior officer
designated by the Committee, the acceleration and/or continuation of
outstanding Awards would be in the best interests of the Company, the Committee
may (i) authorize, where appropriate, the acceleration and/or continuation of
all or any part of Awards granted prior to such termination and (ii) permit the
exercise, vesting and payment of such Awards for such period as may be set
forth in the applicable Award Agreement, subject to earlier cancellation
pursuant to Section 13 or at such time as the Committee shall deem the continuation
of all or any part of the Participant’s Awards to be not in the Company’s best
interests.


 


(c) Death or Disability
of a Participant.


 


(i) In the event of a
Participant’s death, the Participant’s estate or beneficiaries shall have a
period specified in the Award Agreement within which to receive or exercise any
outstanding Award held by the Participant under such terms as may be specified
in the applicable Award Agreement. Rights to any such outstanding Awards shall
pass by will or the laws of descent and distribution in the following order:
(a) to beneficiaries so designated by the Participant; if none, then (b) to a
legal representative of the 


 

















 


Participant; if none,
then (c) to the persons entitled thereto as determined by a court of competent
jurisdiction. Subject to subparagraph (iii) below, Awards so passing shall be
exercised or paid out at such times and in such manner as if the Participants
were living.


 


(ii) In the event a
Participant is deemed by the Company to be disabled and eligible for benefits
pursuant to the terms of the IBM Long-Term Disability Plan, any successor plan,
or similar plan of another employer, Awards and rights to any such Awards may
be paid to or exercised by the Participant, if legally competent, or a
committee or other legally designated guardian or representative if the
Participant is legally incompetent by virtue of such disability.


 


(iii) After the death or
disability of a Participant, the Committee may in its sole discretion at any
time (1) terminate restrictions in Award Agreements; (2) accelerate any or all
installments and rights; and (3) instruct the Company to pay the total of any
accelerated payments in a lump sum to the Participant, the Participant’s
estate, beneficiaries or representative - notwithstanding that, in the absence
of such termination of restrictions or acceleration of payments, any or all of
the payments due under the Awards might ultimately have become payable to other
beneficiaries.


 


(iv) In the event of
uncertainty as to interpretation of or controversies concerning this paragraph
(c) of Section 12, the Committee’s determinations shall be binding and
conclusive.


 


13. Cancellation and
Rescission of Awards.


 


Unless the Award
Agreement specifies otherwise, the Committee may cancel any unexpired, unpaid,
or deferred Awards at any time if the Participant is not in compliance with all
other applicable provisions of the Award Agreement, the Plan and with the
following conditions:


 


(a) A Participant shall
not render services for any organization or engage directly or indirectly in
any business which, in the judgment of the chief executive officer of the
Company or other senior officer designated by the Committee, is or becomes
competitive with the Company, or which organization or business, or the rendering
of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of the Company. For a
Participant whose employment has terminated, the judgment of the chief
executive officer shall be based on the Participant’s position and
responsibilities while employed by the Company, the Participant’s
post-employment responsibilities and position with the other organization or
business, the extent of past, current and potential competition or conflict
between the Company and the other organization or business, the effect on the
Company’s customers, suppliers and competitors of the Participant’s assuming
the post-employment position, the guidelines established in the then current
edition of IBM’s booklet, Business Conduct Guidelines, and such other
considerations as are deemed relevant given the applicable facts and
circumstances. A Participant who has retired shall be free, however, to
purchase as an investment or otherwise, stock or other securities of such organization
or business so long as they are listed upon a recognized 


 

















 


securities exchange or
traded over-the-counter, and such investment does not represent a substantial
investment to the Participant or a greater than 10 percent equity interest in
the organization or business.


 


(b) A Participant shall
not, without prior written authorization from the Company, disclose to anyone
outside the Company, or use in other than the Company’s business, any
confidential information or material, as defined in the Company’s Agreement
Regarding Confidential Information and Intellectual Property, relating to the
business of the Company, acquired by the Participant either during or after
employment with the Company.


 


(c) A Participant,
pursuant to the Company’s Agreement Regarding Confidential Information and
Intellectual Property, shall disclose promptly and assign to the Company all
right, title, and interest in any invention or idea, patentable or not, made or
conceived by the Participant during employment by the Company, relating in any
manner to the actual or anticipated business, research or development work of
the Company and shall do anything reasonably necessary to enable the Company to
secure a patent where appropriate in the United States and in other countries.


 


(d) Upon exercise,
payment or delivery pursuant to an Award, the Participant shall certify on a
form acceptable to the Committee that he or she is in compliance with the terms
and conditions of the Plan. Failure to comply with the provisions of paragraph
(a), (b) or (c) of this Section 13 prior to, or during the six months after,
any exercise, payment or delivery pursuant to an Award shall cause such
exercise, payment or delivery to be rescinded. The Company shall notify the
Participant in writing of any such rescission within two years after such
exercise, payment or delivery. Within ten days after receiving such a notice
from the Company, the Participant shall pay to the Company the amount of any
gain realized or payment received as a result of the rescinded exercise,
payment or delivery pursuant to an Award. Such payment shall be made either in
cash or by returning to the Company the number of shares of Capital Stock that
the Participant received in connection with the rescinded exercise, payment or
delivery.


 


14. Nonassignability.


 


(a) Except pursuant to
paragraph (c) of Section 12 and except as set forth in paragraph (b) of this
Section 14, no Award or any other benefit under the Plan shall be assignable or
transferable, or payable to or exercisable by, anyone other than the
Participant to whom it was granted.


 


(b) Where a Participant
terminates employment in order to assume a position with a governmental,
charitable or educational institution, the Committee, in its discretion and to
the extent permitted by law, may authorize a third party (including but not
limited to the trustee of a “blind” trust), acceptable to the applicable
governmental or institutional authorities, the Participant and the Committee,
to act on behalf of the Participant with regard to any Awards retained by the
Participant pursuant to paragraph (b) of Section 12.


 

















 


15. Adjustments.


 


In the event of any
change in the outstanding Capital Stock of the Company by reason of a stock
split, stock dividend, combination or reclassification of shares,
recapitalization, merger, or similar event, the Committee may adjust
proportionally (a) the number of shares of Capital Stock (i) reserved under the
Plan, (ii) available for ISO’s, (iii) for which Awards may be granted to an
individual Participant, and (iv) covered by outstanding Awards denominated in
stock or units of stock; (b) the stock prices related to outstanding Awards;
and (c) the appropriate Fair Market Value and other price determinations for
such Awards. Notwithstanding
the foregoing, in the event of any change in the outstanding Capital Stock of
the Company by reason of a stock split or a reverse stock split, the
above-referenced proportionate adjustments, if applicable, shall be mandatory.


 


In the event of any other
change affecting the Capital Stock or any distribution (other than normal cash
dividends) to holders of Capital Stock, such adjustments as may be deemed
equitable by the Committee, including adjustments to avoid fractional shares,
shall be made to give proper effect to such event. In the event of a corporate
merger, consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Committee shall be authorized to issue or
assume Stock Options, whether or not in a transaction to which Section 424(a)
of the Code applies, by means of substitution of new Stock Options for
previously issued Stock Options or an assumption of previously issued Stock
Options.


 


16. Notice.


 


Any notice to the Company
required by any of the provisions of the Plan shall be addressed to the chief
human resources officer or to the chief executive officer of the Company in
writing, and shall become effective when it is received by the office of either
of them.


 


17. Unfunded Plan.


 


Insofar as it provides
for Awards of cash and Capital Stock, the Plan shall be unfunded. Although
bookkeeping accounts may be established with respect to Participants who are
entitled to cash, Capital Stock or rights thereto under the Plan, any such
accounts shall be used merely as a bookkeeping convenience. The Company shall
not be required to segregate any assets that may at any time be represented by
cash, Capital Stock or rights thereto, nor shall the Plan be construed as
providing for such segregation, nor shall the Company nor the Board nor the Committee
be deemed to be a trustee of any cash, Capital Stock or rights thereto to be
granted under the Plan. Any liability of the Company to any Participant with
respect to a grant of cash, Capital Stock or rights thereto under the Plan
shall be based solely upon any contractual obligations that may be created by
the Plan and any Award Agreement; no such obligation of the Company shall be
deemed to be secured by any pledge or other encumbrance on any property of the
Company. Neither the Company nor the Board nor the Committee shall be required
to give any security or bond for the performance of any obligation that may be
created by the Plan.


 

















 


18. Governing Law.


 


The Plan and all
determinations made and actions taken pursuant hereto, to the extent not otherwise
governed by the laws of the United States, shall be governed by the laws of the
State of New York and construed accordingly.


 


19. Effective and
Termination Dates.


 


The Plan shall become
effective on the date it is approved by the holders of a majority of the shares
of Capital Stock then outstanding. The Plan shall terminate five years later,
subject to earlier termination by the Board pursuant to Section 11, after which
no Awards may be made under the Plan, but any such termination shall not affect
Awards then outstanding or the authority of the Committee to continue to
administer the Plan.


 


Federal Income Tax Consequences


 


The Company has been
advised by counsel that, in general, under the Internal Revenue Code, as
presently in effect, an optionee will not be deemed to receive any income for
federal income tax purposes at the time an option or SAR is granted or a
restricted stock award is made, nor will the Company be entitled to a tax
deduction at that time. However, when any part of an option or SAR is
exercised, when restrictions on restricted stock lapse, or when an unrestricted
stock award is made, the federal income tax consequences may be summarized as
follows:


 


1. In the case of an
exercise of a nonstatutory option, the optionee will recognize ordinary income
in an amount equal to the difference between the option price and the Fair
Market Value of the shares on the exercise date.


 


2. In the case of an
exercise of an SAR, the optionee will recognize ordinary income on the exercise
date in the amount equal to any cash and unrestricted shares, at Fair Market
Value, received.


 


3. In the case of an
exercise of an option or SAR payable in restricted stock, or in the case of an
award of restricted stock, the immediate federal income tax effect for the recipient
will depend on the nature of the restrictions. Generally, the Fair Market Value
of the stock will not be taxable to the recipient as ordinary income until the
year in which his or her interest in the stock is freely transferable or is no
longer subject to a substantial risk of forfeiture. However, the recipient may
elect to recognize income when the stock is received, rather than when his or
her interest in the stock is freely transferable or is no longer subject to a
substantial risk of forfeiture. If the recipient 


 

















 


makes this election, the
amount taxed to the recipient as ordinary income is determined as of the date
of receipt of the restricted stock.


 


4. In the case of ISO’s,
there is no tax liability at time of exercise. However, the excess of the Fair
Market Value of the stock on the exercise date over the option price is
included in the optionee’s income for purposes of the alternative minimum tax.
If no disposition of the ISO stock is made before the later of one year from
the date of exercise and two years from the date of grant, the optionee will
realize a long-term capital gain or loss upon a sale of the stock, equal to the
difference between the option price and the sale price. If the stock is not
held for the required period, ordinary income tax treatment will generally
apply to the amount of any gain at sale or exercise, whichever is less, and the
balance of any gain or any loss will be treated as capital gain or loss
(long-term or short-term, depending on whether the shares have been held for
more than one year).


 


5. Upon exercise of a
nonstatutory option or SAR, the award of stock, or the recognition of income on
restricted stock, the Company will generally be allowed an income tax deduction
equal to the ordinary income recognized by the employee. The Company does not
receive an income tax deduction as a result of the exercise of an ISO, provided
that the ISO stock is held for the required period as described above. When a
cash payment is made pursuant to the Award, the recipient will recognize the
amount of the cash payment as ordinary income, and the Company will generally
be entitled to a deduction in the same amount.


 


6. Pursuant to section
162(m) of the Code and underlying guidance, the Company may not deduct
compensation of more than $1,000,000 that is paid in a taxable year to an
individual who, on the last day of the taxable year, is the Company’s chief
executive officer or among one of its three other highest compensated officers
for that year, not including the Company’s chief financial officer. The
deduction limit, however, does not apply to certain types of compensation,
including qualified performance-based compensation. The Company believes that
compensation attributable to stock options and stock appreciation rights granted
under the Plan should qualify as performance-based compensation and therefore
should not be subject to the deduction limit. The Plan also authorizes the
grant of long-term performance incentive awards utilizing the performance
criteria set forth in the Plan that may likewise qualify as performance-based
awards.